sample_AFM101_midterm_F2005_solution

sample_AFM101_midterm_F2005_solution - UNIVERSITY OF...

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UNIVERSITY OF WATERLOO School of Accountancy AFM 101 Professor Duane Kennedy Mid-Term Examination Fall 2005 Date and Time: October 28, 2005, 4:45 – 6:15pm Pages: 17, including cover Name: ____ Solution ______________ Student Number: __________ Tutorial Number and Time: ___________________ Instructions: 1) Cordless calculators may be used. The calculator must be standalone with no other communication or data storage features. 2) Answers for the multiple-choice questions must be recorded on the UW answer card. All other questions must be answered in the space provided on the examination paper. Answers written outside of the provided space will not be graded. You must submit both this examination paper and the UW answer card. 3) Show details of all calculations. 4) The final page of the examination contains a list of ratios. 5) Please verify that this examination paper has the appropriate number of pages. Question Maximum Marks Mark Awarded 1 12 2 8 3 12 4 12 5 10 6 6 7 30 Total 90
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Question 1 (12 marks) Sproule Incorporated reported the following December 31 amounts in its financial statements (in millions): 2005 2004 2003 Sales revenue $190.0 $175.0 $165.0 Gross profit 76.0 66.5 58.0 Net income 19.0 15.7 13.3 Total Assets 80.0 75.0 70.0 Total shareholders' equity 50.0 47.0 45.0 Required: A) Compute the net profit margin for 2005 $19.0 = 0.10 $190.0 B) Compute the asset turnover ratio for 2005 $190.0 = $190.0 = 2.452 ½ ($80.0 + 75.0) $77.5 C) Compute the financial leverage ratio for 2005 ½ ($80.0 + 75.0) = $77.5 = 1.598 ½ ($50.0 + 47.0) $48.5 D) Compute the return on equity ratio for 2004 and 2005 2005: $19.0 = $19.0 = 0.392 ½ ($50.0 + 47.0) $48.5 2004: $15.7 = $15.7 = 0.341 ½ ($47.0 + 45.0) $46.0 E) Comment on the trend in the return on equity ratio ROE increased from 2004 to 2005 because Net Income increased faster than Shareholders’ Equity. 2
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Question 2 (8 marks) The following transactions were completed during 20A by Eagle Company. The annual accounting period ends December 31. Required: Provide the adjusting entries required at December 31, 20A. A) On December 31, 20A, Eagle Company owed employees $1,750 for wages that were earned by them during December and were not recorded. Wages Expense $1,750 Wages Payable $1,750 B) During 20A, Eagle Company purchased office supplies that cost $500 which were placed in the supplies room for use as needed. The purchase was recorded as follows: Office supplies inventory $500 Cash $500 At the beginning of 20A, the inventory of unused office supplies was $75. At the end of 20A, a count showed unused office supplies in the supply room amounting to $100. Supplies Expense $475 Office Supplies Inventory $475 C) On December 1, 20A, Eagle Company rented some office space to another party. Eagle collected $900 rent for the period December 1, 20A, to February 28, 20B. The rent collected was recorded as follows: December 1, 20A: Cash $900 Unearned rent $900 Unearned Rent $300 Rent Revenue $300 D) On June 1, 20A, Eagle Company borrowed $2,000 cash on a one-year, 10% interest- bearing, note payable. The interest is payable on the due date, May 31, 20B. The note was recorded as follows: June 1, 20A: Cash $2,000 Notes payable $2,000 Interest Expense $117 Interest Payable $117 ($2,000 x 10% x 7/12) 3
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Question 3 (12 Marks) The following information relates to activities for Garth Inc. for 20B.
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sample_AFM101_midterm_F2005_solution - UNIVERSITY OF...

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