April 2007 - University of Toronto Faculty of Arts and...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 10
Background image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: University of Toronto Faculty of Arts and Science April/ May Examinations 2007 MGT120 HIS Financial Accounting 1 ? Duration: 2 hours Aids allowed: Non-programmable calculator This exam consists of 11 pages including 2 blank pages. Instructions: Please print your name, student number in the spaces provided below. There are ten multiple choice questions and three problems. Please write your answer for the multiple choice questions on the front of this question paper in the spaces provided below. Clearly show all computations in order to obtain full marks for the problems. GOOD LUCK! Student name (LAST NAME FIRST) Student number Marks: Answers for the Multiple Choice Questions Part A (10 marks) 1. 6. Part B (20 marks) 2. 7. Part C (12 marks) 3. 8. Part D (14 marks) 4. 9. 5. 10. Total (56 marks) MGT120 HIS Final Examination Page 1 of 11 Part A 1 10 marks) 1. On December 15, 2007, a company receives an order from a customer for services to be performed on December 28, 2007. Due to a backlog or orders, the company does not perform the services until January 3, 2008.The customer pays for the services on January 6, 2008. Under the matching principle, when should revenue be recorded by the company? a) December 28, 2007 b) December 15, 2007 c) January 3, 2008 d) January 6, 2008 2. Which of the following statements about inventory turnover is most appropriate? a) A high ratio indicates the company is having trouble selling its nventory b) A low ratio generally means the company is not keeping enough inventory on hand c) The most profitable turnover ratio many not necessarily be the highest. d) Companies generally strive to have the highest possible inventory turnover ratio 3. If ending inventory for the year ended December 31, 2007, is understated, this error will cause shareholder’s equity to be: a) overstated at the end of 2007 and understated at the end of 2008 b) understated at the end of 2007 and correctly stated at the end of 2008 c) correctly stated at the end of 2007 and overstated at the end of 2008 d) understated at the end of 2007 and overstated at the end of 2008 4. On January 2, 2008, McNally’s Extra Corporation acquired equipment for $120,000.The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Amortization on December 31, 2009, if McNally’s Extra Corporation uses the double-declining—balance method of amortization? a) $76,800 b) $3 6,000 c) $23,200 (1) $43,200 MGT120 HIS Final Examination Page 2 of 11 5. Governance Corporation uses the indirect method when preparing its cash flow statement. Governance sold equipment with a book value of $13,000 at a loss of $3,000. The amount to be reported on the cash flow statement for proceeds fi'om the sale of capital assets is: a) $10,000 b) $13,000 c) $16,000 d) $3,000 6. If repurchased shares are reissued at a price below their repurchase cost, the difference is: a) credited to common shares b) debited to loss on sale of repurchased shares c) credited to contributed surplus — share repurchase (1) ignored 7. The following is the shareholder’s equity section of the balance sheet of Easypix Corporation: Share Capital: Preferred shares, 80,000 authorized, 50,000 issued $5,000,000 Common Shares, 3,000,000 authorized, 1,500,000 shares issues 7,500,000 Total share capital 12,500,000 Retained earnings 4,800,000 Total shareholder’s equity $17,300,000 Assuming Easypix repurchases 15,000 shares of its common shares at $12.50 per share, the total shareholder’s equity is: a) reduced by $187,500 b) the same as before the repurchase of the shares 0) increased by $75,000 d) decreased by $112,500 8. Hamilton Corporation reports the following data: Net sales $370,000 Cost of goods sold 250,000 Gross Margin $120,000 If net sales increases by 15%, and cost of goods sold increased by 20%. gram Ilmruln would: MGT120 HIS Final Examination hr 3 of I I a) increase by 4.6% b) increase by 4.4% c) decrease by 4.4% d) decrease by 4.6% 9. If a bookkeeper mistakenly recorded a disbursement of $63 instead of the correct amount of $36, the error would be shown on the bank reconciliation as a: a) $27 addition to the books b) $27 deduction from the books c) $36 deduction from the books (1) $36 addition to the books 10. Lifecycle Management Corporation uses the percentage-of—sales method to estimate uncollectible receivables. Net credit sales for the current year amount to $2,000,000 and management estimates 5% will be uncollectible. Allowance for doubtfiil accounts prior to adjustment has a credit balance of $10,000. The amount of expense on the income statement will be: a) $110,000 b) $10,000 0) $90,000 d) $100,000 MGT120 HIS Final Examination Page 4 of 11 Part B (20 marks) Brennan's Ltd is a relatively small company whose common shares are held by the Brennan family (about 20 cousins). The company, which manufactures high quality outdoor furniture, was founded 25 years ago by Mr. Art Brennan. His bookkeeper abruptly quit without finishing the preparation of the financial statements, so Mr. Brennan has asked you for your assistance. Presented below are the balance sheets for 2005 and 2004 as well as additional information. Brennan Ltd. Balance Sheet As at December 31 2992 2.9% Cash $ 0 $ 30,000 Accounts receivable 350,000 200,000 Inventory, at FIFO cost 445,000 250,000 Long-term Investments 10,000 1 10,000 Land 100,000 140,000 Buildings and equipment 1,000,000 1,060,000 Accumulated amortization (760,000) (800,000) Patents 15,000 20,000 Total Assets $1,160,000 $1,010,000 Accounts payable $ 100,000 $ 130,000 Accrued wages 40,000 35,000 Notes payable (due in 5 years) ‘ 300,000 320,000 Common shares 500,000 400,000 Retained earnings 220,000 125,000 Total liabilities and equity $1,160,000 $ 1,010,000 Additional information: Net income was $250,000 Issued $100,000 in common shares for notes payable Land was sold for $70,000 in cash Amortization expense of $20,000 and amortization expense of $5,000 were reported. Amortizable capital assets which were fully amortized were sold for $3 0,000 Investments were sold for $75,000 Sales were $1,500,000 for the year. All of the sales were made on account Required: (Use the blank page at the end of the paper) 1. Prepare a Cash Flow Statement using the indirect method for the year ended December 31, 2005. 2. Identify two purposes of the cash flow statement. 3. What is the most important source of cash for most successful companies? MGT120 H18 Final Examination I’m 3 of I I Part C (12 marks: The Leah Corporation is trying to decide whether to raise additional capital of $30 million through a new issue of 12% long-term debt or issue 10% preferred shares at cost of $40 per share. The income tax rate is 40%. Reguired: a) Compute net income for these alternatives, assuming that income before interest expense and taxes is $12 million. b) What is the after-tax cost of capital for debt and for preferred shares expressed in percentage? 0) Compute times interest earned for the first year for the debt alternative. (1) Discuss two advantages for each alternative. MGTlZO HIS Final Examination Page 6 of 11 PartDj 14 marks} Stefan Computers Limited is a small producer and marketer of software for personal computers. The company is owned by a group of about 20 shareholders. The company picks many accounting policies to minimize tax payments. Accounting policy issues facing the company this year are given below. 1. Stefan Computers began selling products to large discount retailers under the retailer’s “house brand” for the first time in 2005. Agreements with the retailers specify that 80% of products not sold to final customers within six months may be returned to Stefan Computers for a refiind. Data with respect to the sales: _ ___ ** $110,000 relate to sales made in the January to June period Required: When should the revenue be recognized? How much revenue should be recognized in 2005? How would you account for the returns in the future? Quantify your response. Show all your computations. MGT120 HlS Final Examination Page 7 of l l Part D - CON T UINED 2. Stefan Computers accrues bad debt expense in the year of sale. An aging of accounts receivable at year-end reveals the following: Accounts Receivable Percentage Expected to be non—collectible 2% 20% 40% 60% The allowance has a debit balance of $47,000 prior to adjustment. Required: Provide the adjustment journal entry to record bad debt expense. No explanation required. 3. Stefan Computers uses a FIFO cost flow assumption for inventory. In general, prices of raw materials have increased 10 over the period. While inventories include thousands of items, a database is available that could be used to reconstruct inventory and cost of sales using LIFO. Required: The company wishes to change the inventory policy to LIFO. What would be the impact on the financial statement? MGT120 HIS Final Examination Page 8 of 11 Part D - CONT UINED 4. Stefan Computers counted its finished goods inventory and obtained a dollar value, at cost, of $4,413,000. However, it is wondering what level of inventory shrinkage has been experienced. The following data has been provided: Opening inventory, as counted, at cost $4,691,400 Closing inventory, as counted, at cost 4,413,000 Purchases, at invoice price 16,924,300 Freight-in 712,800 Purchase discounts and returns 419,100 Gross margins have been stable at 32%. Net sales during the year were $28,200,000. Required: Provide an estimate of inventory losses due to shrinkage. MGT120 HIS Final Examination Page 9 of 11 MGT120 HIS Final Examination Page l0 of I I MGT120 HIS Final Examination Page 11 of 11 ...
View Full Document

This note was uploaded on 07/18/2010 for the course ACCOUNTING rsm100 taught by Professor Yuta during the Summer '10 term at University of Toronto- Toronto.

Page1 / 11

April 2007 - University of Toronto Faculty of Arts and...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online