Midterm CCFC 511 Fall 2005 - Questions

Midterm CCFC 511 Fall 2005 - Questions - MCGILL UNIVERSITY...

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MCGILL UNIVERSITY Center for Continuing Education MID TERM EXAMINATION STUDENT NAME STUDENT NUMBER FINANCIAL ACCOUNTING 1 CCFC 511 LECTURER: Ralph Cecere DATE: TIME: Tuesday, October 18, 2005 2.5 hours INSTRUCTIONS: This is a CLOSED BOOK examination. ONLY TRANSLATION dictionaries ARE PERMITTED . Noiseless non-programmable calculators ARE PERMITTED . This examination consists of 6 questions on a total of 10 pages including this cover page. Please ensure that you have a complete examination paper before starting. 1
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QUESTION 1. (10 MARKS – 23 MINUTES) During 2004, a public accountant encountered the following situations that caused serious concern as to proper classification on the financial statements of certain clients. Assume all amounts are material. (a) A client suffered an uninsured casualty loss from a fire amounting to $500,000. The client had never experienced a fire in its 20 year history. In 2004 management decided to purchase fire insurance. (b) A client company paid $175,000 damages assessed by the courts as a result of an injury to a customer, on the company premises, three years earlier. No amount was accrued in previous years. (c) A client shutdown 20 of its underperforming franchises while opening 12 new locations. As a result, the client company reported a loss of $70,000. This client relies on annual information regarding the operating results of its franchises when making closure decisions. (d) The major supplier of raw materials to a client company experienced a prolonged strike. As a result, the client company reported a loss of $150,000. This is the first such loss; however, the client has three major suppliers and strikes are not unusual in those industries. (e) A client owns several large blocks of common stock of other corporations. The stock has been held for a number of years and is viewed as a long-term investment. During the past year, 20 percent of the stock was sold to meet an unusual cash demand. Additional sales of the stock are not anticipated. Required: For each transaction, briefly describe how the item should be classified; that is, classify as (a) ordinary business operations; (b) unusual or infrequent, but not both; or (c) extraordinary item. 2
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QUESTION 2. (5 MARKS – 11 MINUTES) In each of the following, a basic accounting concept or principle has been violated. For each independent case, state only one concept or principle that has been violated. No explanation is necessary. 1. Hayduke Manufacturing Company has decided to manufacture its own widgets because it would be cheaper to do so than to buy them from an outside supplier. In an attempt to make their statements more comparable with those of their competitors, Hayduke charged its inventory account for what they felt the widgets would have cost if they had been purchased from an outside supplier. 2.
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This note was uploaded on 01/09/2010 for the course ACCT 351 taught by Professor Desmondtsang during the Spring '08 term at McGill.

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Midterm CCFC 511 Fall 2005 - Questions - MCGILL UNIVERSITY...

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