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Accounting
Final Exam
Please read these instructions:
- Check that you have a complete exam (8 pieces of paper including this cover).
- Enter your student ID number above and your name at the top of page 3.
- Do not start the exam until directed to by the exam proctor.
- The exam is closed book. You may not bring any material or study aids into this exam.
- You should use a non-programmable calculator. The exam proctor has the right to check all programmable calculators and erase the calculator’s memory.
- You have 120 minutes to complete the exam. No extra time will be provided.
- Answer each question in the space provided. State any assumptions you need. Show your work clearly, provide explanations where necessary, and communicate clearly to the markers.
- Point form answers are encouraged.
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- At the end of the exam, remain seated and the exam proctor will collect your paper. Do not leave during the last 10 minutes of the exam.
- You can unstaple your exam to work on the questions but you must restaple it before handing it in. We have staplers for your use.
- Have a great holiday season and good luck with your courses next semester!!
Question Marks
available
Marks
awarded
Total 88
BALANCE SHEET Suck This Inc. As at Dec 31/2005 Dec 31/ ASSETS Cash $ 19,484 $ 15, Accounts receivable 21,300 6, Inventory 15,695 22, Prepaid asset 5,000 3, 61,479 47,
Property, plant and equipment * 210,585 183, Accumulated Amortization (67,575) (34,700) 143,010 148, TOTAL ASSETS $ 204,489 $ 196,
LIABILITIES Accounts payable $ 23,450 $ 10, Income tax payable 3,071 - Current portion of mortgage 25 ,000 2 0, 51 ,521 3 0, Long term mortgage 111 ,585 13 6, 163,106 166, EQUITY Common shares 36,679 12, Retained earnings 4,704 17, 41,383 29, TOTAL LIABILITIES AND EQUITY $ 204,489 $ 196,
- Suck This Inc. did not dispose of any property, plant or equipment during the year ended December 31, 2005. ** All dividends were paid before year end.
INCOME STATEMENT Suck This Inc. Year ended Dec 31/ Sales $ 182, Cost of goods sold 69, Gross profit 113,
Advertising 14, Amortization 32, Interest 19, Utilities 16, Wages and benefits 21, 104, Net income before tax 8, Income tax expense 3, Net income $ 5,
STATEMENT OF RETAINED EARNINGS Balance at December 31, 2004 $ 17, Net income 5, Dividends ** (18,000) Balance at December 31, 2005 $ 4,
Statement of Cash Flow [18 marks]
Based on the components of the Scott formula, suggest three ways that Vera Sour could improve her overall investment return. If your suggestion does not relate directly to the Scott formula, no marks will be awarded. [3 marks]
Vera Sour is concerned about the ability of Suck This Inc. to meet the necessary mortgage repayments in 2006. Using information from the statement of cash flows, the income statement, and the balance sheet respond to Vera’s concern. Remember that she is a relatively unsophisticated user. Provide five distinct points that would be helpful to Vera. [5 marks]
Question 2 [13 marks]
On November 30, 2005, The Brotherhood Ltd. purchased 75% of the voting shares of Ya Ya Sisterhood Ltd. for $17,000. At the date of acquisition, Ya Ya Sisterhood’s balance sheet showed total assets of $25,600 and total liabilities of $12,000. On the date of acquisition, both parties agreed that the fair market value of Ya Ya’s assets was $30, and the fair market value of Ya Ya’s liabilities was $15,000.
Balance Sheet The Brotherhood Ltd. November 30, 2005
General Assets $150, Investment in Ya Ya Sisterhood Ltd. $ 17, Total Assets $167, General Liabilities $ 95, Equity $ 72, Total Liabilities and Equity $167,
What new accounts will be created on the Brotherhood’s Balance sheet on the date of acquisition? [2 marks]
Question 3 [12 marks]
Answer all of the following points.
The fourth paragraph of a standard auditor’s report for a Canadian company is usually the most informative part of the auditor’s report. True or false? Briefly explain your answer. [2 marks]
Sir Conrad Black is considered by most business people to be one of the most honest and upstanding Chief Executive Officers of the newspaper industry. True or false? Briefly explain your answer. [2 marks]
Your roommate wakes you up again at 2 am one Saturday morning and says that they have just one more accounting question, “Why do we have accounting principles that are different from the set of income tax rules? It seems like we should just have one set of rules and principles that accomplishes both jobs!” [ marks]
If accounting information is not useful to the capital market participants, it should not be produced. Agree or disagree? Briefly explain your answer. [2 marks]
What is the definition of revenue? [2 marks]
Explain why segregation of duties is an effective internal control for valuable assets. [2 marks]
- Mawani Inc. paid $25,000 to purchase an option contract that allows Mawani Inc. to purchase the High Level Bridge for $3,000,000 at any time before December 31, 2010. [2 marks]
- Mawani Inc. exercised their option contract (described above) on the High Level Bridge, paid the required funds to the City of Edmonton, and took ownership of the bridge. [3 marks]
Question 5 [10 marks]
Brassoff Inc. is a small company based in Edmonton. A summary of some of Brassoff Inc.’s accounts as at December 31, 2004 is provided below. During 2005 Brassoff Inc. completed the following events:
- Brassoff Inc. issued 10,000 preferred shares for total cash payment of $105,900.
- Brassoff Inc. declared and paid $12,340 of common share dividends.
- Brassoff Inc. declared $4,500 of preferred share dividends. None of this amount had been paid by year end.
- Net income before tax for the year ended December 31, 2005 was $14,560. Included in this amount was amortization of $15,600.
- Brassoff Inc.’s taxable income for the year ended December 31, 2005 was $20,000 including a deduction for capital cost allowance of $10,160. Brassoff Inc. is subject to a corporate tax rate of 35%.
Account Dec 31/ balance Cash $12, Accounts receivable 56, Accounts payable 42, Future income tax liability 3, Common shares 450, Retained earnings 23,
Complete the requests on the next page.
End of exam
