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ADMS3585F06MIDTERMTWO - TEST FORM A FALL 2006 YORK...

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TEST FORM: A FALL 2006 YORK UNIVERSITY AK/ADMS 3585 - INTERMEDIATE FINANCIAL ACCOUNTING I MIDTERM EXAM TWO MARKING KEYS OCTOBER 29th 2006 Course Directors: Songlan Peng : Bob Menzies PART A (1 mark) FORM A FORM B PART B (2 marks)A FORM A FORM B 1 C D 25 B C 2 D D 26 A D 3 D A 27 B A 4 D C 28 A D 5 A A 29 B A 6 B C 30 A C 7 D B 31 C A 8 C A 32 D C 9 E E 33 B C 10 C B 34 B D 11 D A 35 B A 12 B C 36 B C 13 B A 37 D B 14 B C 15 A D 16 C B 17 C A 18 C D 19 C B 20 D C 21 D B 22 C B 23 A C 24 A B

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Section C: Question 38 Comprehensive Problem 10 Marks Oickle Corp. uses the lower of cost and net realizable value method, on an individual item basis. The inventory at December 31, 2005 included product MX. Relevant per-unit data for project MX appear below: Estimated selling rice \$45 Cost 40 Replacemnt cost 35 Estimated selling expense 14 Normal profit 9 There were 1,000 units of product MX on hand at Dec. 31, 2005. Product MX was incorrectly valued at \$35 per unit for reporting purposes. All 1,000 units were sold in 2006. Instructions (a) Calculate the correct ending inventory to be reported on Dec. 31, 2005. (4 marks) (b) Was net income over or understated for the years ended Dec. 31, 20005 and Dec. 31, 2006? By how much (ignoring income tax)? (3 marks) (c) Indicate whether the inventory turnover ratio would be overstated, understated, or not affected for the years ended Dec. 31, 2005 and Dec. 31, 2006. Explain briefly. (3 marks) Your solution should be in good form showing all calculations and explanations with each part clearly labelled. 2
38. Solution . (a) Correct ending inventory to be reported (4 marks) Market – net realizable value \$45-14= \$31 (1 mark) Cost \$40 (1 mark) Lower of cost and market \$31 (1 mark) Ending inventory \$31*1000= \$31,000 (1 mark) Showing correct ending inventory number without applying LCM rule should only receive a maximum of 2 marks. (b) Net income for 2005 and 2006 (3 marks) \$35 figure used – \$31 correct value per unit = \$4 per unit.

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