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April 2006 - Exam Solutions

April 2006 - Exam Solutions - 1 LAST NAME FIRST NAME...

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LAST NAME:___________________________________ FIRST NAME:___________________________________ STUDENT #:____________________________________ SECTION:______________________________________ McGill University Faculty of Management Introduction to Financial Accounting MGCR 211 Final Examination VERSION A CIRCLE YOUR LECTURER’S NAME Lecturer: Steve Fortin Date: April 25, 2006 Time : 2 pm to 5 pm Karen Zajdman-Borden Instructions: 1. This is a closed book exam. 2. You are allowed translation dictionaries. 3. Only non-text storing calculators are allowed 4. This exam consists of 6 questions and a total of 17 pages. 5. All Questions are to be answered on this examination paper. 6. Show your calculations 7. You must return this examination. Question Mark Available Grade 1 30 2 20 3 15 4 10 5 20 6 5 Total 100 1

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Question 1 ( 30 marks – 54 minutes) 1. Company ABC and company DEF, both purchased a truck for \$25,000 Cash in 2006. ABC amortizes the truck using the straight line method of amortization at a rate of five years (estimated salvage value is \$500). Company DEF amortizes the truck using the double declining balance method of amortization at a rate of 25%. In year one, both companies use a full year of amortization. a) ABC company will have a higher debt-asset ratio. b) DEF company will have a higher debt-asset ratio. c) ABC company and DEF company will have the same debt-asset ratio. d) The amortization method selected by a company has no effect on the debt-asset ratio. 2. Bermuda Builders Inc. and Quick Construction Ltd. are investing in new equipment. The equipment has an invoice price of \$55,000. An invoice for the shipping charges of delivering the equipment was received in the amount of \$2,500. The equipment was installed at a cost of \$1,600. Bermuda has a policy of expensing all additional costs incurred to get their assets ready to be usable, and Quick has a policy of capitalizing all additional cost to get their assets ready to be usable. Assume that all figures other than the above differences are all the same. In the year of acquisition: 3. Big Stores Inc. owns all of its retail establishments and supports its related mortgages. Small Shops Inc. rents all of its location under operating leases. The sum of depreciation and interest expense for Big Store is equal to the operating lease payment of Small Shops. Which of the following statement best describes the ratios of the two corporations? 4. The following data are taken from the December 31 financial Statements of Ben Dover Co.
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April 2006 - Exam Solutions - 1 LAST NAME FIRST NAME...

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