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Unformatted text preview: EFA4J01 CGA-Canada, 2001 Page 1 of 10 CGA-CANADA FINANCIAL ACCOUNTING 4 EXAMINATION June 2001 Marks Time: 4 Hours Notes: 1. Show all calculations in an orderly manner in order to obtain part marks. 2. Round all calculations to the nearest dollar. 3. Narratives for journal entries are not required unless specifically asked for. 4. Assume a December 31 fiscal year end unless specifically stated otherwise. 5. Assume all amounts are material unless directed otherwise. 30 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if (1) is the best answer for item (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. No account will be taken of any explanations you offer. Note: 2 marks each Note: Use the following information to answer parts (a) and (b). On April 1, 2001, KT Company issued $1,000,000 of term preferred shares with a mandatory redemption date of March 31, 2011 for $1,000,000 cash. The preferred shares include cumulative dividends to be paid on October 1 of each year. KT is a public company. a. What is the impact of the issuance of the term preferred shares on KTs April 1, 2001 balance sheet? 1) An increase to shareholders equity 2) A decrease to shareholders equity 3) An increase in the debt-to-equity ratio 4) A decrease in the debt-to-equity ratio b. What would be the effect of the preferred dividends on KTs December 31, 2001 financial statements? 1) Dividends would be shown as a preferred dividend expense on KTs income statement, but only if declared by the company. 2) Dividends would be shown as a preferred dividend expense on KTs income statement, even if not declared by the company. 3) Dividends would not be shown as a preferred dividend expense on KTs income statement, but would be shown on the statement of retained earnings if declared by the company. 4) Dividends declared would result in an increase to KTs earnings per share. Continued... EFA4J01 CGA-Canada, 2001 Page 2 of 10 c. The local real estate market has been doing very well over the past few years, and the office building owned by JK Company has increased in value by 25%. The controller of JK has therefore decided not to record amortization this year. Which of the following financial statement concepts has been violated by this decision? 1) Comparability 2) Economic entity 3) Monetary unit 4) Revenue recognition d. When accounting standard setters assess the strengths and weaknesses of various alternative approaches to income tax allocation, which of the following arguments might they rely upon?...
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