December 2008 - Exam Solutions

December 2008 - Exam Solutions - L AST NAME FIRST NAME...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
LAST NAME FIRST NAME STUDENT # 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Desautels Faculty of Management McGill University Introduction to Financial Accounting MGCR 211 FINAL EXAMINATION December 4, 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 7 questions and a total of 25 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 3 hours to complete this exam You must return this examination to the invigilator Question Marks available Grade 1 29 2 21 3 15 4 22 2
Background image of page 2
5 20 6 18 7 16 TOTAL 150 TOTAL on 100 Question 1 Justin is a young music producer in the Montreal Region. He has specializes in Rock bands and has recently started a company called City Records Inc. Justin is good for seeking music talent but unfortunately, he has a limited accounting and business background. Justin wishes to expand his company and create a jazz label. In order to expand, Justin will need to obtain a $200,000 loan from the bank. The bank has requested that Justin provides audited financial statements for their year end of December 31 st , 2008. Justin has hired you to help him with the preparation of the financial statements and also to provide general business advice. Part I - 6 marks ( 7 minutes) a) To enter the Jazz market, Justin met with Jim Wood, a well know music agent in Toronto. Jim recently met with Justin and indicated that he was also interested in starting a record company that specialized in Jazz. Jim had the idea of forming a partnership called Clarinet Tunes. Justin was very happy at the opportunity to be associated with Jim and to start this project. However, Justin was confused with the proposal of a partnership and asked you to explain what was involved with a partnership vs. an incorporated business such as City Records. (3 marks) 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
A Partnership does not provide limited liability like an incorporated company would. The profits of a partnership will be allocated between the partners based on the initial partnership agreement. The income of the partnership will be taxed in the hands of the individual (i.e. Clarinet’s profits will be taxed in the personal income of Justin). Certain tax advantages are offered to incorporated companies, Justin will not have access to those deductions if Clarinet is a partnership. For Secret City, Justin’s potential losses in case of bankruptcy of the firm are limited to his investments in the company In the case of obtaining the bank loan, the bank could only seize the assets of clarinet, not the assets of Justin. Obtaining a incorporated company is more costly and requires more paper work.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 39

December 2008 - Exam Solutions - L AST NAME FIRST NAME...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online