2019 Final

STUDENT ID NUMBER: Section 9:30 = A; 10:30=B . NAME (please print): . MOUNT ALLISON UNIVERSITY COMM 2101 Financial Accounting Fall 2019 Brent White FINAL EXAMINATION Thursday, December 12, 2019 @ 2:00 p.m. INSTRUCTIONS: 1. Write your a) student identification number , and b) your name on the top of this exam paper in the space provided and on your SCANTRON sheet. 2. Answer all multiple choice questions on the SCANTRON sheet. Answer all other exam questions directly on this examination paper in the space provided. 3. You may temporarily un-staple this exam, but please re-staple the examination as you leave. 4. Show all calculations .. Even if you think it’s a simple calculation to support an answer, show it. It could make a difference in your mark. 5. The performance measurement formulas you have studied in this course are listed on the next page. 6. You may omit any explanations for journal entries . Question Topic Maximum Marks/Question Marks Earned/Question One Multiple Choice 20 marks Two Cash 13 marks Three Accounts Receivable 12 marks Four Long-Lived Assets 15 marks Five Shareholders’ Equity 15 marks Six Income Statement and Performance Measurement 25 marks 100.0 marks

COMM 2101 ... Final Exam ... 2 Table of Financial Ratios Studied in COMM 2101 Liquidity: Current ratio = Current assets/Current liabilities Receivables turnover = Net credit sales/ Average gross receivables Average collection period = 365 Days/Receivables turnover Inventory turnover = Cost of Goods Sold/Average Inventory Days in Inventory = 365 Days/Inventory turnover   Solvency: Debt to total assets = Total liabilities/Total assets Times interest earned = EBIT*/Interest Expense *EBIT=(Net income+Interest Expense+Income Tax Expense)   Profitability: Gross profit margin = Gross profit/Net sales Profit margin = Net Income/Net sales Asset turnover = Net sales/Average total assets Return on assets = Net Income/Average total assets Return on Common Shareholders' Equity = Net Income-Preferred Dividends/Average Common Shareholders' Equity Basic Earnings per Share = Net Income-Preferred Dividends/Weighted Avg # Common Shares Price-earnings ratio = Market price per share/Earnings per share Payout Ratio = Cash dividends declared/Net Income Dividend Yield = Dividend declared per share/Market price per share

COMM 2101 ... Final Exam ... 4 7. ___________________________ “consists of systems within a company that help it achieve reliable financial reporting, operate effectively and efficiently, and comply with relevant laws and regulations.” A. Materiality B. The user’s perspective C. Good Financial reporting D. Relevance E. Internal control 8. Which of the following statements is not correct on the subject of Uncertain Liabilities from Ch. 9? A. An example of a contingent liability is a lawsuit where damages can’t be estimated. B. An example of a provision is recording an estimate for a warranty. C. Provisions are uncertain as to timing but certain as to amount. D. Under IFRS the word probable is defined as “more likely than not.’ E. To record a contingent liability under ASPE, you must meet two specific conditions. 9. If total liabilities decreased by $14,000 during a fiscal period,  and shareholders’ equity increased by $6,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n) __________. a.             $14,000 increase. b.             $20,000 increase. c.             $ 8,000 decrease. d.             $ 8,000 increase. e.             impossible to determine from the data provided 10. A subsidiary ledger is: A. Used to manage detailed information that would be very difficult to follow in a general ledger account. B. Used to manage the Provision for Contingent liabilities C. Used in managing Accounts Payable and Inventory, in addition to Accounts Receivable. D. Common in IFRS companies, but not normally used in ASPE. E. Responses A and C are both correct. 11. Which one of these is not an advantage of a corporation? A. Separation of management and ownership B. Limited liability of Shareholders. C. Increased reporting and disclosure requirements. D. Ease of transferring ownership. E. Continuous life. 12. Select the response which best completes this sentence from Chapter Two: “Information is considered __________________ if its omission or misstatement could influence the decisions of users.” A. Relevant B. Reliable. C. Neutral. D. Material. E. Verifiable 13. According to Chapter Ten, this ratio “gives an indication of a company’s ability to meet interest payments as they come due.” A. Current ratio. B. Debt to Total Assets C. Profit Margin. D. Return on Interest E. Times Interest Earned

COMM 2101 ... Final Exam ... 5 14. The Land account would include all the following costs except : A. Grading costs to prepare land. B. The cost of building a fence around the land. C. Title fees D. The cost of tearing down an old building on the land. E. Legal fees associated with the purchase of land. 15. The operating cycle of a service company is: A. Equivalent to that of a merchandising company B. Normally longer than that of a merchandising company C. Always less than one year in length. D. Is normally shorter under IFRS than ESPA E. Normally shorter than that of a merchandising company 16. A technique for evaluating data that determines the change – increase or decrease – over time in a series of financial statement data is called . . . A. Vertical analysis. B. Trend analysis. C. Horizontal analysis. D. Rationing analysis. E. B and C are both correct responses. 17. A bookkeeper made a journal entry Debit Income Summary; Credit Retained Earnings. This journal entry is an example of . . . A. Cost of goods sold entry B. Closing entry C. Dividends entry D. There is no such account as Income Summary E. A and C are both correct responses. 18.. Gold Mine Co. borrowed $240,000 from Sackville Credit Union on January 1, 2018. The annual interest rate is 4%. Pearson makes a blended principal and interest payment of $4420 on the first day of each month, with the first payment due on February 1, 2018. If you round the calculations to the nearest dollar, the principal balance of the loan after the April 1, 2018 payment will be . . . A. $240,000 B. $238,193 C. $23,968 D. $229,104 E. None of the above. PLEASE NOTE - Questions 19 and 20 should be answered based on the table below Ratio Cooper Steel Bridge Mark Ltd. Bulduc Ltd. Current ratio 3.7:1 2.6.:1 1.5:1 1.7:1 Inventory Turnover 12.9 11.4 12.8 10.8 Receivables Turnover 9.96 8.24 10.92 7.24 Debt/Assets 64.4% 60.2% 34.4% 70.2% 19. Which company appears to be the most liquid? A. Cooper B. Steel Bridge C. Mark D. Bulduc Ltd. 20. Which company does the best at managing its receivables?

COMM 2101 ... Final Exam ... 7 QUESTION THREE: Accounts Receivable PART A Gardiner Ltd uses the allowance method to account for its bad debts. Gardiner prepared the following aging schedule for its Accounts Receivable at year end, December 31, 2019. Gardiner adjusts it accounts annually and has a credit of $7,800 in the Allowance for Doubtful Accounts. # Days A/R Estimated % Total Outstanding Balance Uncollectible Uncollectible 0 - 30 Days $290,000 2% 31 - 60 Days $80,000 10% 61 - 90 Days $60,000 30% Over 90 Days $38,000 50% Total $468,000 Required – 1) Complete the aging schedule in the table above (2 marks) 2) Prepare the adjusting journal entry to record the bad debts expense. (4 marks). Date Account Dr Cr PART B Veston Ltd uses the Allowance method to account for Bad Debts Expense. On April 30 , 2019 management wrote off $29,000 of uncollectible accounts. On September 15, 2019, Veston recovered $3,000 previously written off. Required : Prepare the journal entries to record the write-off and the subsequent recovery . Date Account Dr Cr

COMM 2101 ... Final Exam ... 8 QUESTION FOUR: LONG-LIVED ASSETS Presented below are selected transactions for Sackville Manufacturing for 2018. Sackville Manufacturing uses straight-line depreciation and records adjusting entries annually at its December 31 year end. January 1 Sold a delivery van for $18,000 cash. It had purchased the van on January 1, 2014, at a cost of $62,000. The equipment has an estimated residual value of $6,000 and an expected useful life of 4 years. September 1 Sold computers for $500 cash. It had purchased them on on January 1, 2016, at a cost of $10,980. The computers had no residual value and an expected useful life of 3 years. REQUIRED: Record these transactions, including any necessary entries for the part-year depreciation. Date Account Dr Cr

COMM 2101 ... Final Exam ... 10 QUESTION SIX: INCOME STATEMENT: PREPARATION & ANALYSIS PART A (20 marks) Here is the adjusted trial balance of Tiger Retail on December 31, 2019: Account Dr Cr Cash $ 12,175   Accounts Receivable $ 28,900   Preaid insurance $ 2,000   Inventory $ 220,000   Suoolies $ 500   Land $ 128,500   Equipment $ 189,000   Accumulated Depreciation $ 330,000   Accounts payable   $ 132,500 Unearned Revenue   $ 10,800 Income Tax Payable   $ 3,600 Common Shares   $ 100,000 Retained Earnings   $ 330,000 Sales Revenue   $ 1,207,900 Sales Discounts $ 23,650   Sales Returns & Allowances $ 14,565   Cost of Goods Sold $ 658,185   Administrative Expenses $ 88,525   Selling Expenses $ 78,900   Interest Expense $ 4,500   Interest Revenue   $ 3,100 Income Tax Expense $ 8,500   Total $ 1,787,900 $ 1,787,900 REQUIRED – a) Prepare multi-step income statement. PART B (5 marks) Here are several profitability ratios for two companies in the discount retail industry: Profitability Ratios Take it Ltd. Leave It Co. Industry Price-Earnings ratio 14.0 2.8 n/a Earnings per share $4.07 $29.80 n/a Return on assets 6.6% 1.2% 2.9% Profit margin 17% 3% 6.74% Dividend Yield 0.9% 2.46 % 0.4 % Return on Common Shareholders Equity 23.6% 11.2% 12.9% Gross profit margin 38% 39% n/a Question 1: (2 marks)

COMM 2101 ... Final Exam ... 11 Which company is the most profitable? Explain. Question 2: (1 mark) If you were interested in a steady stream of income to invest in your retirement, would you choose Take it, or Leave It? Why? Question 3: : (1 mark) Which ratio should never be compared between companies? Question 4: What are at least two important qualitative factors to consider as limitations of financial analysis?