Part 1 - Multiple Choice/Matching
In the space provided, enter the letter that best responds to the question asked, or best completes the
given sentence:
Question 1 – 50 marks (25 items @2 marks each)
A. Accounting Multiple Choice
_____1. Which is an advantage of corporations compared to partnerships and proprietorships?
a)
b)
c)
d)
harder to raise funds
harder to transfer ownership
harder to organize
reduced legal liability for investors
_____2. The full disclosure principle dictates that:
a) financial statements should disclose all assets at their cost
b) financial statements should disclose only those events that can be measured in dollars
c) financial statements should disclose all events and circumstances that would matter to the
statements’ users
d) financial statements should be prepared on a timely basis in order to be useful.
_____3. Which of the following forms of business organization is an “artificial person” and must obtain
legal approval from the federal government or a province to conduct business?
a)
b)
c)
d)
law firm
proprietorship
partnership
corporation
_____4. The economic resources of a business are called:
a)
b)
c)
d)
assets
liabilities
shareholders’ equity
accounts payable
_____5. The performance of a service for a customer or client and immediate receipt of cash will:
a)
b)
c)
d)
increase one asset and decrease another asset
increase an asset and increase shareholders’ equity
decrease an asset and decrease a liability
increase an asset and increase a liability
_____6. You have purchased some T-shirts for $500 and can sell them immediately for $1000. What
accounting concept or principle governs the amount at which to record the goods you purchased?
a)
b)
c)
d)
entity concept
reliability principle
cost principle
going-concern principle
_____7. A building-cleaning firm began March with $160 worth of supplies on hand. During the month,
the firm purchased supplies of $290. At March 31, supplies on hand total $210. What is the supplies
expense for the month?
a)
b)
c)
d)
$210
$240
$290
$450
_____8. The links between the financial statements are:
a)
b)
c)
d)
net income from the income statement to the retained earnings statement
ending retained earnings from the retained earnings statement to the balance sheet
both (a) and (b) above
none of the above
_____9. Which of the following items appears on the bank side of a bank reconciliation?
a)
b)
c)
d)
book error
outstanding cheque
NSF cheque
NSF cheque
_____10. The balance in retained earnings is not affected by :
a)
b)
c)
d)
net earnings
net loss
common shares
dividends
_____11. Genesis Inc. buys a $900 machine on credit. This transaction will affect:
a)
b)
c)
d)
statement of earnings only
balance sheet only
statement of earnings and statement of retained earnings only
statement of earnings, statement of retained earnings , and balance sheet
_____12. Which of the following is incorrect about the cash flow statement?
a)
b)
c)
d)
it is a fourth basic financial statement
it provides information about a company’s cash receipts and cash payments during a period
it reconciles the ending cash account balance to the balance per the bank statement
it provides information about the operating, investing and financing activities of the
business.
_____13. Which is an example of a cash flow from an investing activity?
a)
b)
c)
d)
a receipt of cash from the issue of bonds payable
a payment of cash to repurchase common shares
a receipt of cash from the sale of equipment
a payment of cash to suppliers of inventory
_____14. A successful company’s major source of cash should be :
a)
b)
c)
d)
operating activities
investing activities
financing activities
a combination of the above
_____15. Manufacturing costs include which of the following?
a)
b)
c)
d)
direct materials
indirect materials
manufacturing overhead
all of the above
_____16. Variable costs are costs that:
a)
b)
c)
d)
vary in total directly and proportionately with changes in the activity level
remain the same per unit at every activity level
none of the above
both (a) and (b) above
_____17. Mixed costs consist of :
a)
b)
c)
d)
a variable cost element and a fixed cost element
a fixed cost element and a controllable cost element
a relevant cost element and a controllable cost element
a variable cost element and a relevant cost element
_____18. One of the following is not involved in CVP (cost-volume-profit) analysis. That factor is:
a)
b)
c)
d)
variable cost per unit
unit selling prices
fixed costs per unit
volume or level of activity
_____19. The equation for calculating sales to obtain target net income is as follows: required sales =
a)
b)
c)
d)
variable costs + target net income
variable costs + fixed costs + target net income
fixed costs + target net income
no correct answer is given
_____20. Cournot Ltd. sells 100,000 wrenches at $12 per unit. Total fixed costs are $300,000 and net
income is $200,000. What should be reported as variable expenses in the CVP income statement
(contribution margin approach)?
a) $500,000
b) $700,000
c) $900,000
d) $1,000,000
B. Business Mathematics Multiple Choice
The following tables may be useful in solving the problems in this part of the exam.
Business Math Formulas
Simple Interest I = pin
Simple Amount A = P(1+in); PV of Simple Amount = A/(1+in)
Compound Amount (FV) A = P(1 + i)n
Present Value (PV) of a Compound Amount P = A(1+ i)-n
Future Value of an Annuity(FV) Sn = R[(1+i)n – 1]
i
Present Value of an Annuity (PV) An = R[1 – (1+i)-n]
i
Effective Rate of Interest IE = (1+ i)n -1
_____21. Find the effective rate of 9.6% compounded monthly.
a) 9.6%
b) .8%
c) 10.03%
d) none of the above
_____22. A cheque for $6389 was used to pay off a loan which was made at a rate of 8.2% simple interest
for 9 months. How much money was borrowed originally?
a) $5977.11
b) $3664.56
c) $6000
d) none of the above
_____23. In order to buy a new house, a family obtains a mortgage of $150,000 for 30 years at 7.5%
compounded monthly. What are the monthly payments?
a) $5498.95
b) $11,250
c) $1048.82
d) none of the above
_____24. Find the future value of an annuity if $3000 is deposited into an account each year for 4 years
and the account pays 7.3% compounded annually.
a) $3796.68
b) $3962.98
c) $13379.12
d) none of the above
_____25.. In a typical loan amortization schedule, the dollar amount of interest paid each period:
a) increases with each payment
b) decreases with each payment
c) remains constant with each payment
C. Managerial Accounting Matching
Question 2 – 10 marks
Given below is a list of cost items and a list of brief descriptive settings where these items are described.
Required: Match the items with the settings, selecting the setting that seems to be the best fit, and enter
your answer letter in the space provided.
a. loss
b. differential cost
c. period cost
d. sunk cost
e. selling cost
f. mixed cost
g. opportunity cost
h. variable cost
i. administrative cost
Brief Descriptive Setting
Cost
Item
a.In deciding whether to get rid of the Camaro, Bob reminded himself that it didn’t
really matter how much money he had spent on rebuilding the engine. The money was
spent and gone! All that was important now was what it would cost him, to continue
owning the car.
b.Lionel was having a hard time deciding whether to return to school or not. He was
concerned about the good salary he would have to give up for the next four years.
c. Maria Sanchez was disgusted. Her entire inventory of silk blouses had been ruined by
a leaky roof. The inventory wasn’t insured, and all she could do was write off the cost
of the inventory. Well, at least some tax savings might be realized.
d. The director of radiology argued that the cost of X ray film increased in direct
proportion to the number of X rays taken – not the number of patients served.
e. The rental agreement on the company car called for a payment of $200 per month
plus $0.20 per mile driven. There was no penalty for excess use. At the end of the
agreement, however, ownership of the car reverted to the lessor.
PART 2 – LONG ANSWER
Question 3 (10 marks)
Elite Deck Products Ltd. produces a kit for cleaning backyard decks with the following results budgeted for
the production and sales of 50,000 units:
Sales (50,000 units)
Cost of Goods Sold:
Direct Materials
Direct Labour
Variable Manufacturing Overhead
Fixed manufacturing overhead
Total Cost of Goods Sold
Gross Margin
$1,500,000
390,000
240,000
120,000
360,000
1,110,000
390,000
Operating Expenses:
Sales commissions ($3 per unit)
Head office salaries
Total Operating Expenses
Net Operating Income
150,000
240,000
390,000
$0
Required:
a) Reformat the budgeted income statement into one in the contribution margin format.
b) How many units would the company have to produce and sell if it desired an operating income of
$120,000?
c) The company is considering reducing the kit’s selling price to $27 per unit and using a new
production process. The new production process would reduce variable manufacturing costs by
40 percent but would increase fixed manufacturing costs by 30 percent.
(i) What would be the new breakeven point?
(ii) Should the company make the changes if sales are expected to be 90,000 units?
Question 4( 10 marks)
The budget committee of Voltex has assembled the following data concerning cash receipts from sales
and cash disbursements as payment for purchases and sundry monthly expenses at April 30, 2002. You
are a junior accountant and your task is to prepare the cash budget portion of the master budget for May
and June.
On April 30, 2002, the balance sheet showed the following balances:
Cash
$12,000
Accounts payable
5,100
Sales in April were $30,000. You forecast that sales will increase by 1.4 percent in both May and June.
Voltex’s sales are 60 percent cash and 40 percent credit each month. Credit sales are collected in the
month after sale.
Monthly purchases average 55 percent of the following month’s budgeted sales. Sales budgeted for July
are $31,500. Purchases are paid 70 percent in the month of purchase, and 30 percent in the following
month.
Monthly salaries amount to $4000. Sales commissions equal 5 percent of monthly salaries. (Combine
salaries and commission into a single salary figure). Salaries and sales commissions are paid half in the
month they are earned, and half in the next month.
Other monthly expenses are as follows:
a) Rent Expense
$2,700 -paid as incurred
b) Amortization Expense
500
c) Insurance Expense
100 - as expiration of a prepaid amount
d) Income tax
20% of operating income – paid at the end of the year.
Required:
1. Prepare schedules of (1) budgeted cash collections from customers, (2) budgeted cash payments to
suppliers, and (3)budgeted cash payments for operating expenses. Show amounts for each month and
totals for May and June.
2. Prepare a cash budget for the months of May and June. If the company did not feel it was necessary to
borrow from the bank during May and June, what is the budgeted cash balance on June 30, 2002?
Question 5 (10 marks)
In January, 2006, Mark Peeble, the owner of Peebles’s Hardware, decided to expand his business by
buying out a local lumberyard. To finance the purchase, Mark will have to obtain financing from a local
bank. As support for the loan application, the bank has asked Mark to provide financial statements for
the year ended December 31, 2005. Mark is very busy managing the store and has not made time to
review the store’s financia;l operations over the past year.
When the bookkeeper provides Mark with the hastily prepared financial statements, Mark is pleasantly
surprised to learn that the hardware store has had a significant increase in net income over the past year.
He comments, “With financial results like these, we should have no trouble obtaining the bank loan”.
In January, 2006, the following transactions occurred:
a)
Salaries of $20,000 were paid on January 2. A review of the time cards shows that the
salaries relate to work performed in the last two weeks of December, 2005.
b) On January 3, 2006, Mark repaid a $100,000 loan. The loan, a one-year, 10% term loan was
repaid in full including interest. No interest expense was recorded in 2005.
c)
Goods that originally cost $9,000 and had been sold in December of 2005 for $12,300 were
returned by the customer on January 4, 2006. Accompanying the goods was a letter that
stated, “As we agreed on December 30, 2005, these goods are not what we ordered and are
therefore being returned for full credit”.
d) Peeble’s received a bill for utilities on January 5, 2006 for $700. The bill was for the period
ending December 31, 2005. The bill was recorded as an accounts payable in January, 2006.
Mark is concerned that some of these transactions may affect the ability of Peeble’s to obtain the
necessary bank financing, and has instructed the bookkeeper not to make any adjustments to the 2005
statements for these accounts.
Required:
1. Calculate the overall effect of these transactions on Peeble’s reported net income.
2.
How should Mark proceed, given this information?
Question 6 (10 marks)
The information needed to prepare a bank reconciliation for Wicked Pony at March 31 is listed below:
1. Cash balance per accounting records of Wicked Pony, $18,106.69
2. The bank statement showed a balance of $22,134.27 at March 31.
3. Accompanying the bank statement was a cheque for $186 from a customer D . Otay. The cheque was
returned NSF.
4. Cheques outstanding as of March 31 were as follows: no. 84 for $1,841.02; no.88 for $1,323.00; no. 89
for $16.26.
5. Also accompanying the bank statement was a memo for $44.80 to cover safety deposit box rent. The
bank had erroneously charged this item to the account of Wicked Pony.
6. On March 29, the bank collected a non-interest bearing note for Wicked Pony. The note was for
$2,963.
7. A deposit of $2,008.50 on March 31 was made too late for the bank to record it as a deposit on the
March bank statement.
8. In recording a $160 cheque received on account from a customer, Ross Company, the accountant for
Wicked Pony erroneously recorded the amount collected as $16.00. The cheque appeared correctly
among the deposits on the March bank statement.
9. The bank service charge for March amounted to $20.40.
Required: Prepare a bank reconciliation at March 31.