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Suggested solutions to homework questions Topic 4

Mid-session exam 2011, Semester 2, Question 4


QUESTION 4 a (1 mark)
Dr Cash $525,000
Cr Bond Premium $25,000
Cr Bonds/Bond Payables $500,000
QUESTION 4 b (1 mark)
$36,000 (500,000*7.2%) 1 Mark
QUESTION 4 c (1 mark)
83,000 (500,000*7.2%*3 -25,000) 1 Mark
QUESTION 4 d (1 mark)
$500,000 1 Mark
For b and c, do not penalize if students decided to express their answer in form of
journal entries.

Mid-session exam 2011, Semester 2, Question 5


QUESTION 5 a (1 marks)
Yes. There is a present obligation. Although no legal obligation exists, there is a constructive
obligation because Metal Fuzz has a well known product replacement policy that is published
on the website (or similar words). 1 Mark
* Justification and Application of definition to the given case should be done.

QUESTION 5 b (2 marks)
Dr Warranty expense $12,500
Cr Provision for Warranty $12,500 1 Mark
Dr Provision for Warranty $10,000
Cr Inventory $10,000
1 Mark
Note: If the answer contains other words than Warranty, that are similar in meaning,
such as for example Replacement Policy award the marks. However, the journal
entries must make it clear whether it is an expense or a provision.

Mid-session supplementary exam 2011, Semester 2, Question 5


QUESTION 5 a (1 marks)
No. There is no present obligation. No legal obligation exists. No constructive obligation
exists: the statement by CEO is not enough to create a valid expectations (or similar words). 1
Mark
* Justification and Application of definition to the given case should be done.
QUESTION 5 b (1 mark)
Dr Clean up expense $1,802,000
Cr Provision for cleaning up $1,802,000 1 Mark
QUESTION 5 c (1 mark)
Dr Provision for cleaning up $$1,802,000
Cr Cash $1,802,000 1 Mark
Note: If the answer contains other words than Cleaning up, that are similar in
meaning, such as for example Environmental costs award the marks. However, the
journal entries must make it clear whether it is an expense or a provision.
QUESTION 5 d (1 mark)
The Dig Hards guarantee over Dig Fasts borrowings is a contingent liability as at 30 June
2010 it is not a probable that the outflow will occur (or similar words). 1 Mark
*Merely writing down the definition does not suffice. Application of definition to the
given case should be done.