Arab Open University

B293: TMA – Summer Semester 2018 – 2019

Submission Date: As decided by the Deanship

About TMA
The TMA covers the financial accounting concepts and practices in the businesses. It is
marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess
students’ understanding of some of the learning points within chapter 15, 16, 17, 21. This TMA
requires you to apply the course concepts.

The TMA is intended to:

 Increase the students’ knowledge about the reality of the accounting as a profession.
 Assess students’ understanding of key learning points within chapter 15, 16, 17 and 21.
 Develop the ability to understand and interact with the nature of the financial statements in
reality.
 Develop students’ communication skills, such as memo writing, essay writing, analysis and
presentation of material.
 Develop basic ICT skills such as using the internet.

The TMA
The TMA requires you to:
1- Review various study chapter 15, 16, 17 and 21 of ‘Intermediate Accounting’ within it.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,600 words. The word count excludes
headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 12 points.
5- You should read and follow the instructions below carefully. Each part of the process will
carry marks for the assignment.

Criteria for Grade Distribution:

Conten Using E- Structure
Criteri t library & and Total
a Referencin Presentatio marks
Q1 Q2 Q3 Q4
g n of ideas
Marks 25 25 25 25 (5) (5) 100
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TMA Questions

Question 1

During the year the company has issued additioan shares in the following
transactions:

(i) On January 4, 2018, additional 100 ordinary shares were issued with a par value of
$1 and market price of $ 20 each

(ii) On February 5, 2018, the Comapany issued 500 ordinary shares of $1 par value,
and 500 preference shares of $ 1 par value when the fair value of the ordinary shares
is $ 19 each and the fair value of the preference share is $ 17 each. The total sale
amount of $ 16,500

(iii) On April 2, 2018 the Comapany issued 200 ordinary shares of $1 par value, and
200 preference shares of $1 par value when only the fair value of the ordinary share is
known and its $21. the total sale amount of $ 6,000.

Required

Prepare the issuance entries for each of the above transactions (show calculation).
Use Proportional and Incremental approaches for allocation of amount to
preference and ordinary shares respectively.
(5 + 10 + 10 = 25 marks)

Question 2

(a) Explain the reasons for which a corporation purchases its own stock from the
market. State the significance of this repurchases done by the companies. (10 marks)

(b) Majestic Company has transferred to shareholders some of its investments in

securities costing $ 5,500,000 by declaring property dividends on December 10, to be
distributed on January 30 to the shareholders whose names appear as on 15 January in
the records of the company. At the date of declaration the fair value of the property was
$ 6,000,000

Required

Prepre the entries for each of the date above. [10 Marks]
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(c) Lavender Company has 2,000,000 outstandning ordinary shares with a par value of
$1, on December 5, 2017 the company has declared 20% liquidating dividends of the
par payable on February 4, 2018.

Required

Prepre the decleration and payment enrties for each of the date above, assuming the
dividends partial return of capital 200,000 distrubution of profit. [5 Marks]
(10 + 10 + 5 = 25 marks)

Question 3

Presented below is information related to Edward Cements Company Ltd.

1. The company is granted a charter that authorizes issuance of 90,000 shares of $
100 par value preferred stock and 40,000 shares of no-par common stock.
2. 8,000 shares of common stock are issued to the founders of the corporation for
land valued by the board of directors at $ 300,000. The board establishes a stated
value of $ 10 a share for the common stock.
3. 20,000 shares of preferred stock are sold for cash at $ 140 per share. ($ 100 par
value)
4. The company issues 400 shares of common stock to its attorneys for costs
associated with starting the company. At that time, the common stock was selling
at $ 12 per share (par value $ 10)

Required

Prepare the general journal entries necessary to record these transactions. (12 marks)

(b) Explain the meaning of Restricted Stock. State its advantages (8 marks)

(c) Bring out the differences between Ordinary Shares, Preference Shares and Bonds
(5 marks)
(12 + 8 + 5 = 25 marks)
Question 4

(a) Explain the differences between Fair Market Value and Historical cost. (7 marks)

(b) Smith Company has the following changes in its ordinary outstanding shares
during 2018:

Date Share changes Shares

1-January Beginning balance 260,000
1-March Issued additional 20,000 share 20,000
1-June Repurchase of share 60,000 60,000
1-October Share split 4-1 660,000
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Required

(i) Calculate the weighted average outstanding shares. [13 marks]

(ii) Calculate the earnings per share “EPS”, assume that the net income was $
1,200,000 [5 marks]

(7 + 13 + 5 = 25 marks)

END OF TMA QUESTIONS