Fall 2008 Midterm With Solutions

Fall 2008 Midterm With Solutions - LAST NAME FIRST NAME...

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LAST NAME FIRST NAME STUDENT # 1
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Desautels Faculty of Management McGill University Introduction to Financial Accounting MGCR 211 MIDTERM EXAMINATION October 10, 2008 Circle your lecturer’s name Lecturer: Catherine Fortin SECTION Lynn DeGrace Lawrence Tenenbaum Karen Zajdman-Borden Instructions This is a closed book exam You are allowed a translation dictionary Only non-text storing calculators are allowed This exam consists of 4 questions and a total of 18 pages All questions are to be answered on this examination paper. Answer in the space provided and do not exceed the space allowed Show your calculations and explain your reasoning You have 2 hours to complete this exam You must return this examination to the invigilator Question Marks available Grade 1 38 2 26 3 18 4 18 TOTAL 2
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Question 1 Miranda Technologies Inc is a public company that develops, manufactures and markets high performance solutions for the television and broadcasting industry. Required: Based on the financial statements below, provide an answer to the different scenarios. Provide support for your analysis and conclusions. 3
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Part I You are the personal accountant of Mrs. Cruz. She comes to see you for advice as she wishes to diversify her investment portfolio and she has heard about Miranda Technologies. Mrs. Cruz would like to have your advice on the following: i) Note 1b) of the financial statements, indicated the following: Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the years. Significant items subject to such estimates and assumptions include the determination of the provisions for inventory obsolescence, the useful life of assets for depreciation, amortization and evaluation of net recoverable amount of capital assets, intellectual property, evaluation future income taxes and research and development tax credits and the likelihood of recoverability. Consequently, actual results could differ from those estimates. Mr. Cruz is worried by the reference to estimates and possibility that results would differ. Is there reason to be concern? (3 marks) Financial statements are based on accrual accounting and therefore, estimates and judgment calls will be necessary to compute the financial statements. 1 It is possible that the actual results of the company can differ from the results presented in the income statements due to the estimates of judgment calls made ½ The difference between actual and audited financial statements should not be <material> or significant in a way that would affect the decision that is to be made by Mrs. Cruz 1 The cost of getting the exact information would be too expensive and not outweigh the benefits of having the estimated amounts. ½
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Fall 2008 Midterm With Solutions - LAST NAME FIRST NAME...

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