ACTG 2P32 Midterm - BROCK UNIVERSITY Midterm Examination,...

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Unformatted text preview: BROCK UNIVERSITY Midterm Examination, Winter 2007 Course: ACTG 2P32 Date of Examination: March 3, 2007 Time of Examination: 10:00 - 12:00 Number of Pages: 16 Number of Students: 88 Number of Hours: 2 Instructor: R. Roubi All questions are to be answered on the examination paper. Please hand this paper in at the completion of the exam. No examination aids other than those specified are permitted. Use or possession of unauthorized materials will automatically result in the award of a zero grade for this examination. Permitted: Scientific or financial calculators. Not permitted: Programmable calculators. —- — NAME: Student Number: 5 i ACTG 2P32 MARCH 3, 2007 ACTG 2P32 —~ Answer Key ~ Midterm March 3 .mL ANSWER KEY + z + + — + —————— ——+ ~—— —— Text I Ban< ) Exam 1 I [ Chapterl Ref )QuestionJAnswerf Type I r + i + + —— —— —+ ———————————————— —— 11 30 1 c MChoice «1 37 2 a WChoice 21 41 3 c Choice 11 43 4 c WChoice i1 49 5 b WChOice 20 43 6 a WChOice 20 50 7 C WChoice 10 56 8 c WChoice 10 17 9 c WChOice “0 18 10 b WCkoice 9 19 11 C Choice 9 20 12 a WCkoice 9 25 13 c WCkoice 9 4 14 b WCkoice 9 5 15 a WCkoice 8 15 16 b WChoice 8 17 17 b MCkoice 8 20 18 a MChoice 8 26 19 a MChOice 8 38 20 d MCkoice 1. (3,000 x $50) — $10,000 = $140,000. 2. $60,000 x (3/12 + 2/12 + 1/12) = $30,000, 3. ($220,000 x .1) + ($80,000 x .09) = $29,200. 4. ($20,000 x .85 x .98) + $250 + $200 = $17,110. 5. $7,600 + $26,000 = $33,600. 6. Dr. Investment in Bonds: $60,000 x 1.04 = $62,400 Dr. Interest Revenue: $60,000 x .05 x 3/6 = $1,500 Cr. Cash: $62,400 + $1,500 = $63,900. 7. $124,365 - $123,000 : $1,365 unrealized holding loss. 8. $60,000 + ($40,000 x .2) — ($10,000 X ,2) = $66,000. 20. $4,000 + $2,000 2 $6,000. ACTG 2P32 Problem I — Multiple Choic 30 marks — 1.50 each i MARCH 3, 20077777777 N/ PAGE 2 OF 16 / Answer all the following multi le choiCe questions by. answer; x in “2...”..«7‘ w fl 1. «\“MW. On December 1, Warner Corporation exchanged 3,000 shares of its no par value common shares for a parcel of land to be held for a future plant site. The book value of the shares is currently $40 per share, and their market value is $50 per share. Warner received $10,000 for selling scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at a. $110,000. b. $120,000. 0. $140,000. (:1. $150,000. . On March 1, Bakken Co. began construction of a small building. Payments of $60,000 were made monthly for four months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are a. $30,000. b. $60,000. 0. $120,000. (1. $240,000. . During 2006, Allen Corporation constructed assets costing $500,000. The weighted-average accumulated expenditures on these assets during 2006 were $300,000. To help pay for construction, $220,000 was borrowed at 10% on January 1, 2006. This loan was outstanding throughout 2006. Other than the construction funds borrowed, the only other debt outstanding during the year was a $250,000, 10-year, 9% note payable dated January 1, 2000. What is the amount of interest that should be capitalized by Allen during 2006? b. $15,000 0. $29,200 a. $30,000 (1. $47,200 . Tayldr Company buys a lift truck with a list price of $20,000. The dealer grants a 15% reduction of the list price and an additional 2% cash discount on the net price if payment is made in 30 days. Title fees amount to $250 and the company paid an extra $200 to have a special horn installed. What should be the recorded cost of the truck? a. $161,660 b. $17,080 0. $17,110 d. $16,9l0 . On December 1, 2006, Hight Company acquired a new delivery truck in exchange for an old delivery truck that it had acquired in 2003. The old truck was purchased for $20,000 and had a book value of $7,600. On the date of the exchange, the old truck had a market value of $8,000. In addition, Hight paid $26,000 cash for the new truck, which had a list price of $36,000. At what amount should Hight record the new truck for financial accounting purposes? Assume no commercial substance. a. $26,000 b. $33,600 0. $34,000 d. $36,000 . On August 1, 2006, Camby Company acquired $60,000 face value 10% bonds of Hanson Corporation at 104 plus accrued interest. The bonds were dated May 1, 2006, and mature on April 30, 2011, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Camby make to record the purchase of the bonds on August 1, 2006? a. HTMS- Bonds ........................ .. 62,400 Interest Revenue ....................... .. 1,500 Cash ............................... .. 63,900 b. Investment in Bonds ................ .. 63,900 Cash ............................... .. 63,900 0. Investment in Bonds ................ .. 63,900 Interest Revenue ................... .. 1,500 Cash ............................... .. 62,400 (1. Investment in Bonds ................ .. 60,000 Premium on Bonds ................... .. 3,900 Cash ............................... .. 63,900 ACTG 2P32 7 . 10. ll 12. 13 MARCH 3, 2007 PAGE 3 OF 16 Rock Inc. owns available-for-sale bonds with a carrying value of $124,365 on December 31, 2006. The fair value at that date is $123,000. The entry to record the year-end adjustment is (assume that the Fair Value Allowance is zero before making 2006 adjusting entries) a. no adjustment required. b. Loss on Available-for-Sale Investments ..... .. 1,365 Available-for-Sale Investments ........... .. 1,365 c. Unrealized Holding Loss on Available-for-Sale Investments ............................... .. 1,365 Fair Value Allowance on Available-for-Sale Investments ............................. .. 1,365 d. Fair Value Allowance on Available—for-Sale Investments ........................................ .. 1,365 Unrealized Holding Gain on Available-for—Sale Investments ........................................ .. 1,365 . Ford Company purchased 200 of the 1,000 outstanding shares of Edsel Company's common shares for $60,000 on January 2, 2006. During 2006, Edsel Company declared dividends of $10,000 and reported earnings for the year of $40,000.1f Ford Company uses the equity method of accounting for its investment in Edsel Company, its Investment in Edsel Company account at December 31, 2006 should be a. $58,000. b. $60,000. 0. $66,000. d. $68,000. . For an equity investment, where there is significant influence, the investment should be accounted for using the a. revised cost method b. fair value method c. equity method d. fair value method if there is a quoted price; otherwise the cost method. a. income of the investee is reported. c. the investment is sold. b. dividends are declared. d. the investment matures. . An inventory method which is designed to approximate inventory valuation at the lower of cost and market is a. last-in, first-out. b. first-in, first-out. c. conventional retail method. d. specific identification. The retail inventory method is based on the assumption that the a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. b. ratio of gross margin to sales is approximately the same each period. c. ratio of cost to retail changes at a constant rate. d. proportions of markups and markdowns to selling price are the same. . The inventory turnover ratio is calculated by dividing the cost of goods sold by the a. beginning inventory. b. ending inventory. c. average inventory. (1. number of days in the year. ACTG 2P32 MARCH 3, 2007 PAGE 4 OF 16 “m l 4 . Under US. GAAP, in no case can "market" in the lower of cost and market rule be more than a. estimated selling price in the ordinary course of business. b. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. c. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. d. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses. 9 1 5 . Under Canadian GAAP, designated market value a. replacement costs or net realizable value or net realizable value less normal profits. b. should always be equal to net realizable value. c. may sometimes exceed net realizable value. d. should always be equal to net realizable value less a normal profit margin. 1 6 . Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost? a. Purchase discounts lost b. Interest incurred during the production of discrete projects such as ships or real estate projects c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis d. All of these should be capitalized. 1 7 . Under variable costing, fixed manufacturing overhead costs are a. product costs. b. period costs. c. charged to work in process and finished goods. d. part of cost of goods sold. 1 8 . The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its a. invoice price. b. invoice price plus any purchase discount lost. c. invoice price less the purchase discount taken. (1. invoice price less the purchase discount allowable whether taken or not. 1 9 . An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is a. FIFO. b. LIFO. c. base stock. d. weighted-average. 2 0 . Dexter, Ltd. is a calendar-year corporation. Its financial statements for the year 2007 contained errors as follows: 2007 Ending inventory $4,000 overstated Amortization expense $2,000 understated Assume that the proper correcting entries were not made at December 31, 2007. By how much will 2007 income before taxes be overstated or understated? a. $2,000 understated b. $2,000 overstated 0. $4,000 overstated (1. $6,000 overstated ACTG 2P32 MARCH 3, 2007 PAGE 5 OF 16 Problem H (10 marks) Answer both (A) and (B) below: A) Some inventory errors are said to be self—correcting in that the error has the opposite financial statement effect . In the period following the error, thereby correcting the original account balance errors. Despite this self-correcting feature, discuss why these errors should not be ignored when preparing financial statements for both years. B) J. J. Co. (JJ C) is preparing its financial statements for 2006. Indicate (by letter) the way each of the investments listed below most likely should be accounted for on the basis of the information provided: TS. AF SS. HTMS. ISSI. ISC Trading Securities. Available For Sale Securities. Held To Maturity Securities. 1 Investment in Subsidiaries» Significant Influence. 7 Investment in Subsidiaries—Control. / \«v ,1. ;::1:///;7 l. J J C acquired 5% of the nonvoting preferred shares of Canadian Aircraft Co. to maximize return on assets. Management intends to hold the shares to the end of 2006. 2. JJ C acquired a number of treasury bills that mature in one year. JJ C will hold the bills to maturity. 3. JJ C purchased 51% of voting common shares of Grand Canion Gold Inc. Management intends to hold the stocks for at least 15 years. This will guarantee JJ a reasonable supply of gold used in processing their products. . On January 2, 2006, JJC invested $10,000,000 to buy 1000 bonds issued by Ford Canada. The bonds carry 8% interest and mature on January 2, 2016. Management expects to keep these bonds to January 2, 2016. E g 5. JJ C purchased 19% of voting common shares of Shipping Barrels Corporation. JJC’s CEO is currently serving as a board member on the board of directors of Shipping Barrels Corporation. According to stock registry, JJ C is the largest block holder of Shipping Barrels voting stocks. ACTG 2P32 MARCH 3, 2007 PAGE 6 OF 16 Problem III (25 marks) A. Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as Available for Sale 7 Dec. 31 2003 Dec. 31 2004 Amortized costs $491,150 Fair Value $.00 " 573$ Reguired: Dec. 31 2005 $519,442 $550,000 $506,000 $550,000 2. Prepare any adjusting entries needed on Dece mber 31, 2003. The Fair Value Allowance has a debit balance of $1,000 immediately prior to the adjustment. 3. Prepare any djusting elftries nee%d on December 31, 2004. ACTG 2P32 MARCH 3, 2007 PAGE 7 OF 16 Reguired: l . Prepare all 2003 journal entries assuming JPI cannot exercise significant influence over TKI. Assume also that the common shares are classified as available for sale securities. a a? is 3% fig ACTG 2932 MARCH 3, 2007 Mwamm 8 OF 16 nificant influence over TKI. i;$£%% §% ACTG 2P32 MARCH 3, 2007 9 PAGE 9 OF 16 Problem IV (35 marks) cost of $3,000,000. GSC entered into a $3,000,000 fixed -price contract with Slatkin Builders Inc. (S building on site 101. The building was completed and occupied on September 3 BI) on March 1, 2004, to construct a new 0, 2005. The following additional construction costs were incurred (on top of the $3,000,000): Plans, specifications, and blueprints $21,000 Architects’ fees for design and supervision 82,000 To finance construction costs, GSC borrowed $3,000,000 on March 1, 2004. Th of $300,000 plus interest at a 10% annual rate. GS as follows: ' From March 1 to December 31, 2004 From January 1 to September 3% 2005 Required: 1. e loan is payable in 10 annual installments C’s average weighted average accumulated expenditures (W AAE) were $1,200,000 $1,900,000 Compute the balance of the Land account as of December 31, 2004 and December 31, 2005. milk ACTG 2P32 MARCH 3, 2007 PAGE 10 OF 16 2. Compute the balance of the Building account as of 7- 1 (Ignore amortization). December 31, 2005. - 3. How much Interest expense should be reported on the income statement on December 31, 2004 and December 31, «E ‘ W W pggw Mi ACTG 2232 MARCH 3, 2007 yo ' PAGE 11 or 16 4. What is th peat of interest capitalization on financial statements (i.e., balance sheet and income statement)& ‘ v: Ignore taxes. y: 533:. 1. IA‘ 'V' '“ f x i - , ~g 5% vmj gins" ‘f:'12\:'>‘<:2\i-°‘ ‘ 9:“ he n15 1’" We {64; PAGE 12 OF 16 ACTG 2P32 MARCH 3, 2007 On Augustl, 2006, Arna, Inc. (AI) exchanged some machinery (Asset A) with Bontemps, Inc. (BI) which owned Asset B. The following facts pertain to these two assets: Asset A Asset B Historical Cost $96,000 $1 10,000 Accumulated Amortization (Aug. 1, 2006) 45,000 52,000 Fair Market Value at Date of Exchange 60,000 75,000 Cash paid by Al ‘2 g figs s as Cash received by BI ----- ? i f% g; Instructions: 1. Assuming that the transaction does not have commercial substance, record the exchange for both AI and BI in accordance with GAAP. gazes finite ,& % disasters flask $3 M? Q CD Bontemps, Inc. (BI): g V $§: Q as 53 W @ééfi %fi§mg g, \o ACTG 2932 MARCH 3, 2007 PAGE 13 or 16 2. Assuming that the transaction has commercial substance, record the exchange for both AI and BI in accordance with GAAP. ARNA, Inc. (AI): $5§2 game gage é” as; as? @éafiaaw mg e é? 5M: {#9 g 2% Bontemps, Inc. (BI): ACTG 2P32 Problem V (20 marks) MARCH 3, 2007 p :1 PAGE A. The records of Ellen’s Boutique report the following data for the month of April: Sales $99,000 Sales returns 2,000 Additional markup 10,000 Markup cancellations 1,500 Markdowns 9,300 Markdowns cancellations 2,800 Freight on purchases 2,400 Reguired: Compute ending inventory using the conventional retail inventory methoda ,, “ii fleas $.55 E; Fat“; Purchases (at cost) Purchases (at sales price) Purchase returns (at cost) Purchase returns (at selling 14 OF 16 $48,000 price) Beginning inventory (at cost) Beginning inventory (at selling price) 88,000 2,000 3,000 30,000 46,500 wage: Willi W W’ ACTG 2P32 MARCH 3, 2007 PAGE 15 OF 16 B. The following is a record of Pervis Ellison Company’s (PEC) transactions for Toronto Teapots for the month of May, 2004: May 1 Balance 400 units @ $20/unit May 10 Sale 300 units @ $38/um't 9%, May 12 Purchase 600 units @ $25/unit May 20 Sale 540 units @ $38.unit g j” May 28 Purchase 4 units @ $30/unit “é ' W Q ‘5» urn-2i g: s » ’ ‘ Reguired: @ggg 1. Assuming a periodic inventory system, what is the cost of ending inventory using a) FIFO, and b) LIFO. (wag/3 UV “My/d ACTG 2932 MARCH 3, 2007 PAGE 16 OF 16 2. Assuming a perpetual inventory system, what is the cost of ending inv using a) FIFO, and b) LIFO. #é 9.313 ; gm 35mins: gm mm: Mala égéx égg igéég r \eoxfmgruw 3e “ Fwy mafia S 1% M4 mg 33am; H59 XL; 2 we? g 7 $39 gm 231% 7 “an: : égaw Lkeurx‘fiétkiflw E: Q” N 1 Haw ééé Xéfglfiigfi “ ' ' " " ,VggngS: 35%;!» ‘ ' ' V ’ $329“? 7 r r < 7 §$§Xhm 1sz gleigz Kw Mg 2Q r r r ' 7 ga: @Mfi " ' mg 1% , «my ...
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This note was uploaded on 09/17/2008 for the course ACTG 2p32 taught by Professor N/a during the Spring '08 term at Brock University, Canada.

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ACTG 2P32 Midterm - BROCK UNIVERSITY Midterm Examination,...

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