midterm_s2005 - UNIVERSITY OF WATERLOO School of...

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UNIVERSITY OF WATERLOO School of Accountancy AFM 101 Mid-Term Examination Date & Time: June 13, 2005 1.5 hours Spring 2005 Pages: 15, including cover Professor: G. Stremlaw Name:_______________________________________________ ID# ____________________ Instructions: 1) Cordless calculators may be used. The calculator must be standalone with no other communications or data storage features. 2) Answer all the questions in the space provided in the exam. 3) Hand in the entire examination paper. 4) For all multiple choice questions, there is no mark penalty for incorrect responses. 5) Show details of all calculations you perform. 6) Please verify that this examination paper has the appropriate number of pages. Question Maximum Marks Mark Awarded 1 35 2 10 3 6 4 16 5 8 6 10 Total 85 Page 1
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Ratios Price-Earnings Ratio Market Price --------------------- Net Income Financial Leverage Ratio Average Total Assets ------------------------------------------- Average Shareholders’ Equity Total Asset Turnover Ratio Net Sales ------------------------------- Average Total Assets Earnings per Share Net Income Available to Common Shareholders ------------------------------------------------------------------ Weighted-Average Number of Common Shares Outstanding during the Period Net Profit Margin Net Income -------------------- Net Sales Quality of Income Ratio Cash Flow from Operating Activities ----------------------------------------------- Net Income Capital Acquisition Ratio Cash Flow from Operating Activities ------------------------------------------------------------ Cash Paid for Property, Plant and Equipment Return on Equity Net Income ----------------------------------------- Average Shareholders’ Equity Page 2
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Question 1 (35 marks, 45 minutes) Choose the correct response from the answers provided. There is not a mark penalty for incorrect responses. Please circle the correct response for each question clearly. If more than one answer is selected or your selection is unclear, you will receive no marks for that applicable question. 1. Identify the potential economic consequences of not following generally accepted accounting principles (GAAP). A) It could affect the stock price of the company. B) It could affect management and employee bonuses. C) It could lead to a loss of competitive advantage over other companies. D) All of these are potential consequences. 2. The purpose of an audit is to 3. The principle that requires us to record a transaction when we provide service to a client and bill them is
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