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Intermediate Accounting II Assignment 1 (Chapter 9, 10) 2023-24 Sem1
Student Name (EN):
Student ID:
Student Name (CN):
Section no:
Notes to students:
 Due date: 3 pm, 23-October (Monday)
 Please print this assignment and put all your answers in handwriting in the space
provided.
 For Question 1, required (3) and Question 3, required (2), please type the answers on
plain paper separately.
 Total 100 marks.
 You are expected to use financial calculator/EXCEL to work out present value.

Submission instructions:

 Please submit a soft copy (in PDF format) of your completed assignment, all pages included, through iSpace, AND hand in a hard copy of your completed assignment to your Assistant Instructor, Miss Wayly Li (office: T1-301-R5) on/before the due date. (Place for collection of hard copy will be announced by Assistant Instructor.)

Write answers legibly and clearly. Marks will be deducted for illegibility.

Late submission will not be accepted.

This is an individual assignment. All students are expected to observe UIC’s academic honesty policy. Specifically, you are expected to complete it on your own without copying the work from other student(s) and without allowing other student(s) to copy your work. Plagiarized work will receive zero mark.

You may discuss the assignment with your classmates before you start working on it. After the group discussion(s), you should proceed with completing the assignment by yourself. To avoid potential plagiarism, you should not share your partially finished or completely finished work with others.
Use of Generative AI Tools is prohibited. 

Question 1 (20 marks)

In December 2027, Barbados Company was sued by the government for violation of environmental laws. On March 5, 2028, judgment was rendered. The company had to pay $250,000 as settlement. Barbados’ fiscal year ended at Dec 31 and financial statements were issued on Mar 31 in the following year.

Required:

(1) Considering all the information given, determine whether the above situation is a “contingent liability” or “provision” at December 31, 2027. (1 mark)

(2) Determine the appropriate accounting treatment of the above situation at December 31, 2027 and prepare the journal entries if necessary. (Please indicate if no journal entry is required. Narratives are not required for journal entries.) (4 marks)

(3) Explain why the above situation is a “contingent liability” or “provision” at December 31, 2027. The explanations should also define and contrast the differences between

“contingent liability” and “provision”. (15 marks)

Question 2 (30 marks)

Bangladesh Ltd had the following transactions related to liabilities. The company’s financial year ends on Dec 31 and its financial statements are issued on April 30 following the reporting date. 

2027
a.On Oct 1, the company borrowed $1.0 million cash from Mrs. Malta and issued a six-month promissory note. Interest at 8% on the note was payable at maturity.

b. The company delivered its products to customers in reusable containers. Customers paid a deposit of $50 for each container received and received a refund of the deposit when the container was returned. During October, the company delivered 3,000 containers to customers and the customers returned 1,800 containers to the company.

c. On Nov 5, the company negotiated with Mongolia Bank a short-term line of credit of up to
$2.5 million at the bank’s best lending interest rate. No commitment fee was paid by the company.

d. The products sold by the company carried a one-year warranty against defects. Warranty cost was estimated to be 5% on total sales $3,000,000.

2028
e. On Mar 31, the company issued another $1.0 million 10-year note to Mrs. Malta for the repayment of the note issued on Oct 1, 2027.
Required:
(1) Prepare the necessary journal entries for the above transactions in 2027, including all necessary year-end adjustments. (Indicate clearly when no journal entry is required. Narratives are not required.) (22 marks)

(2) Prepare the current and non-current liability sections of the statement of financial position as of December 31, 2027. (8 marks) 

Question 3 (50 marks)

On February 1, 2018, GMSS Perfection Ltd issued 9% bonds, dated February 1, with a principal amount of $80 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31.

ROCC Industries acquired $80,000 of the bonds as a long-term investment.

The fiscal years of both firms end December 31.

Required: (Answers to be rounded to the nearest dollar)

(1) Determine the price of the bonds issued on February 1, 2018. Students are expected to use financial calculator/EXCEL and your answer should show the inputs/output of the financial calculator/EXCEL. (9 marks)

(2) Prepare amortization schedule that indicates the first 4 interest periods of GMSS’s effective interest expense and outstanding balance of bonds for each interest period and explain why the outstanding balance of bonds increases each period. Contrast the difference if GMSS had issued premium bonds instead of discount bonds. (15 marks)

(3) Prepare the journal entries to record the issuance of the bonds by GMSS on February 1, 2018. (6 marks)

(4) Prepare the journal entries by GMSS to record the interest payments on July 31, 2018 and Jan 31, 2019 and the necessary year-end adjustment on Dec 31, 2018. (20 marks)

<< Write your answers in the answer sheets attached >>