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2012 Sample Entrance Examination

(Time Allowed: 4 hours) Notes: i) ii) All answers must be indicated on the multiple-choice answer sheet. Work done on the question paper and examination foolscap will NOT be marked. Included in the examination envelope is a supplement consisting of formulae and tables. It is a standard supplement that may be useful for answering questions on this paper. Examination materials must NOT BE REMOVED from the examination writing centre. All examination materials (i.e. answer sheet, used and unused foolscap sheets, envelope, supplement and question paper) must be submitted to the presiding officer before you leave the examination room.

iii)

Revised April 23, 2012

2012 The Society of Management Accountants of Canada. All rights reserved. / Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada. No part of this document may be reproduced in any form without the permission of the copyright holder.

2012 Sample Entrance Examination

TABLE OF CONTENTS
Examination: Instructions ......................................................................................... 1 Questions ............................................................................................ 3 Solutions ........................................................................................... 37

Supplement of Formulae ......................................................................... 71


* This supplement is provided to all candidates with the examination.

2012 Sample Entrance Examination

INSTRUCTIONS:
Use the multiple-choice answer sheet provided to record your answers to the questions. Be sure to enter your four-digit envelope number on the multiple-choice answer sheet. Select the BEST answer for each of the following 100 questions and record your answer on the multiple-choice answer sheet by blackening the appropriate answer space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE ANSWER for each question. Sample Question: 89. (-) Market research and public relations costs are a) b) c) d) engineered variable costs. discretionary variable costs. committed fixed costs. discretionary fixed costs.

Assuming you select choice d) for your answer, you should blacken the d space on line 89 in the ANSWERS area of the multiple-choice answer sheet as shown below: 89 a b c d

Question Weighting: Your performance will be based on the total weighted value of the questions answered correctly. Note that all questions are assigned the same weight, except for those specified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a lower weight). In the above example, there is a minus sign at the beginning of the question, signifying that the question has a lower weighted value than the average question. Singular Versus Plural Phrasing: For simplicity of wording, all questions are phrased as though there is a single correct answer, even when there are multiple correct answers. For example, the correct answer to a question that is worded, Which of the following is..., may be the choice that refers to two or more of the other choices, e.g. Both a) and b) above.

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Calculator Policy and Supplement The following models of calculators are authorized for use on the Entrance Examination: Texas Instruments Hewlett Packard Sharp TI BA II Plus (including the Professional model) HP 10bII (or HP 10Bii) EL-738C (EL-738)

The supplement accompanying the Entrance Examination contains present value tables.

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Corporate Finance
1. QWC Ltd. has cash of $100,000 that will be invested in an equity investment that has a beta of 2.25. The current risk-free rate in the market is 2.5%, and the market requires an 8% risk premium for equity securities. What return should QWC Ltd. expect to earn? a) $8,000 b) $18,000 c) $23,625 d) $20,500 2. (+) BG Corporation is considering a bid to take over SM Limited. Should the takeover occur, BG Corporation would benefit from SM Limiteds before-tax operating cash flows of: i) $500,000 per year for the first three years, ii) $700,000 per year from the fourth year into perpetuity, and iii) $225,000 per year of synergistic savings before taxes in perpetuity starting from the first year. Assume that the cash flows occur at the end of each year, the tax rate is 40% for both companies, and BG Corporations after-tax required rate of return is 13%. What is the maximum amount that BG Corporation should be willing to pay to take over SM Corporation (rounded to the nearest thousand dollars)? a) b) c) d) 3. $4,978,000 $2,947,000 $1,909,000 $3,986,000

XYZ company recently issued rights to raise financing. The shares are currently trading for $18 per share on the stock exchange. The subscription price for the rights offering is $14 per share, and an investor will require 3 rights to purchase 1 share. The value of one right is a) $12.00. b) $2.33. c) $1.00. d) $0.

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4.

LPY Ltd. has cash of $500,000 that will be used to create an investment portfolio. The portfolio will be invested evenly in two assets: an equity investment that has a beta of 1.70 and a one-year risk-free interest bearing certificate. The current risk-free rate in the market is 3% and the market requires a 6% risk premium for equity securities. What one-year return should LPY Ltd. expect to earn on its portfolio? a) $7,500 b) $30,000 c) $33,000 d) $40,500

5.

Actual and projected sales of a company for May and June are as follows: May (actual) June (projected) Cash Sales $185,000 $225,000 Credit Sales $270,000 $290,000

All credit sales are collected in the month following the month in which the sale is made. The cash balance as at May 31 is $50,000. Cash disbursements for operating expenses in June are projected to be $350,000. The company plans to declare a $50,000 cash dividend on June 30 but will not pay it until 30 days later. A $160,000 down payment on a piece of equipment will be made in June. To ensure a $60,000 cash balance on June 30, what amount should the company plan to borrow in June? a) $295,000 b) $250,000 c) $75,000 d) $25,000 6. According to the Efficient Market Hypothesis, what effect would a higher-thanexpected earnings report have on a firms share price? a) A gradual increase in the share price over several days. b) An immediate decrease in the share price, with no later adjustments. c) An immediate increase in the share price, followed by a decrease the following day. d) An immediate increase in the share price, with no later adjustments.

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7.

A company is considering the following projects: Annual after-tax cash inflows Initial project cost Cost of capital Project life W $620,000 $2,000,000 9% 4 years X $1,000,000 $5,000,000 11% 5 years Y $2,000,000 $10,000,000 13% 7 years

Based only on profitability index, which project(s) should the company invest in? a) b) c) d) 8. Only W. Only X. Only Y. All three projects.

The Capital Asset Pricing Model (CAPM) disregards diversifiable risk because the model a) assumes that investors are risk neutral but not risk averse. b) assumes that investors will be holding anywhere from one security to the entire market of securities. c) assumes that diversifiable risk represents that aspect of financial risk which is unique to that security and not related to the financial risk of the market. d) recognizes that diversifiable risk can be virtually eliminated with a large enough portfolio.

9.

(+) On January 1, 2007, Moon Co. issued eight-year bonds with a face value of $950,000 and a stated interest rate of 7%, payable semi-annually on June 30 and December 31. The market yield for similar bonds was 8%. Two years later, on January 1, 2009, Moon Co. repurchased the bonds in the open market to reduce its overall level of debt. At the date of repurchase, the market yield had increased to 10%. What is the difference in cash received at issuance and cash paid at repurchase for the bond (rounded to the nearest thousand)? a) $(11,000) b) $126,000 c) $0 d) $71,000

10.

(-) An assets market (systematic) risk is measured by its a) b) c) d) variance of returns. beta coefficient. standard deviation. total return.

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11.

(+) Assume that Acquire Ltd. wants to raise capital by issuing a $48,000,000 mortgage bond. A brokerage firm that raises market capital for Acquire Ltd. estimates that the 10-year bond will need a stated annual interest rate of 8.0%. Semi-annual interest payments are made on January 31 and July 31 each year. The brokerage firm also charges 2.5% of face value for commission and administration charges. This bond is sold to the primary market on February 1 with an effective interest rate of 10.0%. How much cash will Acquire Ltd. receive from the sale of this mortgage bond (rounded to the nearest ten thousand)? a) b) c) d) $42,020,000 $42,120,000 $40,820,000 $41,070,000

12.

DHC Ltd. is looking to purchase WIC Ltd., which has the following information: Revenue EBITD Basic EPS Net assets Shares outstanding Dividends paid $4,000,000 $900,000 $1.40 $5,000,000 500,000 $0.50

Research has shown that the price-earnings ratio for companies like WIC Ltd. is 9.5. Based on that ratio, what is the value of WIC Ltd.? a) b) c) d) 13. $2,375,000 $8,550,000 $5,000,000 $6,650,000

(+) XYZ Ltd. has the following current and projected information: Sales Variable costs (35% of sales) Fixed costs (excluding interest and taxes) Earnings per share Current $700,000 $245,000 $120,000 $0.90 Projected $800,000 $280,000 $120,000 $1.00

Given the above information, what is the projected degree of operating leverage for XYZ Ltd.? a) b) c) d) 0.78 0.57 0.74 1.36

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14.

(+) Trout Ltd. produces a single product that has a contribution margin of 60% per unit and sold 500,000 units last year. Trout has a degree of operating leverage of 1.60 and a degree of financial leverage of 1.20 for the current year. If the sales volume were to increase by 10% this coming year, what would be the expected percentage increase in earnings per share (rounded to the nearest percent)? a) 16% b) 12% c) 6% d) 19%

15.

(+) A company is looking to replace a machine with a new unit that is more efficient. The old machine is also in need of many repairs. Purchase price Salvage value today Salvage value in 5 years Repairs immediately Repairs at the end of 3 years Annual operating costs Remaining life Old Machine $100,000 $15,000 $1,000 $25,000 $10,000 $20,000 5 years New Machine $120,000 n/a $80,000 n/a n/a $12,000 5 years

Based on a cost of capital of 7% and ignoring tax effects, what is the net present value in favour of buying the new machine? a) $17,287 b) $(2,287) c) $(15,513) d) $49,000 16. (+) SCC Inc. has the following financial information: Current liabilities Long-term debt Total liabilities Preferred shares Common equity $900,000 $1,300,000 $2,200,000 $3,500,000 $6,200,000

The long-term debt consists of a single bond issue paying 6% interest annually. These bonds currently yield 7.5% in the market. The current cost of the preferred shares is 8%. The current cost of the common shares is 12%. The companys tax rate is 40%. What is SCC Inc.s weighted average cost of capital (rounded to the nearest tenth of a percent)? a) 9.4% b) 10.2% c) 9.8% d) 9.2%

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17.

Flower Inc. is issuing preferred shares to raise capital. Each preferred share will be issued with a par value of $200 and a cumulative dividend of $18. The preferred shares will result in after-tax underwriting expenses of $3 per share. What is the cost of issuing the preferred shares? a) 9.14% b) 9.00% c) 7.50% d) 10.50%

18.

RLC Ltd. is considering investing into one of the following: i) Investment A at 9.75% compounded monthly. ii) Investment B at 9.25% compounded daily. iii) Investment C at 10.0% compounded quarterly. Which investment(s) should the company choose? a) b) c) d) Only A. Only B. Only C. Either A or B.

Financial Accounting
19. DLC Ltd. has calculated its basic EPS to be $5.50 at the end of Year 4 and has the following outstanding debt and equity information. i) $2,000,000 in 10% convertible bonds. Each $1,000 bond could be converted to 8 common shares. ii) 5,000 outstanding stock options awarded at the start of Year 4 to executives at DLC with an exercise price of $55. The price of DLC stock reached $58 on July 1, Year 4. iii) 50,000 convertible preferred shares issued at the start of Year 4, each with a $50 annual cumulative dividend paid at the end of each year. Each preferred share could be converted to 10 common shares. The corporate tax rate is 40%. Which of the above items could dilute the basic EPS? a) b) c) d) i) only. iii) only. ii) and iii) only. All of i), ii) and iii).

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20.

(-) Which of the following statements regarding the conceptual framework for financial reporting under ASPE is correct? a) b) c) d) The key principal qualitative characteristics are relevance and verifiability. Enhancing characteristics include comparability, timeliness and relevance. Reliability includes verifiability, neutrality and the freedom from error or bias. Consistency is a principal qualitative characteristic.

21.

Which of the following scenarios correctly identifies and records a subsequent event? a) ABC Co. has a year-end of December 31 and was on a one-week shutdown from December 24 until January 2. On December 30, ABC suffers a fire in one of its warehouses resulting in damages of $5,000,000. ABC disclosed these details in its financial statements. b) XYZ Co. has a June 30 year-end. The auditors noted during their work performed the week of July 21 that XYZ was in the process of issuing substantial new debt. As a result, they are recommending an adjustment to the June 30 financial statements. c) N Co. has an October 31 year-end. While the auditors were completing their audit of Ns year-end financial statements, Ns unionized staff went on strike and remained on strike past the financial statement issue date. No disclosure or adjustments were made to the year-end financial statements. d) T Co. has a material receivable from S Co. on its year-end financial statements dated January 31. Prior to the completion of its financial statements, T Co. was made aware that S Co. had gone bankrupt and would be unable to pay any of its amounts owing to T Co. This fact was disclosed in the financial statements of T Co.

22.

GC Ltd. has entered into an agreement with Island Ltd. (IL) in which each company exchanges land. GC would give IL 10 acres of vacant land that GC cannot use and is currently recorded at $1,100,000. IL will give GC 10 acres of land that GC would use to build a new manufacturing plant. The appraised fair value of the land that GC would receive from IL is $1,350,000 and the appraised fair value of the vacant GC land is $1,320,000. Under ASPE, GC would treat this as a non-monetary transaction with a) no commercial substance and record the land received from IL at $1,100,000. b) no commercial substance and record the land received from IL at $1,350,000. c) commercial substance and record the land received from IL at the fair value of the asset given up$1,320,000, resulting in a gain of $220,000. d) commercial substance and record the land received from IL at the fair value of the asset received$1,350,000, resulting in a gain of $250,000.

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23.

Which of the following statements is true with respect to accounting for income taxes? a) Under IFRS, companies may choose to use either the deferred method or the future income tax method. b) Under ASPE, companies must use the taxes payable method. c) Under IFRS, deferred income tax asset and deferred income tax liability accounts are classified as current or noncurrent, according to the type of asset or liability that created them. d) Under ASPE, companies choosing to use the future income tax method are not allowed to discount future income tax assets and liabilities.

24.

Guinness Co. (GC) is a private company and follows ASPE. It recently purchased shares of Alex Ltd. (AL). Under which condition can GC record this share purchase using either cost or equity method? a) b) c) d) GC purchased 40% of AL, and ALs shares are not publicly traded. GC purchased 40% of AL, and ALs shares are publicly traded. GC purchased 5% of AL, and ALs shares are publicly traded. GC purchased 20% of AL, and ALs shares are publicly traded.

25.

At the end of Year 11, JJW Ltd. owns a patent with a remaining useful life of 10 years and a carrying amount of $400,000. JJW expects future net (undiscounted) cash flows from this patent to total $390,000. The patents fair value is $350,000 and the disposal costs are expected to be $15,000. The discounted cash flows (value in use) would be $375,000. What impairment loss would JJW Corporation record on its books if it is a publicly traded enterprise? a) $0 b) $10,000 c) $25,000 d) $65,000

26.

(-) The following is selected financial data from CHI Inc. as at December 31: Accounts payable Inventory Year 1 $120,000 $75,000 Year 2 $180,000 $50,000

The accounts payable balances relate solely to CHIs inventory purchases, all of which were made on account. Sales for Year 2 were $200,000. All sales were credit sales. CHI Inc.s pricing policy provides the company with a gross profit of 40%. How much inventory did CHI purchase in Year 2? a) $55,000 b) $95,000 c) $120,000 d) $145,000

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27.

MS Ltd. uses ASPE and recently purchased a government bond that matures in four years. MS Ltd. measured the investment at amortized cost. Which one of the following is correct? a) b) c) d) When the bond was acquired, MS Ltd. had to recognize it at amortized cost. The transaction costs are recognized in net income in the period incurred. At each reporting date, the bond must be adjusted to fair value. The income from amortized cost investments, including any amortization of premium or discount, is included in net income.

28.

Sunnyside Manufacturing, a publicly traded company, has entered into an agreement with FP Inc. to lease a specialized piece of production equipment. Significant modification would be required to make this equipment available to others after the lease has expired. Terms of the lease are as follows: Lease term Expected life of the equipment Implicit interest rate Sunnysides borrowing rate Annual lease payment Fair value of the equipment Leased asset 5 years 8 years 8% 6% $60,000 (made at the beginning of the year) $400,000 Reverts to the lessor at the end of the lease

Based on this, in the first year of the lease Sunnyside would account the production equipment as: a) b) c) d) 29. an operating lease of $60,000. a finance lease of $258,720. a finance lease of $400,000. a finance lease of $267,900.

HIJ Ltd., a publicly traded company, has five operating segments all producing different products with the following results: Segments Q R S T U Total Total Revenues $ 50 50 160 270 40 $570 Operating Profits (Losses) $4 3 10 25 2 $44 Total Assets $ 100 75 350 500 125 $1,150 Total Liabilities $150 100 175 275 60 $760

Based on the quantitative thresholds, which segment(s) would be reported separately? a) b) c) d) T only. S and T only. S, T and U only. Q, R and U only.

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30.

(+) On January 1, Year 2, GHI Inc. had depreciable assets with a book value of $920,000 and a historical cost of $1,000,000. CCA totalling $100,000 had been taken on these assets. During Year 2, depreciation of $80,000 and CCA of $20,000 had been taken on these assets. The tax rate in effect is 35%. For Year 2, the temporary differences arising from the above would result in a) b) c) d) a decrease to income tax expense of $21,000. an increase to income tax expense of $7,000. a decrease to income tax expense of $7,000. a decrease to income tax expense of $14,000.

31.

Merlin Co. reports under ASPE with a December 31 fiscal year-end. On January 2, the unadjusted balance in the allowance for doubtful accounts is a debit of $15,000. Previously, the allowance was established at 2% of accounts receivable, but recent industry analysis suggests that, going forward, the allowance should be established at 4% of accounts receivable. If the year-end accounts receivable balance is $625,000, the correct year-end adjustment is a credit to the allowance for doubtful accounts for a) b) c) d) $10,000. $25,000. $40,000. $27,500.

32.

Johnson Inc. adheres to IFRS and sponsors a defined benefit pension plan for its employee group. On January 1, Year 1, a plan amendment took effect. The plan amendment resulted in an additional $920,000 in benefits payable to the employee group, half of which have vested on January 1, Year 1. The plans expected average remaining service life (EARSL) is 8 years, while the average vesting period is 5 years. For the year ended December 31, Year 1, Johnsons plan amendment will result in an increase in pension expense of a) b) c) d) $115,000. $184,000. $552,000. $517,500.

33.

Items that should be included in a companys Management Discussion and Analysis (MD&A) are a) b) c) d) descriptions of the companys accounting policies. explanations of uncertainties and contingencies. the companys key performance drivers. both b) and c).

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The following information pertains to questions 34 to 36.


Quinn Manufacturing has the following results: (in 000s) Current assets Long-term investments Property, plant and equipment Goodwill Other non-current assets Year 7 $15,640 3,500 8,500 1,000 5,330 $33,970 Current liabilities Long-term debt Other non-current liabilities Preferred stock Common stock Retained earnings $10,355 5,500 4,365 2,500 7,500 3,750 $33,970 Sales Cost of sales Gross profit Operating expenses Operating income Other income/expenses (net) Earnings before interest and tax Interest expense Income tax expense Net Income 34. $24,200 11,250 12,950 8,250 4,700 425 5,125 330 1,438 $ 3,357 Year 6 $14,825 3,500 8,300 1,000 5,025 $32,650 $10,200 5,550 4,150 2,500 7,500 2,750 $32,650 $20,500 9,400 11,100 7,250 3,850 600 4,450 333 1,235 $ 2,882

What is Quinns times interest earned for Year 7? a) b) c) d) 15.53 10.17 14.24 13.36

35.

What is Quinns return on total assets for Year 6? a) 22.04% b) 15.39% c) 8.65% d) 10.08%

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36.

Based on the Year 7 current ratio, Quinn has a) b) c) d) bettered its use of assets. greater liquidity. improved profitability. higher inventory turnover.

-------------------------------37. The following is selected financial data for Horse Inc.: December 31, Year 1 $120,000 $5,000 December 31, Year 2 $160,000 $12,000

Accounts receivable Allowance for doubtful accounts (credit balance)

Sales for Year 2 were $200,000. All sales were credit sales. Bad debt expense for Year 2 is estimated at 5% of sales. Horse Inc.s cash collections for Year 2 were a) b) c) d) $157,000. $162,000. $167,000. $145,000.

The following information pertains to questions 38 and 39.


On January 1, Year 1, ABC Inc. bought and received equipment from a US supplier for $100,000 US payable on March 1, Year 1. On January 1, immediately after receiving the suppliers invoice, ABC entered into a 60-day forward exchange contract to purchase $100,000 US for $105,000 Cdn for delivery on March 1. Spot exchange rates: January 1 March 1 60-day forward rates: January 1 March 1 $1 US = $1.05 Cdn $1 US = $1.09 Cdn $1 US = $1.04 Cdn $1 US = $1.06 Cdn

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38.

ABC Inc. elected to apply hedge accounting and designated its forward contract as a fair value hedge of its US dollar account payable. Ignoring the time value of money, when the contract is settled on March 1, the journal entry for the contract will result in a foreign exchange gain of a) b) c) d) $2,000 Cdn. $1,000 Cdn. $3,000 Cdn. $5,000 Cdn.

39.

Assume that no depreciation had been taken on the equipment. The March 1 book value of the equipment would be a) b) c) d) $104,000 Cdn. $106,000 Cdn. $105,000 Cdn. $109,000 Cdn.

-------------------------------40. The following selected amounts are taken from an adjusted trial balance. Sales Sales discounts Cost of goods sold Accrued liabilities Allowance for doubtful accounts Operating expenses Contributed surplus Unrealized holding gain $500,000 $10,000 $245,000 $12,000 $8,000 $125,000 $20,000 $5,000

Based on the information above, comprehensive income would be a) b) c) d) $112,000. $120,000. $135,000. $125,000.

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41.

ABC Inc. applies the revaluation model to account for its Machinery and Equipment. On January 1, Year 1, its Machinery and Equipment had a net book value of $180,000. An impairment test revealed that the fair value of these assets on that date was $120,000. There was a $35,000 credit balance in the companys Revaluation Surplus Machinery and Equipment account on that date. The required journal entry to adjust ABCs Machinery and Equipment to fair value would include a a) b) c) d) debit to Retained Earnings of $60,000. debit to Depreciation Expense of $25,000. debit to Revaluation Surplus Machinery and Equipment of $60,000. debit to Revaluation Surplus Machinery and Equipment of $35,000.

42.

Prior to recording the December 31, Year 5, year-end adjusting entries for a small business, revenues exceed expenses by $50,000. The following information was known at December 31, Year 5: i) Services amounting to $8,000 had been performed but not yet been billed or recorded, ii) An advertising campaign is scheduled to run from January 1 to June 30, Year 6. The $6,000 costs for the campaign were paid for and expensed on November 30, Year 5, iii) Amortization of capital assets for Year 5 of which $7,000 has not yet been recorded, iv) The December, Year 5, bank reconciliation shows that the bank deducted interest expense of $2,000 on a note payable on December 31, Year 5, but was not recorded by the company until January 10, Year 6. Assuming the company prepares financial statements only at year-end, what is its accounting income before taxes for Year 5? a) b) c) d) $49,000 $55,000 $37,000 $62,000

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43.

MOR Construction reports using ASPE. In June, one month before its year-end, it was formally notified that it was being sued by a former customer for an environmental spill on a property that MOR had worked on. It is believed that the spill is a result of the work that MOR did, and consequently MOR is being sued for $1,000,000 based on cleanup estimates. MOR denies any wrongdoing. MORs lawyers believe that the $1,000,000 is too high and that this claim amount is not substantiated. They do believe that MOR may ultimately be liable for cleanup costs, but the amount will be between $300,000 and $600,000. MOR does not have any liability insurance for this type of claim. Based on this information, how should MOR record the environmental spill? a) Record a contingent liability of $300,000 and disclose the range of $300,000 to $600,000. b) Disclose in the financial statements the possibility of a lawsuit but do not record a liability. c) Record a contingent liability of $1,000,000 and disclose a range of $300,000 to $1,000,000. d) Since the lawyers cannot decide on an exact amount, MOR should record nothing at this point.

44.

On January 1, Year 1, Tree Inc. purchased call options to purchase 2,000 shares of Rock Ltd. with a strike price of $50. The total cost of the options was $1,000. On December 31, Year 1, the shares of Rock Ltd. were trading at $47 per share. The options expire at the end of Year 2. Tree Inc. adheres to IFRS, and the options are not hedging instruments. On December 31, Year 1, how would these options be reflected on Trees statement of financial position? a) b) c) d) As an asset of $1,000. As a liability of $6,000. As a liability of $7,000. They would be expensed and appear on the income statement.

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45.

JMR Inc. just purchased 85% of ASJ Ltd. for $840,000 cash. All of ASJs net identifiable assets of $625,000 are equal to their fair values except for the following: i) Machinery and equipment with a book value of $625,000 and a fair value of $125,000 in excess of book value. ii) ASJ has a patent, not currently on its books. The cash flows from the patent are expected to be $40,000 per year for the next 8 years, and JMR believes that 5% is an adequate discount rate. JMR has determined that it will calculate any non-controlling interest based on its proportionate share of ASJs fair value. What should be recorded as the fair value of ASJs assets acquired by JMR (rounded to the nearest thousand dollars)? a) $625,000 b) $840,000 c) $951,000 d) $1,009,000

46.

For a not-for-profit entity using accounting standards for not-for-profit organizations, which one of the following is correct with respect to recording capital assets? a) The entity may choose to record some or all of its tangible capital assets on the statement of financial position. b) Any contributed capital asset should be recognized at fair market value at the date of the contribution. If a fair value cannot be determined, the asset should not be recognized. c) If the entity uses fund accounting, it may report depreciation in the operating fund or as an expense of the tangible capital asset or plant fund. d) An impairment loss shall be recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.

47.

City Museum is a not-for-profit organization that recently acquired a collection of paintings worth $5,000,000 for a new public exhibit. What is the correct accounting policy City Museum would use to account for this collection? a) b) c) d) Capitalize but not amortize. Capitalize and amortize. Expense upon acquisition. Any of the above.

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48.

(+) Reed Construction Ltd. (RCL) uses the percentage-of-completion method on its long-term construction contracts. In Year 16, RCL agreed to construct an apartment building for a contract price of $250 million. The job was completed in Year 18 with the following information: (in millions) Costs incurred to date Estimated costs to complete Billings to date Collections during the year Year 16 $80 $150 $90 $80 Year 17 $165 $70 $180 $95 Year 18 $240 $0 $250 $75

What amount of the total contract price would be recognized as revenue in Year 17? a) $175,500,000 b) $95,000,000 c) $88,500,000 d) $90,000,000

Management Accounting
49. A company is considering investing in a machine worth $3,250,000. The machine will generate annual net cash inflow of $500,000, and the company uses a 7% rate of return to evaluate its capital investments. What is the minimum useful life the machine must have for the company to accept the purchase of the machine? a) 10 years b) 9 years c) 8 years d) 7 years 50. ZIL Inc. operates two divisions, which are treated as investment centres. Data for each division for Year 4 are as follows (in 000s): Net income Total assets Division A $65,000 $400,000 Division B $140,000 $850,000

The companys required rate of return is 15%. The president wishes to evaluate the performance of these divisions and is not sure whether to use return on investment (ROI) or residual income (RI) as the performance measure. Which division performed better based on the ROI and RI performance measures? a) b) c) d) Division A, because its RI is higher than that of Division B. Division B, because its ROI and RI are higher than those of Division A. Division A, because its ROI is higher than that of Division B. Both a) and c) above.

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51.

Which of the following is a benefit of using return on investment (ROI) in evaluating performance of and determining incentive compensation for divisional managers? a) ROI is a ratio that accounts for the difference in investment in assets among divisions. b) ROI is a ratio that can be used in evaluating performance of divisions against those in the industry. c) ROI is a ratio that accounts for the difference in the business operations among the divisions. d) Both a) and b).

52.

(-) Which of the following best describes the function of management accounting within an organization? a) Its primary emphasis is the future. b) Its primary emphasis is the past. c) It focuses on the organization as a whole, rather than on the organizations segments. d) It places more emphasis on precision of data than financial accounting does.

53.

In the previous year, a companys total fixed manufacturing overhead costs were $13,600 and its total variable production costs were $15,000. There were no units in beginning inventory, 10,000 units were produced and 9,200 units were sold. How much lower is the operating income for the previous year using direct (variable) costing versus absorption costing? a) b) c) d) $1,192 $2,288 $1,088 $1,200

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54.

Last month, Talbot Ltd. bought raw lumber for $480,000. Talbot separates and processes the raw lumber into 3 grades: A, B and C. It has the following information: A Final sales value after processing Cost of processing $320,000 $100,000 B $480,000 $120,000 C $180,000 $20,000 Total $980,000 $240,000

The lumber could also be sold immediately after separation and without further processing: Sales value before further processing A $240,000 B $300,000 C $120,000

Based on this information, which of the following should the company do? a) b) c) d) Sell A as is and do not process further. Sell B as is and do not process further. Sell C as is and do not process further. Process all three grades further.

The following information pertains to questions 55 and 56.


Ex Company, which produces a single product, began operations on January 1, Year 1. Material A is added at the start of the production process and packaging material B is added at the end of the process. Conversion costs are incurred uniformly throughout the process. Inspection takes place when manufacturing is completed, but before packaging material B is added. Spoiled units are discarded. Normal spoilage for this production process is 4% of good output. Production data for the first quarter of Year 1 was as follows: Units started Good units completed and transferred out Ending work-in-process inventory 18,000 units 15,000 units 2,000 units

Using a first-in, first-out (FIFO) process costing system, Ex Company incurred the following costs per equivalent unit during the first quarter: Material A Material B Conversion costs $11.00 $0.80 $15.00

The cost of ending work-in-process inventory using FIFO process costing was $34,000.

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55.

(+) The loss from abnormal spoilage for the first quarter was a) b) c) d) $16,080. $10,400. $15,600. $26,800.

56.

(+) In terms of conversion, what was the percentage of completion of the ending workin-process inventory? a) b) c) d) 65.4% complete 34.7% complete 54.5% complete 40.0% complete

-------------------------------57. Which of the following statements about transfer pricing is true? a) Division managers favour full-cost-based transfer pricing because it yields relevant costs for short-run decisions. b) Distress price should be used for transfer price when the drop below historical average market price is temporary. c) Negotiated transfer price promotes autonomy among division managers, but it can be time-consuming. d) Use of market price motivates managers to deal with customers and suppliers in the external market. 58. Which of the following statements regarding the allocation methods of common (service) costs is true? a) The direct method of common cost allocation ignores the services provided by a service department to itself and to all other service departments in the allocation process. b) The step-down (sequence) method of common cost allocation ignores the services provided by a service department to itself and to all other service departments in the allocation process. c) The reciprocal method of common cost allocation recognizes that services are provided by a service department to all other service departments in the allocation process. d) Both a) and c) above.

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59.

Bartok Motors Inc. operates as a decentralized multidivisional company. The Sonata Division purchases most of its motors from the Concerto Division. The Concerto Divisions incremental costs for manufacturing the motors are $620 per motor. The Concerto Division currently has sufficient excess capacity to satisfy the Sonata Divisions motor requirements. The current market price for motors is $890. Assuming the divisions are treated as profit centres, which of the following statements regarding transfers from the Concerto Division to the Sonata Division is true? a) The minimum transfer price the Concerto Division is willing to accept on sales to the Sonata Division is $620. b) The minimum transfer price the Concerto Division is willing to accept on sales to the Sonata Division is $890. c) The maximum transfer price the Sonata Division is willing to pay on purchases from the Concerto Division is $890. d) Both a) and c) above.

The following information pertains to questions 60 and 61.


Russ has developed a new device, which he hopes to produce and market on a large scale. Russ will rent a production space for $500 per month and rent production equipment for $800 per month. Russ estimates the material cost per unit will be $5 and the labour cost per unit, $3. Advertising and promotion will cost $900 per month. He will hire workers and spend his time promoting the product. 60. The production space rental is a a) b) c) d) 61. sunk cost. variable period cost. variable product cost. fixed product cost.

Advertising and promotion is a a) b) c) d) variable product cost. fixed product cost. fixed period cost. variable period cost.

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62.

The following is information from the records of SKT Inc. for the month of June: Opening Inventory June 1 $100,000 $20,000 $0 $48,000 Ending Inventory June 30 $100,000 $15,000 $0 $22,000 Purchased in June $920,000 $40,000 n/a $34,000

Direct materials Indirect materials Work in process Office supplies Other expenses:

Direct manufacturing labour Selling and administrative salaries and benefits Rent Utilities Advertising

$680,000 $36,000 $120,000 $80,000 $300,000

SKT Inc. allocates 60% of rent and utilities to manufacturing and 40% to selling and administration. What amount of indirect manufacturing costs would be charged to cost of goods manufactured in June? a) $165,000 b) $1,765,000 c) $225,000 d) $1,085,000

This information pertains to questions 63 and 64.


Clarkson Company is a retailer with a fiscal year ending March 31. Data pertaining to sales of a ceiling fan that sells for $60 is as follows: Actual Sales (in units) April 2,000 May 4,000 Budgeted Sales (in units) June 5,000 July 7,000 August 8,000 September 6,000 October 3,000

The average purchase price for the fan is $25 per unit. The companys policy is to have an inventory equal to 30% of the following months unit sales at the end of each month. The merchandise inventory balance on May 31 is $37,500. The payment terms with the supplier are such that 80% of any months purchases is payable in the month of purchase, while the balance is paid in the following month.

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63.

The total amount spent on fans during the second fiscal quarter (July to September) is a) $547,500. b) $495,000. c) $472,500. d) $1,188,000.

64.

On June 30, the estimated account balances for Merchandise Inventory and Accounts Payable are: a) b) c) d) $52,500 and $22,000, respectively. $37,500 and $28,000, respectively. $52,500 and $28,000, respectively. $52,500 and $112,000, respectively.

-------------------------------65. A ski resort calculates that the cost driver for equipment maintenance is number of guests. The resort has the following information: Month November December January February Maintenance Costs $7,200 $6,800 $11,600 $10,000 Number of Guests 6,000 6,500 10,000 9,000

Using the high-low method, the estimated variable cost per guest for equipment maintenance is a) b) c) d) 66. $1.10. $1.17. $1.20. $1.37.

An investment centre is a segment of business in which the manager controls and is accountable for the segments a) b) c) d) operating profits and market share. revenues and operating costs. return on the resources invested. revenues, operating costs and marketing costs.

67.

Which of the following describes the core concept of kaizen budgeting? a) b) c) d) Expenditures are budgeted on a program basis. Budgets are initiated on an incremental basis. Continuous improvement is built into the budget figures. Budgets are focused on the costs of the activities needed to produce and market the organizations products and services.

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68.

Harry Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated its total manufacturing overhead cost at $400,000 and its direct labour hours at 100,000 hours. The actual manufacturing overhead incurred during the year was $365,000 and the actual direct labour hours incurred during the year were 90,000 hours. The manufacturing overhead for the year is a) b) c) d) $35,000 underapplied. $35,000 overapplied. $40,000 overapplied. $5,000 underapplied.

69.

When simple linear regression analysis is applied in estimating cost behaviour, all of the following are criteria used to evaluate the estimated regression model EXCEPT a) b) c) d) validity of the assumptions of regression analysis. irrelevant high-low outliers. goodness of fit. significance of regression coefficient.

70.

A company makes one product and uses a standard cost system. Last month 4,500 units of the product were made, and the labour efficiency variance was $8,000 favourable. The standards for direct labour are 2.5 hours per unit at $16 per hour. What was the actual number of direct labour hours worked last month? a) b) c) d) 11,750 10,750 12,500 11,050

The following information pertains to questions 71 and 72.


Foster United Ltd. operates with 3 service departments and 2 operating departments. The company allocates service department costs as follows: Administrative (Admin.) number of employees; Janitors space used; and Equipment Maintenance (Maint.) machine-hours. Additional information for the 5 departments follows: Service Departments Admin. Janitors Maint. $42,000 $24,000 $18,000 40 200 40 200 40 800 0 0 0 Operating Departments Metals Plastics $128,000 $249,000 400 200 2,000 4,000 6,000 18,000

Overhead costs Number of staff Space used (m2) Machine-hours

Total $461,000 880 7,040 24,000

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71.

If the company uses the direct method to allocate service department costs, the additional overhead assigned to the Plastics department is a) b) c) d) $48,000. $43,500. $36,681. $42,519.

72.

If the company uses the step-down method starting with the service department with the highest costs to allocate service department costs, the additional overhead assigned to the Metals department is a) b) c) d) $30,408. $40,500. $36,000. $33,693.

-------------------------------73. (-) Which of the following is the most appropriate explanation for a company that experienced a favourable material price variance and an unfavourable material quantity variance? a) Materials were purchased at a discount and workers were well trained. b) The price of materials has decreased and demand for the product has decreased. c) The actual quantity of material purchased was less than the estimated budgeted amount. d) Lower-quality materials that resulted in excessive waste were purchased at a discount. 74. Which of the following statements about activity-based costing is most accurate? a) It requires that all manufacturing overhead be included in product cost. b) It must be used for external financial reporting. c) It will allocate more overhead to low-volume products, when compared to the traditional costing approach. d) It will allocate more overhead to high-volume products, when compared to the traditional costing approach.

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The following information pertains to questions 75 to 77.


Adventure Products (AP) sells camping equipment. One of the companys products, a camp lantern, sells for $80. The company uses a standard costing system, and all variances are adjusted to cost of goods sold at month end. The standard production cost per unit for the camp lantern for Year 9 is as follows: Direct materials Direct labour (0.8 DLH @ $15 per DLH) Variable overhead (0.5 MCH @ $10 per MCH) Fixed overhead (0.5 MCH @ $20 per MCH) Standard Cost per Unit $13 12 5 10 $40

The manufacturing facility has a capacity of 60,000 machine-hours (MCH) per year. The facility has been operating on average at 80% capacity, which is used as the denominator activity in setting the overhead rates. Commission of 5% of selling price is the only variable selling cost. The fixed selling and administrative costs are budgeted at $420,000 for Year 9. 75. What are the breakeven sales (in units) for the camp lantern for Year 9? a) 34,500 b) 38,334 c) 30,000 d) 9,131 76. (+) Adventure Products (AP) is considering purchasing a new component, CP8, to replace an existing component, CP5, in production. CP8 is more expensive than CP5 and will increase direct material cost by $2. There will also be a 20% reduction in machine-hours required for the production. Moreover, sales are expected to increase by 10% to 99,000 units per year as the selling price remains unchanged at $80 per unit. All other costs are unaffected by the use of the new component, CP8. With respect to the new component, CP8, AP should a) b) c) d) 77. not use the new component in production as income will decrease by $531,000. use the new component in production as income will increase by $99,000. use the new component in production as income will decrease by $720,000. use the new component in production as income will increase by $315,000.

There were 500 camp lanterns in inventory on June 1, Year 9. In June, 8,400 units were manufactured and 8,700 units were sold. There are no flexible-budget variances in June. For the month of June, operating income under full (absorption) costing income is a) b) c) d) $3,000 greater than operating income under direct (variable) costing. $1,500 greater than operating income under direct (variable) costing. $3,000 lower than operating income under direct (variable) costing. $1,500 lower than operating income under direct (variable) costing.

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78.

(+) Alpha Leather Company (ALC) manufactures and sells two products, wallets and belts, in its two-department plant. Operating data pertaining to the two products are as follows: Selling price per unit Cost per unit: Variable manufacturing costs Variable marketing costs Fixed manufacturing costs Fixed marketing costs Wallet (per unit) Belts (per unit) Monthly direct labour hour (DLH) capacity Wallets $30 $8 $2 $5 $6 Cutting 10 minutes 20 minutes 1,000 hours Belts $50 $15 $3 $5 $1 Finishing 15 minutes 40 minutes 1,200 hours

ALC has a non-cancellable contract with one of the major department stores to supply 1,800 belts for the last quarter, from October to December. The maximum expected sales of belts for the last quarter are 1,500 belts per month, which includes the noncancellable contract. The maximum expected sales of wallets are 2,500 units per month. The optimal production plan for the last quarter, October to December, is a) b) c) d) 7,500 wallets and 1,800 belts. 7,500 wallets and 2,587 belts. 7,500 wallets and 4,500 belts. 2,400 wallets and 4,500 belts.

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79.

(+) Yabco Inc. produces three design types of a product, A, B and C. The budgeted gross margin per unit for Year 5 is as follows: Price Direct materials Direct labour Variable overhead Fixed overhead Gross Margin per Unit A $400 100 50 60 20 230 $170 B $250 80 50 40 20 190 $ 60 C $150 40 50 10 20 120 $ 30

The fixed overhead allocation rate is based on the Year 4 sales of 5,000 units of A, 10,000 units of B and 20,000 units of C. The budgeted total administration costs for Year 5 amount to $500,000, all of which are fixed costs. Assuming the sales mix in Year 5 will be the same as in Year 4, what is the breakeven sales volume for Year 5 (rounded to the nearest 10 units)? a) 8,540 units b) 11,250 units c) 8,840 units d) 15,270 units 80. A company produces three products, A, B and C, all using the same direct materials. The company is experiencing an unexpected spike in the demand for these products and a shortage in the supply of direct materials. The price of materials is $16 per gram, and only 6,000 grams of material are currently available each week. Per unit data is as follows: Sales price Costs: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Product A $120 $24 $54 $6 $1 Product B $180 $64 $28 $16 $38 Product C $190 $32 $110 $8 $7

In what order should the company produce its products? a) b) c) d) A, C, B B, C, A B, A, C A, B, C

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81.

Which of the following statements about performance measures is INCORRECT? a) Return on investment is a productivity measure for evaluating performance of investment centres, e.g. strategic business unit. b) Revenue per salesperson is a partial factor productivity measure for evaluating performance of revenue centres, e.g. sales department. c) Units of output per direct labour hour is a partial factor productivity measure for evaluating performance of engineered expense centres, e.g. production department. d) Units of output per dollar of production resources is a partial factor productivity measure for evaluating performance of engineered expense centres, e.g. production department.

The following information pertains to questions 82 to 84.


Super Kitty produces two brands of cat food with the following data for May, Year 5: Budget Gourmet Homemade 10,000 5,000 $8.00 $5.00 $1.60 $1.20 $1.40 $0.80 $0.75 $1.20 $0.65 $0.80 Actual Gourmet Homemade 9,200 6,800 $7.50 $5.50 $1.50 $1.25 $1.50 $0.75 $0.80 $1.25 $0.70 $0.75

Sales (bags) Price per bag Variable manufacturing costs per bag Fixed manufacturing costs per bag Variable S&A costs per bag Fixed S&A costs per bag

Variable manufacturing costs include direct materials, direct labour and variable manufacturing overhead. Fixed manufacturing costs are allocated to the two brands based on the number of bags produced. In May, 10,000 bags of Gourmet and 7,000 bags of Homemade were produced, and on May 1, Year 5, there were 200 bags of Gourmet and 100 bags of Homemade. Variable selling and administrative (S&A) costs include a commission of 5% of price, and fixed selling and administrative (S&A) costs are allocated to the two brands based on the number of bags sold. According to the company forecasts, it was budgeting to earn a 20% market share in total units (bags) of specially prepared cat food sold in May, Year 5, in Burlington, Ontario. Industry figures indicated that the total number of bags of cat food sold for May, Year 5, in Burlington was 100,000 bags. 82. (+) Which of the following statements is correct? a) b) c) d) Market size variance is unfavourable and market share variance is favourable. Market size variance is favourable and total sales mix variance is unfavourable. Market share variance is favourable and total sales mix variance is favourable. Market size variance is favourable and total sales mix variance is favourable.

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83.

The sales volume variance for Gourmet is: a) b) c) d) $4,160 unfavourable $4,000 unfavourable $3,800 unfavourable $3,600 unfavourable

84.

The total sales quantity variance is a) b) c) d) $1,200 unfavourable $2,480 favourable $2,053 unfavourable $4,533 favourable

Taxation
85. Joe is an employee of New Tech Ltd. The following information lists all payments and other benefits Joe received from New Tech in Year 10: Gross salary received in Year 10 Vacation pay owed to him at the end of Year 10 Discounts on merchandise Joe purchased from New Tech Travel expenses to a conference for Joe and his spouse (50% each) Gift cards for a local restaurant Based on the above, Joes income from employment for Year 10 was: a) b) c) d) 86. $103,500 $105,000 $107,000 $108,500 $100,000 $5,000 $3,500 $6,000 $500

(-) Which of the following is NOT a taxable entity for income tax purposes? a) b) c) d) Joe Smith, an individual Smith Ltd., a corporation The Smith Family Trust, a trust Smiths General Store, a sole proprietorship

87.

During Year 4, a company sold its last piece of equipment. Prior to the sale of the equipment, the UCC balance in its equipment class account was $100,000. The equipment cost $140,000 and the proceeds of disposition were $110,000. Direct selling fees were $5,000. What is the recapture from the sale of the equipment? a) $40,000 b) $10,000 c) $5,000 d) A terminal loss of $30,000.

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88.

In Year 16, PRL Ltd. disposed of a rental property that it purchased several years ago for a cost of $200,000. The property was sold for less than its Undepreciated Capital Cost (UCC) leaving a UCC balance of $25,000. In calculating its taxable income for Year 16, PRL a) must deduct the $25,000 in calculating its taxable income. b) must continue to claim CCA until the $25,000 balance is zero. c) may defer the deduction by purchasing a new property of the same or similar type before the end of the year. d) has the option of deducting the $25,000 or continuing to claim CCA.

89.

Humber Connect Inc. is a private corporation that uses Accounting Standards for Private Enterprises (ASPE) in its annual financial statements. The following information is available for the year ended December 31, Year 11: Net income for accounting purposes Income tax (current and future) Accounts payable (including charitable donations of $2,000 and investment counsel fees of $5,000) Accounts receivable (net of the allowance for doubtful accounts of $11,000) Capital Cost Allowance (CCA) in excess of depreciation Minimum net income for tax purposes for Year 11 was a) b) c) d) $648,000. $729,000. $743,000. $754,000. $650,000 $90,000 $40,000 $43,000 $4,000

90.

Shauna owns a capital asset with an adjusted cost base of $100,000 and a fair market value of $150,000. She transfers this asset to her son, Daniel, at $175,000. As a result, Shauna would incur a capital gain of a) $75,000. b) $50,000. c) $25,000. d) $0.

91.

In determining for income tax purposes if a person is an employee or a self-employed individual, the determining factor is the a) b) c) d) ownership of the tools and equipment necessary for the job. actual terms and conditions of the employment. degree of control. risk assumed by the individual (for profit and loss).

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92.

(+) During the year, a taxpayer made the following transactions in the shares of XYZ Inc.: Date January 15 May 31 November 20 Type of Transaction Purchase Purchase Sale Number of Shares 4,000 2,000 5,000 Price per Share $7.60 $8.10 $8.00

The expenses associated with selling the shares on November 20 were $400. What is the taxable capital gain (rounded to the nearest ten)? a) $1,500 b) $580 c) $770 d) $380

Internal Control
93. Which one of the following is true? a) The internal auditor is interested primarily in the internal controls that relate to reliable financial statements. b) Well-designed internal controls prevent or detect errors, thereby ensuring that financial statements are not materially misstated. c) Even well-designed internal controls cannot prevent or detect all fraudulent activities. d) Small entities are unable to segregate duties well enough to implement good internal controls. 94. The owner of a convenience store suspects that one of her employees is stealing from the store. Which one of the following employee actions could go unnoticed if the owner does not intervene? a) Only take small amounts of cash from the cash register. b) Ask customers if they want a receipt before entering the sale in the cash register. c) Shortchange customers by small amounts; if a customer notices, claim it was honest error. d) Take small amounts of merchandise from the store and sell it for cash.

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95.

Which one of the following situations shows INAPPROPRIATE segregation of duties? a) The controller performs the bank reconciliation independent of the accounts receivable and accounts payable personnel. b) The cashier receives cash, prepares the bank deposit and turns over the cash and deposit book to the accounting manager for review and deposit. c) The receiving supervisor approves all receiving reports and updates the perpetual inventory records. d) The assistant controller authorizes payments to vendors and cancels supporting documents to prevent reuse.

96.

(-) The primary responsibility for preventing fraud in an organization lies with a) b) c) d) management. the internal auditor. the audit committee of the board of directors. the external auditor.

97.

The internal auditors of an organization should a) b) c) d) identify areas of risk that need to be addressed in the control systems. continuously monitor and maintain the control systems. appoint the external auditors. All of the above.

98.

The external auditor gathers sufficient appropriate audit evidence using tests of controls and tests of details of balances to support an opinion on whether the financial statements are presented without any material misstatements. Which of the following statements is true? a) The external auditor uses the same audit objectives when testing controls over classes of transactions as are used when testing account balances. b) The external auditor needs to evaluate all controls for all assertions for all cycles in order to identify all potential material misstatements. c) The external auditor may choose to rely on the internal auditors assessment of controls instead of directly testing the controls. d) Where sophisticated controls are highly reliable, the external auditor may rely on those controls instead of performing substantive testing.

99.

BSL Ltd. is considering the costs and benefits of acquiring an enterprise resource planning system (ERP). Of particular concern are controls to ensure the data is correct and not corrupt, and that only the people who should have access to the data can access it. Which one of the following is true? a) Implementing an ERP requires controls over access that are similar to those used in less complex information systems. b) Using complex passwords that must be changed weekly is a good way to control access. c) The strong internal controls in ERPs eliminate the need to segregate duties. d) An unauthorized user can affect more processes in an ERP than in an older system.

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100.

Huff Industries is in the process of updating its IT operating systems. Operating system maintenance is outsourced to a service provider. Which one of the following is a necessary control procedure for revisions to operating systems? a) Adequate testing of all changes in the operating systems and programs. b) Review and approval of each change by the user department responsible for the activity. c) Parallel runs of the old and new systems for a reasonable period after a change is implemented. d) Proper IT library authorization for application software requirements.

End of Exam

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SOLUTIONS
1. Answer: d. The expected return on the equity investment is calculated with the Capital Asset Pricing Model (CAPM) = 2.5% + 2.25(8%) = 20.5%. Expected return = $100,000 x 20.5% = $20,500. Choice a) Uses 8% risk premium: 8% x $100,000 = $8,000 Choice b) Ignores risk-free rate: 2.25(8%) x $100,000 = $18,000 Choice c) Multiplies return by beta: (2.5% + 8%) x $100,000 x 2.25 = $23,625 2. Answer: d. The maximum amount that BG Corporation should be willing to pay for SM Corporation is the present value of the incremental cash flows using a discount rate of 13%. Years 1 to 3 present value of operating after-tax cash flows from SM Corporation = $500,000 x .6 x PVIFA13,3 (2.361) = $708,300 Years 4 & beyond present value of operating after-tax cash flows from SM Corporation = ($700,000 x .6)/.13 x PVIF13,3 (0.693) = $2,238,923 Present value of synergies = ($225,000 x .6)/.13 = $1,038,462 Net present value = $708,300 + $2,238,923 + $1,038,462 = $3,985,685 = $3,986,000 (rounded) Choice a) Uses the values of the perpetuities at the beginning of Year 4 (i.e. they are not discounted to the present): $708,300 + ($700,000 x .6)/.13 + $1,038,462 = $4,977,531 = $4,978,000 (rounded). Choice b) Ignores the synergies of $225,000 per year: $708,300 + $2,238,923 = $2,947,223 = $2,947,000 (rounded). Choice c) The synergies are subtracted from cash flows instead of added: $708,300 + $2,238,923 - $1,038,462 = $1,908,761 = $1,909,000 (rounded). 3. Answer: c. Vr = ($18 - $14)/(3 + 1) = $1 Choice a) Incorrectly multiplies by the number of rights: 3 x ($18 - $14) = $12. Choice b) Multiplies the cash required by the number of rights and divides by the current value of the shares: ($14 x 3)/$18 = $2.33 Choice d) This is correct if the market price of a share is less than the subscription price of a share with three rights. 4. Answer: d. The expected return on the equity investment is calculated with the Capital Asset Pricing Model (CAPM) = 3% + 1.7(6%) = 13.2% Expected return = $250,000 x 13.2% = $33,000 The expected return on the interest bearing certificate is 3% x $250,000 = $7,500 Therefore, the combined return of the portfolio is $40,500.

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5.

Answer: d. Required for operating disbursements Down payment for equipment Target ending balance Total cash required Less: May 31 cash balance Less: Collections ($270K + $225K) Necessary Borrowing $350,000 160,000 60,000 570,000 50,000 495,000 $ 25,000

Choice a) Ignores cash collected from May credit sales: $25K + $270K = $295,000 Choice b) Ignores the June cash sales: $25K + $225K = $250,000 Choice c) Includes the dividend: $25K + $50K = $75,000 6. Answer: d. In an efficient capital market, current market prices fully reflect available information. Market prices adjust quickly and correctly when new information arrives. This is the case in choice d). Choice a) The price should have adjusted immediately, not gradually over a period of days. Choice b) The price should have increased, not decreased. Choice c) In this scenario, the market overreacted to the report, after which there was a market correction. Efficient markets do not overreact to information. 7. Answer: a. Profitability index = PV cash inflows / PV cash outflows Project W = 620(3.240)/2,000 = 1.004 Project X = 1,000(3.696)/5,000 = 0.7392 Project Y = 2,000(4.423)/10,000 = 0.8846 Since Project W has a profitability index greater than 1, it is the only project the company should invest in. 8. Answer: d. The CAPM links non-diversifiable risk and return for all assets and recognizes that diversifiable risk can be eliminated. Choice a) The risk preference of the investor has no bearing on the model. Choice b) The model assumes investors portfolios will be diversified to minimize risk. Choice c) This response has no bearing on why the model disregards diversifiable risk.

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9.

Answer: d. The value of the bond is calculated as the present value of the stream of interest (annuity) plus the present value of the principal payment. At issuance, the bond will be valued as follows: PV of Principal: $950,000 x (PVIF i=4%, t=16) 0.534 = $507,300 PV of Interest: $33,250 x (PVIFA i=4%, t=16) 11.652 = $387,249 $894,549 At repurchase, the bond will be valued as follows: PV of Principal: $950,000 x (PVIF i=5%, t=12) 0.557 = $529,150 PV of Interest: $33,250 x (PVIFA i=5%, t=12) 8.863 = $294,695 $823,845 Difference: $894,549 - $823,845 = $70,704 = $71,000 (rounded) Choice a) Calculates the bonds at the repurchase date by using the original market rate of 8% as opposed to the revised market rate of 10%. At issuance, the bond will be valued as: At repurchase, the bond will be valued as follows: PV of Principal: $950,000 x (PVIF i=4%, t=12) 0.625 = PV of Interest: $33,250 x (PVIFA i=4%, t=12) 9.385 = $894,549

$593,750 $312,051 $905,801 Difference: $894,594 - $905,801 = ($11,207) = ($11,000) (rounded) Choice b) Calculates the interest payment based on the market rate.

At issuance, the bond will be valued as follows: PV of Principal: $950,000 x (PVIF i=4%, t=16) 0.534 = $507,300 PV of Interest: $38,000 x (PVIFA i=4%, t=16) 11.652 = $442,776 $950,076 At repurchase, the bond will be valued as: $823,845 Difference: $950,076 - $823,845 = $126,231 = $126,000 (rounded) Choice c) Assumes that there is no change in the bond value over time. 10. Answer: b. The beta coefficient indicates how sensitive the return of a particular asset is with respect to general market conditions. It measures how much systematic risk a particular asset has relative to an average asset, i.e. an average asset has a beta of 1.0. Choice a) The variance is the average squared deviation between the actual return and the average total return of an asset. It is a measure of total risk, i.e. includes both systematic and unsystematic risk. Choice c) The standard deviation is not a measure of risk. Choice d) The total return is not a measure of risk.

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11.

Answer: c. B I n M k = Gross value from bond sale at time zero = 4.0% (= 8.0% / 2) = 20 payments (coupon payments are semi-annual) = $48,000,000 = 10.0% p.a.

B = (M x I x PVIFA 5%@ n terms) + (M x PVIF 5% @ n terms) B = ($48,000,000 x 4% x PVIFA 5%,20) + ($48,000,000 x PVIF 5%,20) = ($48,000,000 x 4% x 12.462) + ($48,000,000 x 0.377) = $42,023,040 Brokerage charge = $48,000,000 x 2.5% = $1,200,000 Net proceeds from sale of bond = $42,023,040 - $1,200,000 = $40,823,040 = $40,820,000 (rounded) Choice a) Ignores commission fee. Choice b) Uses annual interest payments and ignores commission: B = (M x I x PVIFA, 8% @ n terms) + (M x PVIF, 10.0% @ n terms) B= ($48,000,000 x 8% x 6.145) + ($48,000,000 x 0.386) = $23,596,800 + $18,528,000 = $42,124,800 = $42,120,000 (rounded) Choice d) Uses annual interest payments and calculates commission incorrectly: B = $42,124,800 Brokerage charge = $42,124,800 x 2.5% = $1,053,120 Net proceeds from sale of bond = $42,124,800 - $1,053,120 = $41,071,680 = $41,070,000 (rounded) 12. Answer: d. Fair share price = $1.40 x 9.5 = $13.30 Value = $13.30 x 500,000 shares = $6,650,000 Choice a) Uses ratio x dividends paid = 9.5 x (0.50 x 500,000) = $2,375,000 Choice b) Uses ratio x EBITD = 9.5 x $900,000 = $8,550,000 Choice c) Uses net assets 13. Answer: d. Operating leverage = % change in EBIT / % change in sales = [($400K - $335K)/$335K] / [($800K - $700K)/$700K] = 0.1940/0.1429 = 1.36 Choice a) Total leverage = % change in EPS / % change in sales = [($1.00 - $0.90)/$0.90] / [($700K - $800K)/$700K] = 0.1111/0.1429 = 0.78 Choice b) Financial Leverage = [($1.00 - $0.90)/$0.90] / [($400K - $335K)/$335K] = 0.1111/0.1940 = 0.57 Choice c) Mixes denominator and numerator: 0.1429/0.1940 = 0.74

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14.

Answer: d. Current Degree Total Leverage (DTL) = Degree Operating Leverage (DOL) x Degree Financial Leverage (DFL) =1.60 x 1.20 = 1.92 DTL also = % change in EPS / % change in sales Therefore, % change in EPS = 10% x 1.92 = 19.2% rounded to 19% Choice a) Uses DOL x increase = 16% Choice b) Uses DFL x increase = 12% Choice c) Uses contribution margin and increase = 60% x 10% = 6%

15.

Answer: a. Item Buy New Machine Cost of new machine Salvage value of old machine Salvage value of new machine Annual operating costs PV of Cash Outflows Keep Old Machine Repairs Repairs Annual operating costs Salvage value of old machine PV of Cash Outflows Net PV in Favour of Buying New Year 1 1 5 1-5 Cash Flow $(120,000) $15,000 $80,000 $(12,000) PV Factor 1 1 0.713 4.10 PV of Cash Flows $(120,000) 15,000 57,040 (49,200) $ (97,160)

1 3 1-5 5

$(25,000) $(10,000) $(20,000) $1,000

1 0.816 4.10 0.713

$ (25,000) (8,160) (82,000) 713 $(114,447) $17,287

Choice b) Misses old machine salvage value in calculation of the new machine: $17,287 - $15,000 = $2,287 Choice c) Misses operating costs: $47,960new - $32,447old = $15,513 Choice d) Misses present values: $85,000new - $134,000old = $49,000 16. Answer: c. After-tax cost of debt = 7.5% x (1 - .4) = 4.5% Cost of preferred shares = 8%; Cost of common equity = 12% Total long-term debt + equity = $1,300K + $3,500K + $6,200K = $11,000,000 WACC = (4.5% x 1.3/11) + (8% x 3.5/11) + (12% x 6.2/11) = 0.532% + 2.545% + 6.764% = 9.841% = 9.8% (rounded) Choice a) Uses total liabilities: WACC = (4.5% x 2.2/11.9) + (8% x 3.5/11.9) + (12% x 6.2/11.9) = 0.832 + 2.353 + 6.252 = 9.437 = 9.4% Choice b) Ignores tax on debt: WACC = (7.5% x 1.3/11) + (8% x 3.5/11) + (12% x 6.2/11) = 0.886% + 2.545% + 6.764% = 10.195% = 10.2% Choice d) Uses average of all three rates: (7.5+8+12)/3 = 9.167% = 9.2%

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17.

Answer: a The total cost of the preferred shares is calculated as follows: Amount per share: $200 Issue costs: $ 3 Net proceeds: $197 Dividend per share: $ 18 Cost per share: $18 / $197 = 9.1371% ~ 9.14%

Choice b) Ignores the issue costs: $18/$200 = 9.00% Choice c) Subtracts issue costs from dividend = $15/$200 = 7.50% Choice d) Adds issue costs to dividend costs = $21/$200 = 10.5% 18. Answer: c. Effective interest rate = (1+Ratequoted/n)n -1 Investment A = (1+.0975/12)12 - 1 = 10.20% Investment B = (1+.0925/365)365 - 1 = 9.69% Investment C = (1+.10/4)4 - 1 = 10.38% Since Investment C has the highest effective rate, RLC should invest in C. 19. Answer: c. i) ($2,000,000 x 10%) (1-0.4) = $120,000 2,000 bonds x 8 = 16,000 common shares $120,000/16,000 = $7.50 NOT dilutive ii) Options are in the money dilutive. iii) $50/10 common shares = $5 dilutive Choices a), b) and d) are incorrect; see solution above. 20. Answer: c. Reliability is a principal qualitative characteristic and includes verifiability, neutrality and freedom from error or bias. Choice a) Verifiability is not a principal qualitative characteristic. Choice b) Ignores understandability and verifiability, and includes relevance, which is a fundamental characteristic. Choice d) Consistency is a subset of comparability and forms part of the enhancing, not principal qualitative characteristics.

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21.

Answer: c. Some subsequent events do not require disclosure or adjustment to the year-end financial statements. In the case of the union strike, this is a non-accounting event that requires neither adjustment nor disclosure. Choice a) This is not a subsequent event as it occurred before the year-end date. Any losses as a result of the fire should be recorded. Choice b) This is a subsequent event that did not exist at the balance sheet date and therefore no adjustment should be made. Note that disclosure may be required in this situation. Choice d) It is reasonable to assume that this condition existed at the year-end date, and this information, received subsequently, is simply confirming that the receivable is impaired. At a minimum an allowance should be set up. Given that it is determined that S Co. cannot pay, that amount should be written off.

22.

Answer: c. GC follows ASPE with specific guidance for non-monetary transactions. This is a nonmonetary transaction with commercial substance as the exchange will allow GC to build a manufacturing plant resulting in significant changes in risk and cash flows. A nonmonetary transaction with commercial substance should be recorded at the fair value of the asset given up or received, whichever is more reliable. If both are equally reliable, the transaction should be recorded at the fair value of the asset given up. This would result in $1,320,000 with the resulting gain being recorded in net income. Choices a), b) This transaction has commercial substance. Choice d) While this choice recognizes that there is commercial substance, it incorrectly records it at the fair value of the asset received rather than given up.

23.

Answer: d. Under ASPE, discounting of future income tax assets and liabilities is not allowed. HB 3465.52 Choice a) Under IFRS, companies have no choice and must use the deferred income tax method. Choice b) Under ASPE, companies have the choice to use the taxes payable method or the future income tax method. Choice c) Under IFRS, companies classify all deferred income tax assets and liabilities as noncurrent.

24.

Answer: a. GC is a private company following ASPE. Under Section 3051, a strategic investment that does not have a quoted market price should be accounted for using the cost or equity method. Choice b) The shares are publicly traded, and this is an investment with significant influence. GC will be required to account for its investment of AL using either equity or fair value. Cost is not an option. Choices c), d) This is a non-strategic investment under ASPE with a quoted market price. This will be a financial instrument to GC and will be recorded at fair value with gains and losses through net income. Cost is not an option.

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25.

Answer: c. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and its value in use. Recoverable amount = Higher of ($350K - $15K) = $335K or $375K = $375,000 Therefore the impairment loss would be $400K - $375K = $25,000. Choice a) Incorrectly assumes no loss. Choice b) Assumes loss is the difference between carrying value and undiscounted cash flow. Choice d) Assumes loss is the difference between carrying value and fair value less disposal.

26.

Answer: b. Purchases are calculated as follows: $120,000 - $75,000 + $50,000 = $95,000. Choice a) Mistakenly credits the inventory account by 40% of sales ($80,000) instead of the requisite cost of sales ($160,000). Choice c) Ignores opening and ending inventory. Choice d) Incorrectly calculates purchases by adding beginning inventory to cost of goods sold and subtracting the inventory from this amount as follows: $120,000 + $75,000 - $50,000 = $145,000.

27.

Answer: d. The income from amortized cost investments is measured using the amortized cost method, which includes amortizing any premium or discount. [3856.11] Choice a) False MS may elect to measure any financial asset at fair value by designating that fair value measurement shall apply. Choice b) False The transaction costs are included as part of the cost of the asset. Choice c) False Because MS measured the investment at amortized cost, it is not marked to market.

28.

Answer: b. Sunnyside is a public company and is therefore reporting using IFRS. Since this is specialized equipment, IFRS requires Sunnyside to record this as a finance lease, not an operating lease, AND to use the implicit interest rate, not the lower of the two rates. The value of the finance lease is the lower of fair value and the present value of the minimum lease payments. PV of the minimum lease payments = $60,000 + $60,000PV4,8% = $258,720 Since this is lower than the FV of $400,000, $258,720 is what should be recorded for the lease. Choice a) Mistakenly assumes an operating lease. Choice c) Uses the fair value as the amount to capitalize. Choice d) Uses the incorrect interest rate of 6% instead of 8%.

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29.

Answer: c. An operating segment must satisfy only one of the following quantitative thresholds to be considered a reportable segment. (a) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internally and externally, of all operating segments; (b) The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of: (i) the combined reported profit of all operating segments that did not report a loss; or (ii) the combined reported loss of all operating segments that did report a loss; and (c) Its assets are 10 percent or more of the combined assets of all operating segments. S and T have revenues greater than 10% of combined revenues. U has assets greater than 10% of combined assets. Liabilities have no impact on quantitative thresholds. Therefore, S, T and U should report separately.

30.

Answer: a. At the start of Year 2, there would be a deferred tax liability balance of ($900,000 - $920,000) x 35% = $7,000. This is a taxable difference resulting in a deferred tax liability, since $20,000 more CCA than depreciation had been taken on these assets to January 1. At the end of Year 2, the assets have a book value of ($920,000 - $80,000) = $840,000 and undepreciated capital cost (UCC) of ($900,000 - $20,000) = $880,000. This results in a deferred tax asset balance of ($40,000 x 35%) = $14,000. The income tax expense effect is simply the difference between these two amounts (i.e. the difference between the $7,000 credit balance in the deferred tax account and the requisite $14,000 balance in the account). Thus, the income tax expense must be reduced by $21,000. Choice b) This choice incorrectly treats the January 1 temporary difference as a deductible one and the December 31 temporary difference as a taxable one. Choice c) Uses Year 2 starting balance. Choice d) Misses Year 2 opening balance.

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31.

Answer: c. While Merlin has used 2% in the past, recent industry conditions strongly suggest that this estimate is too low. 4% of $625,000 is $25,000, which is the balance that should be in the allowance for doubtful accounts. Since the allowance currently sits in a debit position of $15,000, Merlin would need to credit it by $40,000 in order to reach the $25,000 credit. Choice a) Mistakes the beginning balance as credit: $25,000 - $15,000 = $10,000 Choice b) Uses 4% but ignores the current balance in the allowance for doubtful accounts. Choice d) Correctly adjusts the balance in the allowance but uses 2%, not 4%. 2% x $625,000 = $12,500 $12,500 + $15,000 = $27,500

32.

Answer: c. Under IFRS, the vested portion of any past service costs is expensed immediately, with the remainder being amortized over the vesting period. Thus, the effect on pension expense for Year 1 would be $460,000+$460,000/5=$552,000. Choice a) This choice incorrectly divides the entire value of the plan amendment by the EARSL. Note that this approach would be correct under ASPE. Choice b) This choice incorrectly divides the entire value of the plan amendment by the vesting period, without immediately expensing the vested portion of these costs. Choice d) While this choice correctly expenses the vested portion of the plan amendment ($460,000), the remaining costs are incorrectly amortized over the EARSL instead of the vesting period.

33.

Answer: c. Key performance drivers are one of the five key elements that should be in the MD&A. Choices a) and b) These are parts of disclosure notes.

34.

Answer: a. Times interest earned = EBIT/interest = 5,125/330 = 15.53 Choice b) Uses net income: 3,357/330 = 10.17 Choice c) Uses operating income: 4,700/330 = 14.24 Choice d) Uses Year 6: 4,450/333 = 13.36

35.

Answer: d. Return on assets = Net income/average total assets = 3,357/[(32,650+33,970)/2] = 3,357/33,310 = 10.08% Choice a) Uses only current assets: 3,357/15,233 = 22.04% Choice b) Uses EBIT: 5,125/33,310 = 15.39% Choice c) Uses Year 7: 2,882/33,310 = 8.65%

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36.

Answer: b. Current ratio Year 7: 15,640/10,355 = 1.51 Current ratio Year 6: 14,825/10,200 = 1.45 Therefore, the liquidity of Quinn has increased. Choice a) Current ratio does not measure use of assets. Choice c) Current ratio does not measure profitability. Choice d) Current ratio does not indicate turnover of inventory.

37.

Answer: a. Cash collections = 120,000+200,000-160,000-(5,000+10,000-12,000) = $157,000 Choice b) Ignores Year 1 Allowance. Choice c) Misses the 5% of sales as bad debt. Choice d) Incorrectly credits the December 31, Year 2, Allowance for doubtful accounts balance to Accounts receivable.

38.

Answer: b. The gain on the hedge is simply the difference between the spot rate on the settlement date and forward exchange rates when the forward contract is entered into, thus ($1.06-$1.05) x $100,000 = $1,000. Choice a) Incorrectly uses the January 1 and March 1 spot rates: ($1.04-$1.06) x $100,000 = $2,000 Choice c) Incorrectly uses the March 1 spot rate and March 1 forward rates: ($1.06-$1.09) x $100,000 = $3,000 Choice d) Incorrectly uses the January 1 spot rate and March 1 forward rates: ($1.04-$1.09) x $100,000 = $5,000

39.

Answer: a. The equipment is non-monetary. Therefore it should be valued at its historical cost, which would be $1 US = $1.04 Cdn = $104,000. Choice b) Incorrectly values the equipment at the March 1 spot rate. Choice c) Incorrectly values the equipment at the January 1 forward rate. Choice d) Incorrectly values the equipment at the March 1 forward rate.

40.

Answer: d. Comprehensive income includes net income plus other comprehensive income that bypasses net income but affects shareholders equity. The calculation includes: Sales - Sales Discounts - Cost of Goods Sold - Operating Expenses + Unrealized Holding Gain = 500 - 10 - 245 - 125 + 5 = 125 Choice a) Fails to include the Unrealized Holding Gain and deducts the Allowance for Doubtful Accounts as an expense: ($125 - 5 - 8 = $112) Choice b) Fails to include the Unrealized Holding Gain in the calculation: ($125 - 5 = $120) Choice c) Fails to deduct the Sales Discount in the calculation: ($125 + 10 = $135)

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41.

Answer: d. The correct journal entry when recording an asset impairment under the Revaluation model would include a reduction of the Revaluation Surplus account (up to its original balance) with any remaining impairment being charged to an impairment loss account on the Statement of Comprehensive Income. Choice a) This choice incorrectly charges the entire impairment loss to Retained Earnings. Choice b) While this choice correctly charges $25,000 of the $60,000 impairment loss to Earnings, it does so by incorrectly charging this amount to Depreciation Expense instead of to an impairment loss account. Choice c) The Revaluation Surplus account cannot reflect a debit balance. Thus, the Revaluation Surplus account may be debited only to the extent of any prior credit balance, in this case, $35,000.

42.

Answer: b. Net income = $50,000 + $8,000 accrued revenue + $6,000 prepaid advertising campaign - $2,000 interest expense - $7,000 amortization expense = $55,000 Choice a) Neglects to add back the advertising expense: $50,000 + $8,000 - $2,000 $7,000 = $49,000 Choice c) Ignores the interest expense and accrued revenue, and deducts the advertising expense: $50,000 - $6,000 - $7,000 = $37,000 Choice d) Neglects to deduct the amortization: $50,000 + $8,000 + $6,000 - $2,000 + = $62,000

43.

Answer: a. Under ASPE, if an amount is likely and measurable, then a contingent liability should be recorded. If there is a range of amounts and no amount is more reasonable than another within that range, the low range of the amount should be recorded and the range disclosed. Choice b) Incorrectly assumes that, because it is a range, the amount cannot be measured and therefore MOR should only disclose. Choice c) Ignores the fact that a range that is more likely has been presented and that this range should be used. Choice d) Incorrectly assumes that, because it is a range, the amount cannot be measured and therefore MOR should do nothing.

44.

Answer: a. Note that this option is currently not in the money and therefore is currently of no value to the company. Thus, this option will be recorded at its cost of $1,000 until it is exercised or expires, at which point it will be expensed. Choice b) This choice values these options as a liability of $3 per share but excludes the $1,000 purchase cost of the option. Choice c) This choice values these options as a liability of $3 per share plus the $1,000 purchase cost of the option. Choice d) Options are only expensed once they are exercised or expired.

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45.

Answer: d. HB1582 and IFRS3 are converged. Using the acquisition method, the net identifiable assets are to be calculated based on fair values. The patent should be recognized even though it is not currently on ASJs books as it has value. Valuation techniques can be used to value the patent, and it clearly has a finite life of 8 years. The present value of the patent is: $40,000PV8,5% = $258,520 The machinery should be adjusted for its fair value. The fair value of identifiable assets = $625,000 + $125,000 + $258,520 = $1,008,520 Choice a) Ignores the fair value of the machinery and equipment, and the patent. Choice b) Uses the amount paid as the fair value. Choice c) Picks up 85% of the fair value of the machinery and the patent. It correctly discounts the patent. 625,000+106,250+219,742 = 950,992

46.

Answer: c. If the entity uses fund accounting, it may report amortization in the operating fund or in the choice of the fund or funds based on providing the most meaningful presentation. [HB 4431] Choice a) False The entity may not give some assets different capital treatment than others. All tangible capital assets should be recognized [4431.07] unless the cost of following the requirements exceeds the benefits for its users [4431.04]. Choice b) False If the fair value cannot be reasonably determined, the tangible capital asset should be recorded at nominal value. [4431.07] Choice d) False The impairment loss or writedown is not based on the recoverable amount but on the long-term service potential to the not-for-profit organization. The excess of its net carrying amount over any residual value is the calculation of the loss. [4431.27]

47.

Answer: d. City Museum may use any one of the accounting policies to account for the collection and must include that choice in its disclosure notes. [HB 4440] Answer: c. In Year 16 the contract is ($80/(80+150)) = 34.8% complete. In Year 17 the contract is ($165/(165+70)) = 70.2% complete. The additional (70.2-34.8) = 35.4% completed in Year 17 x the total contract price of $250M = $88,500,000 revenue to recognize in Year 17. Choice a) Incorrectly uses total costs for Year 17. 70.2% x $250M = $175,500,000 Choice b) Incorrectly chooses collections for Year 17. Choice d) Incorrectly chooses billings for Year 17.

48.

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49.

Answer: b. Minimum NPV = 0 to be accepted NPV = -3,250,000 + (500,000 x PVx,7%) If x = 8: -3,250,000 + (500,000 x 5.971) = -264,500 If x = 9: -3,250,000 + (500,000 x 6.515) = 7,500 Therefore, the machine needs to have a minimum useful life of 9 years.

50.

Answer: b. ROI Division A = $65,000/$400,000 = 16.3% ROI Division B = $140,000/$850,000 = 16.5% RI Division A = $65,000 - ($400,000 x .15) = $5,000 RI Division B = $140,000 - ($850,000 x .15) = $12,500 Division B has a higher ROI and RI.

51.

Answer: d. Return on investment is a ratio that accounts for the difference in investment in assets among divisions. It can also be used in evaluation performance against those in the industry. Both a) and b) are benefits of using return on investment in evaluating performance of and determining incentive compensation for divisional managers. Choice a) As a ratio, return on investment takes into account the difference in investment in assets among divisions. This is a benefit of using return on investment in evaluating performance of and determining incentive compensation for divisional managers. Choice b) As a ratio, return on investment takes into account the difference in investment in assets and can be used in evaluating performance of a division against those in the industry. The use of external benchmarks for performance evaluation is beneficial to the company. Thus, this is a benefit of using return on investment in evaluating performance of and determining incentive compensation for divisional managers. Choice c) It is inappropriate to use return on investment to evaluate performance of a division in different industries. For instance, manufacturing divisions have significant investment in Property, Plant and Equipment while the software divisions do not, and return on investment in manufacturing divisions will be lower compared to divisions in software design and development. Thus, return on investment does not account for the difference in business operations among divisions. This is not a benefit of using return on investment in evaluating performance of and determining incentive compensation for divisional managers.

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52.

Answer: a. Management accounting has a strong future orientation. In contrast, financial accounting generally summarizes past transactions. Choice b) Financial accounting generally summarizes past transactions. In contrast, management accounting has a strong future orientation. Choice c) Management accounting focuses more on the parts, or segments, of an organization. Financial accounting is primarily concerned with reporting for the organization as a whole. Choice d) Management accounting requires immediate estimates, while financial accounting requires more precise information.

53.

Answer: c. Fixed manufacturing overhead $13,600 Units produced 10,000 (1) Fixed manufacturing overhead per unit produced $1.36 (2) Units in ending inventory (10,000 - 9,200) 800 Fixed manufacturing overhead in ending inventory (1) x (2) $1,088 Direct costing will result in operating income that is $1,088 lower than absorption costing. Choice a) Uses units sold instead of units produced to determine fixed manufacturing overhead in ending inventory. Fixed manufacturing overhead $13,600 Units sold 9,200 (1) Fixed manufacturing overhead per unit produced $1.49 (2) Units in ending inventory (10,000 - 9,200) 800 Fixed manufacturing overhead in ending inventory (1) x (2) $1,192 Choice b) Uses total cost per unit. Fixed manufacturing overhead Variable costs Total costs Units produced (1) Fixed manufacturing overhead per unit produced (2) Units in ending inventory (10,000 - 9,200) Fixed manufacturing overhead in ending inventory (1) x (2) Choice d) Uses variable cost per unit. Variable costs Units produced (1) Fixed manufacturing overhead per unit produced (2) Units in ending inventory (10,000 - 9,200) Variable manufacturing overhead in ending inventory (1) x (2) $13,600 $15,000 $28,600 10,000 $2.86 800 $2,288 $15,000 10,000 $1.50 800 $1,200

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54.

Answer: a. Final sales value after further processing Sales value before further processing Revenue from further processing Cost of further processing A $320,000 240,000 80,000 100,000 B $480,000 300,000 180,000 120,000 C $180,000 120,000 60,000 20,000

Profit (Loss) from Further Processing $ (20,000) $ 60,000 $ 40,000 Therefore Grade A should not be processed further, and B and C should be processed further. Choice b) Chose not to process B any further because it has the highest cost of further processing. Choice c) Chose not to process C because it has the lowest sales value after processing. Choice d) Chose to process all because it results in higher total revenue. 55. Answer: b. Total spoilage = 18,000 - 15,000 - 2,000 = 1,000 units Normal spoilage = 4% x 15,000 = 600 units Abnormal spoilage = 1,000 - 600 = 400 units Loss from abnormal spoilage = 400 x ($11.00 + $15.00) = $10,400 Answer: d. Conversion costs = Cost of ending work in process - Cost of Material A = $34,000 - ($11.00 x 2,000) = $34,000 - $22,000 = $12,000 Equivalent units of conversion costs = $12,000 $15.00 = 800 units Percentage of completion = 800 equivalent units 2,000 total units = 40% complete Choice a) Incorrectly divided by the sum of the cost per equivalent unit for Material A and conversion costs: ($34,000 $26.00) 2,000 units = 65.4% Choice b) Incorrectly included the cost per equivalent unit for Material B: [$34,000 - (2,000 x $11.80)] $15.00 2,000 units = 34.7% Choice c) Incorrectly divided the conversion costs in ending work-in-process inventory by the cost per equivalent unit for Material A: ($12,000 $11.00) 2,000 units = 54.5% 57. Answer: c. Negotiated transfer price allows division managers to come to an agreeable price as if they were unrelated parties, thereby promoting autonomy among subunit managers. However, negotiation can be time-consuming as in any business dealings with unrelated parties. Choice a) Divisional managers favour full-cost-based transfer pricing because it yields relevant costs for long-run, and not short-run, decisions. Choice b) Distress price should be used for transfer price when the drop below historical average market price is permanent, not temporary. Choice d) The use of market price motivates managers to deal internally, not externally.

56.

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58.

Answer: d. Both a) and c) are true as explained below. Choice a) Is true because the direct method allocates service costs to operating departments based on the services provided to the operating departments and ignores all service relationships among the service departments. Choice b) Is false because the step-down (sequential) method does partially recognize the services provided by one service department to other service departments. Choice c) Is true because the reciprocal method recognizes that services are provided by a service department to all other service departments as well as production departments.

59.

Answer: d. Since the Concerto Division has excess capacity, there is no opportunity cost for transferring the motors to the Sonata Division up to full capacity. Thus, the minimum transfer price acceptable to the Concerto Division is the incremental costs for manufacturing the motors, $620 per motor (choice a). If the Concerto Division were operating at full capacity, there would be opportunity costs associated with transferring to the Sonata Division, and the minimum acceptable transfer price would be $890. On the other hand, since the Sonata Division can purchase the motors for $890 in the market, this is the maximum transfer price the Sonata Division is willing to pay (choice c). Since choices a) and c) are both correct and choice b) is incorrect, the correct answer is choice d). Answer: d. A fixed cost is fixed in total over a relevant range. The rental is a fixed monthly amount regardless of the activity. Product costs include the material labour and overhead involved in the manufacture of a product. The rental is an overhead cost. Hence the rental is a fixed product cost. Choice a) A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future. The space rental is not a sunk cost. Choice b) A variable cost is a cost that varies proportionately with activity. The space rental does not vary with activity. A period cost is any cost that is not included in product costs. The space rental is a product cost. Choice c) While this space rental is a product cost, it is not a variable cost as it does not vary with activity.

60.

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61.

Answer: c. A fixed cost is fixed in total over a relevant range. The advertising and promotion is a fixed monthly amount regardless of the activity it generates. Product costs include the material labour and overhead involved in the manufacture of a product. The advertising and promotion is not a product cost. Period costs are any costs not included in product costs. The advertising is a period cost. Hence the advertising is a fixed period cost. Choice a) A variable cost is a cost that varies proportionately with activity. The advertising does not vary with activity. Choice b) A fixed cost is fixed in total over a relevant range. The advertising and promotion is a fixed amount regardless of the activity it generates. However, the advertising is not a product cost, as it is not direct material, labour or manufacturing overhead. Choice d) While the advertising is a period cost, it is not a variable cost as it does not vary with the level of activity.

62.

Answer: a. Indirect materials ($20,000 + $40,000 - $15,000) Rent (60% x $120,000) Utilities (60% x $80,000) Indirect Manufacturing Costs

$ 45,000 72,000 48,000 $165,000

Choice b) Represents total manufacturing costs, rather than indirect manufacturing costs: Direct materials ($100,000 + $920,000 - $100,000) $ 920,000 Indirect materials ($20,000 + $40,000 - $15,000) 45,000 Direct labour 680,000 Rent (60% x $120,000) 72,000 Utilities (60% x $80,000) 48,000 Total Manufacturing Costs $1,765,000 Choice c) Includes office supplies: $165,000 + ($48,000 + $34,000 - $22,000) = $225,000 Choice d) Includes direct materials: $165,000 + $920,000 = $1,085,000 63. Answer: b. Desired merchandise inventory, September 30 (30% x 3,000 units) Add: Expected sales for July, August and September (7,000 + 8,000 + 6,000) units Total requirement Less: Merchandise inventory, June 30 (30% x 7,000 units) Total purchases required Total purchase costs (19,800 units x $25) = $495,000 Choice a) Misses beginning inventory: 21,900 x $25 = $547,500 Choice c) Misses ending inventory: 18,900 x $25 = $472,500 Choice d) Uses selling price: 19,800 x $60 = $1,188,000 900 units 21,000 units 21,900 units 2,100 units 19,800 units

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64.

Answer: c. Merchandise inventory, June 30 = (30% x 7,000 units) x $25 Purchases for June = ($52,500 + 5,000 x $25 - $37,500) Accounts payable, June 30 = (20% x $140,000)

= $52,500 = $140,000 = $28,000

Choice a) Miscalculates purchases: Purchases for June = ($37,500 + 5,000 x $25 - $52,500) = $110,000 Accounts payable, June 30 = (20% x $120,000) = $22,000 Choice b) Miscalculates ending inventory with beginning inventory: Merchandise inventory, June 30 = (30% x 5,000 units) x $25 = $37,500 Choice d) Miscalculates payable: (80% x $140,000) = $112,000 65. Answer: a. No. of Guests 6,000 10,000 4,000 $4,400/4,000 = Total Cost $7,200 $11,600 $4,400 $1.10 per guest Total Cost $7,200 $11,600 $18,800 $1.17 per guest

Change in number of guests Change in total costs Estimate of variable cost

Choice b) Total number of guests divided by total cost. No. of Guests 6,000 10,000 Total number of guests 16,000 Total costs Estimate of variable cost $18,800/16,000 = Choice c) Uses cost per guest as low. No. of guests Total Cost 6,000 $7,200 Choice d) Uses December as low. No. of Guests 6,500 10,000 3,500

Cost per Guest $7,200/6,000 = $1.20 Total Cost $6,800 $11,600 $4,800 $1.37 per guest

Change in number of guests Change in total costs Estimate of variable cost 66.

$4,800/3,500 =

Answer: c. An investment centre is a segment of a business where the manager has control over and is accountable for the segments revenue, costs and use of investment funds. The return on the resources invested would encompass revenue, costs and investments (i.e. income divided by investment = return on investment). Choices a), b) and d) These are profit centres.

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67.

Answer: c. Kaizen budgeting is a budgetary approach that explicitly incorporates continuous improvement during the budget period into the resultant budget numbers (e.g. budgeting 6.5 machine-hours per unit in the first quarter, 6.2 machine-hours per unit in the second quarter, 5.9 machine-hours per unit in the third quarter and 5.7 machine-hours per unit in the fourth quarter). Choice a) Describes program budgeting. Choice b) Describes incremental or traditional budgeting. Choice d) Describes activity-based budgeting.

68.

Answer: d. Overhead rate = $400,000/100,000 hours = $4/hr Overhead applied = 90,000 x $4 = $360,000 Actual overhead Overhead applied Underapplied $365,000 360,000 $ 5,000

Choice a) Compares estimated overhead to actual overhead and interprets this as underapplied: $400,000 - $365,000 = $35,000 Choice b) Compares estimated overhead to actual overhead and interprets this as overapplied: $400,000 - $365,000 = $35,000 Choice c) Correctly computes overhead rate, but compares estimated to actual hours and interprets this as overapplied: $4 x (100,000 - 90,000 hours) = $40,000 69. Answer: b. Irrelevant high-low outliers should be excluded in estimating the regression model. This data will not be incorporated in the estimation and will not be used as an evaluation criterion. Choice a) Specification analysis of assumptions provides tests of linearity, the relevant range, constant variance of residuals, independence of residuals and normality of residuals, which is imperative in establishing the validity of the estimated regression model. Choice c) Goodness of fit for an estimated regression model measures how well the dependent variable (y, predicted cost) based on the independent variable (x, cost driver) matches the actual observations. It is one of the criteria used to evaluate a regression model. Choice d) The significance of regression coefficient is one of the evaluative criteria for a regression model in which the null hypothesis of no significance is rejected.

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70.

Answer: b. Standard hours allowed x Standard rate Favourable efficiency variance Actual labour Standard hours = $172,000/$16 = 10,750

(4,500 x 2.5) x $16 =

$180,000 (8,000) $172,000

Choice a) Incorrectly adds favourable variance to determine actual hours. Standard hours = $188,000/$16 = 11,750 Choice c) Incorrectly adds variance hours to output: Variance / Standard rate $8,000/$16 = 500 units Output x Standard hours per unit (4,500 + 500) x 2.5 = 12,500 Choice d) Incorrectly deducts variance per hour from standard hours allowed: Standard hours allowed 4,500 x 2.5 = 11,250 Standard hours x Standard rate 2.5 x $16 = $40 Favourable efficiency variance $8,000 Variance Standard $8,000/$40 = 200 (200) Actual hours 11,050

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71.

Answer: b. Administrative: (400/600; 200/600) Janitorial: (2,000/6,000; 4,000/6,000) Equipment maintenance: (6,000/24,000; 18,000/24,000) Additional Overhead Metals $28,000 8,000 4,500 $40,500 Plastics $14,000 16,000 13,500 $43,500

Choice a) Incorrectly uses the step method. Admin. Janitors Costs before allocation $42,000 $24,000 Administrative: (200/840; 40/840; 400/840; 200/840) (42,000) 10,000 Janitorial: (800/6,800; 2,000/6,800; 4,000/6,800) (34,000) Equipment maintenance: (6,000/24,000; 18,000/24,000) Total Cost after Allocations $ $

Maint. $18,000 2,000 4,000 (24,000) $

Metals $20,000 10,000 6,000 $36,000

Plastics $10,000 20,000 18,000 $48,000

Choice c) Incorrectly uses the total driver as the denominator in the calculation. Metals Plastics Administrative: (400/880; 200/880) $19,091 $ 9,545 Janitorial: (2,000/7,040; 4,000/7,040) 6,818 13,636 Equipment maintenance: (6,000/24,000; 18,000/24,000) 4,500 13,500 Additional Overhead $30,409 $36,681

Choice d) Incorrectly includes the driver from the service department when calculating the ratio. Metals Plastics Administrative: (400/640; 200/640) $26,250 $13,125 Janitorial: (2,000/6,040; 4,000/6,040) 7,947 15,894 Equipment maintenance: (6,000/24,000; 18,000/24,000) 4,500 13,500 Additional Overhead Allocated $38,697 $42,519

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72.

Answer: c.
Admin. Janitor Maint. Costs before allocation $ 42,000 $ 24,000 $ 18,000 Administrative: (200/840; 40/840; 400/840; 200/840) (42,000) 10,000 2,000 Janitorial: (800/6,800; 2,000/6,800; 4,000/6,800) (34,000) 4,000 Equipment Maintenance: (6,000/24,000; 18,000/24,000) (24,000) Total cost after allocations $ $ $ Metals 20,000 10,000 6,000 $36,000 Plastics 10,000 20,000 18,000 $48,000

Choice a) Incorrectly includes driver from service department being allocated in both the numerator and denominator of the ratio. Incorrectly allocates only costs before allocation.
Costs before allocation Allocation: Administrative: (40/880; 200/880; 40/880; 400/880; 200/880) Janitorial: (40/7,040; 800/7,040; 2,000/7,040; 4,000/7,040) Equipment Maintenance: (0/24k; 6k/24k; 18k/24k) Total cost allocated Admin. $42,000 Janitor $24,000 Maint. $18,000 Metals Plastics

1,909

9,545 136

1,909 2,727 $

19,090 6,818 4,500 $30,408

9,545 13,636 13,500 $36,681

$ $

Choice b) Incorrectly uses direct method.


Admin. Janitor Maint. Costs before allocation $ 42,000 $ 24,000 $ 18,000 Administrative: (400/600; 200/600) (42,000) Janitorial: (2,000/6,000; 4,000/6,000) (24,000) Equipment Maintenance: (18,000) (6k/24k; 18k/24k) Additional overhead allocated $ $ $ Metals 28,000 8,000 4,500 $40,500 Plastics 14,000 16,000 13,500 $43,500

Choice d) Incorrectly uses total number of drivers as denominator in the ratio.


Admin. Janitor Maint. Costs before allocation $ 42,000 $ 24,000 $ 18,000 Administrative: (200/880; 40/880; 400/880; 200/880) (42,000) 9,545 1,909 Janitorial: (800/7,040; 2,000/7,040; 4,000/7,040) (33,545) 381 Equipment Maintenance: (6k/24k; 8k/24k) (20,290) Total cost after allocations $ $ $ Metals 19,090 9,530 5,073 $33,693 Plastics 9,545 19,060 15,217 $43,822

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73.

Answer: d. If lower-grade materials resulted in excessive waste, then more materials were used than anticipated. But materials purchased at a discount would explain a favourable price variance. Choice a) This would result in both a favourable price and quantity variance. Choice b) This would result in a favourable price variance, but would not explain an unfavourable quantity variance. Choice c) The price variance relates to price paid and the quantity variance to quantity used; hence this information is insufficient to determine the impact on these variances.

74.

Answer: c. Activity-based costing attempts to allocate overhead based on the estimated use of resources, so more overhead is allocated to low-volume products using activity-based costing. Traditional costing approaches use volume bases such as direct labour hours or machine-hours to allocate overhead to product costs; hence more overhead is allocated to high-volume products using traditional costing. Choice a) Activity-based costing attempts to allocate overhead based on the estimated use of resources. Manufacturing overhead that is considered to be organization-sustaining in nature would not be allocated to product cost under the activity-based approach. Choice b) Activity-based costing is not acceptable for external financial reporting. Choice d) Traditional costing allocates more overhead to high-volume products.

75.

Answer: c. Contribution margin per unit Fixed costs Breakeven sales

= $80 - ($13 + $12 + $5) - $80x5% = ($20 x 60,000 x 80% + $420,000) = $1,380,000 / $46

= $46 = $1,380,000 = 30,000 units

Choice a) Incorrectly uses gross profit in computing breakeven sales. Gross profit per unit = $80 - ($13 + $12 + $5 + $10) = $40 Fixed costs = ($20 x 60,000 x 80% + $420,000) = $1,380,000 Breakeven sales = $1,380,000 / $40 = 34,500 units Choice b) Includes fixed overhead in contribution margin. Contribution margin per unit = $46 - $10 = $36 Fixed costs = ($20 x 60,000 x 80% + $420,000) = $1,380,000 Breakeven sales = $1,380,000 / $36 = 38,334 units Choice d) Misses fixed overhead. Contribution margin per unit = $80 - ($13 + $12 + $5) - $80 x 5% = $46 Breakeven sales = $420,000 / $46 = 9,131 units

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76.

Answer: d. With CP5 Selling price $80 Direct materials 13 Direct labour 12 Variable overhead (0.5 MCH x 80% x $10 per MCH) 5 Variable selling costs ($80 x 5%) 4 Total variable costs 34 Contribution margin per unit $46 Total contribution margin (99,000/110% x $46); (99,000 x $45) $4,140,000 Increase in income = $4,455,000 - $4,140,000 = $315,000 Choice a) Incorrectly uses gross profits. Selling price Direct materials Direct labour Variable overhead (0.5 MCH x 80% x $10 per MCH) Fixed overhead (0.5 MCH x 80% x $20 per MCH) Product cost per unit Gross profits per unit Total gross profits (99,000/110% x $40); (99,000 x $45) $3,600,000 Decrease in income = $4,059,000 - $3,600,000 = $531,000 With CP5 $80 13 12 5 10 40 $40 With CP8 $80 15 12 4 8 39 $41 $4,059,000 With CP8 $80 15 12 4 4 35 $45 $4,455,000

Choice b) Incorrectly uses gross profits times the number of units. Increase in income = ($41 - $40) x 99,000 units = $99,000 Choice c) Incorrectly uses difference in number of units times sales price. [99,000 - (99,000/110%)] x $80 = $720,000

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77.

Answer: c. Difference in income = (8,700 - 8,400) x $10 = $3,000 Absorption costing income is $3,000 lower than direct costing income because 300 more units were sold than produced, i.e. a decrease in 300 units of inventory, since more fixed overhead in beginning inventory is deducted as cost of goods sold under absorption costing, or: Absorption Costing Income Sales ($80 x 8,700) Cost of goods sold Standard cost of goods sold ($40 x 8,700) Production volume variance ($20 x 60,000 x 80%/12 - $10 x 8,400) Adjusted cost of goods sold Gross profits Selling and administrative expenses ($80 x 5% x 8,700 + $420,000/12) Operating Income Direct Costing Income Sales Variable costs Variable cost of goods sold ($30 x 8,700) Variable S&A expenses ($80 x 5% x 8,700) Total variable costs Contribution margin Fixed costs ($20 x 60,000 x 80%/12 + $420,000/12) Operating Income $696,000 348,000 (4,000) 344,000 352,000 69,800 $282,200

$696,000 261,000 34,800 295,800 400,200 115,000 $285,200

Choice a) Mistakes the difference as higher under absorption costing. Choice b) Incorrectly uses variable overhead and mistakes the difference as higher under absorption costing. Choice d) Incorrectly uses variable overhead.

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78.

Answer: b. Direct labour hours requirement at maximum demand: Cutting = 10/60 x 2,500 x 3 months + 20/60 x 1,500 x 3 months = 2,750 DLH Finishing = 15/60 x 2,500 x 3 months + 40/60 x 1,500 x 3 months = 4,875 DLH Thus, production constraint exists for hours in Finishing department. Contribution margin per unit: Wallets = $30 - $8 - $2 = $20 Belts = $50 - $15 - $3 = $32 Contribution margin per direct labour hour (Finishing): Wallets = $20 / (15/60) = $80 per DLH (Finishing) Belts = $32 / (40/60) = $48 per DLH (Finishing) Thus, in addition to meeting the contract requirement for 1,800 belts, ALC should use capacity to manufacture wallets first and then belts as follows: Production Plan Direct Labour Hours (Finishing) Required Belts 1,800 units 1,800 x 40/60 = 1,200 DLH Wallets 7,500 units 7,500 x 15/60 = 1,875 DLH Belts 525 / (40/60) = 787.5 units 3,600 - 1,200 - 1,875 = 525 DLH ALC should produce 7,500 wallets and 2,587 belts to maximize its profits. Choice a) Does not use excess capacity of 525 DLH. Choice c) Assumes production matches maximum sales volume and ignores constraints. Choice d) Incorrectly uses net margin instead of contribution margin. Net margin per unit: Wallets = $30 - $8 - $2 - $5 - $6 = $9 per unit Belts = $50 - $15 - $3 - $5 - $1 = $26 per unit Net margin per direct labour hour (Finishing): Wallets = $9 / (15/60) = $36 per direct labour hour (Finishing) Belts = $26 / (40/60) = $39 per direct labour hour (Finishing) In this case, ALC should use the capacity to product belts first and then wallets. Production Plan Direct Labour Hours (Finishing) Required Belts 4,500 units 4,500 x 40/60 = 3,000 DLH Wallets 600 / (15/60) = 2,400 units 3,600 DLH - 3,000 DLH = 600 DLH That is, ALC will produce 2,400 wallets and 4,500 belts.

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79.

Answer: d. Total fixed costs: [$20(5,000 + 10,000 + 20,000)] + $500,000 = $1,200,000 Contribution margin per unit: A = $400 - ($100 + $50 + $60) = $190 B = $250 - ($80 + $50 + $40) = $80 C = $150 - ($40 + $50 + $10) = $50 Weighted average contribution margin per unit: [($190 x 1) + ($80 x 2) + ($50 x 4)]/(1 + 2 + 4) = ($190 + $160 + $200)/7 = $550/7 = $78.57 Breakeven volume = $1,200,000/$78.57 = 15,270 (rounded) Choice a) Uses gross margin per unit: $500,000/{[($170 x 1) + ($60 x 2) + ($30 x 4)]/7} = $500,000/($410/7) = 8,540 Choice b) Uses mix of 1:1:1: $1,200,000/[($190 + $80 + $50)/3] = $1,200,000/($320/3) = 11,250 Choice c) Uses variable cost per unit: $1,200,000/{[($210 x 1) + ($170 x 2) + ($100 x 4)]/7} = $1,200,000/($950/7) = 8,840

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80.

Answer: a. Product Sales price Less variable costs: Materials Labour Manufacturing overhead (1) Contribution margin per unit (2) Direct material cost per unit (3) Direct material cost per gram (4) Direct material grams required per unit (2) (3) Contribution margin per gram of material (1) (4)

A $120 (24) (54) (6) 36 24 16 1.5 $ 24

B $180 (64) (28) (16) 72 64 16 4.0 $ 18

C $ 190 (32) (110) (8) 40 32 16 2.0 $ 20

Choice b) Incorrectly ranks based on contribution margin per unit: A B C Sales price $120 $180 $ 190 Less variable costs: Materials (24) (64) (32) Labour (54) (28) (110) Manufacturing overhead (6) (16) (8) Contribution Margin per Unit $ 36 $ 72 $ 40

Choice c) Incorrectly calculates margin: Product Sales price Less variable costs: Materials Labour Manufacturing overhead (1) Contribution margin per unit (2) Direct material cost per unit (3) Margin per dollar of material (1) (2) Choice d) Incorrectly includes fixed overhead: Product A Sales price $120 Less costs: Materials (24) Labour (54) Manufacturing overhead (6) Fixed overhead (1) Contribution Margin per Unit $ 35

A $120 (24) (54) (6) 36 24 1.5 B $180 (64) (28) (16) (38) $ 34

B $180 (64) (28) (16) 72 64 4.5 C $ 190 (32) (110) (8) (7) $ 33

C $ 190 (32) (110) (8) 40 32 1.25

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81.

Answer: d. Production resources include direct materials, direct labour and other manufacturing overhead. Thus, units of output per dollar of production resources is a total factor productivity measure. Choice a) Return on investment is computed as the ratio of income to assets. Assets are the inputs used to generate income, a comprehensive output measure. Return on investment is a productivity measure. Choice b) Salespersons, the input, are directly involved in generating sales revenue, the output. Revenue per salesperson is a partial factor productivity measure. Choice c) Units of output per direct labour hour is a partial factor productivity measure.

82.

Answer: b. Sales mix variance = (9,200/16,000 - 10,000/15,000) x 16,000 x ($8.00 - $1.60 - $1.40) + (6,800/16,000 - 5,000/15,000) x 16,000 x ($5.00 - $0.75 - $0.65) = $2,053.33 (U) Market share variance = $4.5333* x 100K x (16,000/100,000 - 20%) = $18,133.33 (U) Market size variance = $4.5333* x (100K - 15,000/0.20) x 20% = $22,666.67 (F) * Total budgeted contribution margin / total budgeted units Choice a) Misinterprets both market share and market size variances. Choice c) Misinterprets both market share and total sales mix variances. Choice d) Misinterprets total sales mix variances.

83.

Answer: b. Sales volume variance should be computed based on budgeted contribution margin per unit: ($8.00 - $1.60 - $1.40) = $5.00 per unit Sales volume variance = (9,200 - 10,000) x ($8.00 - $1.60 - $1.40) = $4,000 (U) Choice a) Incorrectly uses budgeted gross profit per unit. = (9,200 - 10,000) x ($8.00 - $1.60 - $1.20) = $4,160 unfavourable Choice c) Incorrectly uses actual gross profit per unit. = (9,200 - 10,000) x ($7.50 - $1.50 - $1.25) = $3,800 unfavourable Choice d) Incorrectly uses actual contribution margin per unit. = (9,200 - 10,000) x ($7.50 - $1.50 - $1.50) = $3,600 unfavourable

84.

Answer: d. Total sales quantity variance = 10,000/15,000 x (16,000 - 15,000) x ($8.00 - $1.60 $1.40) + 5,000/15,000 x (16,000 - 15,000) x ($5.00 - $0.75 - $0.65) = $4,533.33 (F) Choice a) Incorrectly calculates total selling price variance. ($7.50 - $8.00) x 9,200 + ($5.50 - $5.00) x 6,800 = $1,200 (U) Choice b) Incorrectly calculates total sales volume variance. (9,200 - 10,000) x ($8.00 - $1.60 - $1.40) + (6,800 - 5,000) x ($5.00 - $0.75 - $0.65) = $2,480 (F) Choice c) Incorrectly calculates total sales mix variance. (9,200/16,000 - 10,000/15,000) x 16,000 x ($8.00 - $1.60 - $1.40) + (6,800/16,000 - 5,000/15,000) x 16,000 x ($5.00 - $0.75 - $0.65) = $2,053.33 (U)

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85.

Answer: a. Gross salary $100,000 + Spouses travel $3,000 + Gift cards (near cash) $500 = $103,500. Choice b) $105,000 = Gross salary + Vacation owed Choice c) $107,000 = Gross salary + Discounts $3,500 + Spouses travel $3,000 + Gift cards (near cash) $500 Choice d) $108,500 = Gross salary + Vacation pay + Either discounts or [Spouses travel + Gift cards]

86.

Answer: d. Unincorporated businesses, like sole proprietorships, are not taxable entities. Income earned by the proprietorship is taxed in the hands of the proprietor (i.e. owner). Choices a) to c) are all considered taxable entities.

87.

Answer: b. UCC Disposition Balance

$100,000 $(110,000) (Lower of original cost or proceeds) $(10,000) = Recapture of $10,000

Choice a) Uses original cost to calculate: $100K - $140K = $40K Choice c) Uses proceeds less selling fees: $100K - ($110K - $5K) = $5K Choice d) Calculates as a terminal loss: $140K - $110K = $30K 88. Answer: a. This is a terminal loss and, as it is a rental property costing more than $50,000, it is in a separate class and the loss must be taken into income in the year of disposition. Choice b) This is not an option; as it is a rental property costing more than $50,000, it is in a separate class and therefore the CCA must be taken into income. Choice c) This is not an option for this type of property that is sold. Choice d) This is not an option. 89. Answer: c. 650,000 + 90,000 + 2,000 + 5,000 - 4,000 = $743,000 Income tax is added back, and accounts payable for charitable donations and investment counsel fees are added back as these expenses are only deductible when paid and the CCA in excess of deprecation is subtracted. Choice a) Omits add back of income tax and investment counsel fees. (650,000 + 2,000 - 4,000) Choice b) Subtracts rather than adds payables. (650,000 + 90,000 - 2,000 - 5,000 - 4,000) Choice d) Also adds back allowances, which is not required. (650,000 + 90,000 + 2,000 + 5,000 - 4,000 + 11,000)

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90.

Answer: a. This is a non-arms-length transaction. Shauna would incur an immediate capital gain of $175,000 (proceeds) less $100,000 (ACB) = $75,000. Choice b) Incorrectly assumes fair market value for the transfer. Choice c) Incorrectly assumes the difference between proceeds and fair market value. Choice d) Assumes capital gain will be with Daniel, the son.

91.

Answer: b. The determination is a question of fact, and the actual terms and conditions of employment are the deciding factor. Choice a) Ownership of tools and equipment is a factor that is considered but not the deciding one. Choice c) This is not always the case because the determination of the degree of control can be difficult when examining the employment of professionals such as engineers, doctors and IT consultants. Because of their expertise and specialized training, they may require little or no specific direction from the payer in their daily activities. Choice d) This is a factor that is considered but is only one of several terms and conditions considered.

92.

Answer: d. The floating weighted-average method is used to determine the adjusted cost base (ACB) for identical assets, such as the shares of a particular company. The capital gain or loss is calculated by the following formula: proceeds of disposition minus the aggregate of (i) adjusted cost base and (ii) expenses of the disposition. ACB = (4,000 x $7.60) + (2,000 x $8.10) / (2,000 + 4,000) = ($30,400 + $16,200) / 6,000 = $7.767 Capital gain = $40,000 - ($7.767 x 5,000) - $400 = $765 = $765 capital gain x 50% = $382.50 ~ $380 taxable capital gain Choice a) Uses FIFO: 4,000 x ($8 - $7.60) + 1,000 x ($8 - $8.10) = $1,500 gain Choice b) Ignores selling expenses: $40,000 - ($7.767 x 5,000) = $1,165 x 50% = $582.50 ~ $580 taxable capital gain Choice c) Neglects the 50% capital gain rule.

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93.

Answer: c. Fraud can be perpetrated because there is always a trade-off between the cost and benefits of internal controls. For example, collusion between employees and third parties, or management and employees can circumvent normal controls. Management override of controls can result in fraudulent financial reporting. Choice a) False The external auditor is primarily interested in controls over financial reporting. The internal auditors responsibility can include safeguarding of assets, efficiency and effectiveness of operations and compliance with laws and regulations. Choice b) False Well-designed controls are helpful but do not ensure that the financial statements will not be materially misstated. Choice d) False Small entities can institute effective controls over many aspects of the business. For example, the top level of management (often the owner/manager) can review journal entries, reconcile the bank statement and open all of the mail.

94.

Answer: c. The only control in place to stop this is the customer, and if the customer does not notice, the control will not work. Choice a) False Once the funds are in the cash register and the sale has been recorded, any shortfall of cash can be detected by comparing the cash deposit to the cash register totals. Choice b) False If customers do not want a receipt, the employee can take cash before it is recorded by the cash register. However, the transaction display on the cash register that the customer sees is one control. The other control will be the mismatch between sales recorded in the register and inventory. Choice d) False Taking merchandise does not meet the objective of stealing cash and is more likely to be observed. Cash is liquid and easier to hide.

95.

Answer: c. The receiving supervisor has access to the assets and the accounting records. She/he could misappropriate inventory and cover it up with false entries to the perpetual inventory records. Choice a) The controller would detect unauthorized use or disbursement of cash. Choice b) The cashier prepares the bank deposit and the accounting manager reviews it to ensure completeness before it is deposited. Choice d) The assistant controller authorizes payment but does not have access to the assets (cash and cheques).

96.

Answer: a. The principal mechanism for preventing fraud is control. Primary responsibility for establishing and maintaining control rests with management. Such prevention is ultimately a matter of policies and procedures established by management.

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97.

Answer: a. The internal auditors are responsible for examining and evaluating the effectiveness of other functions within the organization. These responsibilities include assessing the control systems, identifying areas of risk that need to be addressed in the control system, and making recommendations for improving the internal control process. Choice b) The responsibility for monitoring and maintaining internal controls is part of managements overall responsibility for the ongoing activities of the businessit is not the internal auditors responsibility. Choice c) The board of directors or the audit committee is responsible for appointing the external auditors, not the internal auditors.

98.

Answer: c. The auditor may rely on the internal auditor without testing the controls. However, the external auditor would perform other procedures to assess the reliability of the internal auditors tests. The nature, timing and extent of other audit procedures would be affected by the decision to rely. Choice a) False Tests of controls are not usually relevant for the audit objectives: valuation, rights and obligations, and presentation and disclosure. Choice b) False The auditor would test only those where there is a risk of material misstatement. Choice d) False The auditor may choose to use only substantive testing but cannot choose to rely solely on tests of controls.

99.

Answer: d. The processes are so integrated in an ERP that they frequently trigger other processes. For example, an unauthorized user who accesses the purchasing module could trigger both the purchase of goods and the payment for those goods. Choice a) False The ERP system is so interconnected that there are more areas for private and confidential information to be available. Applications that could be separately maintained in a legacy system may be integrated in the ERP. Choice b) False The danger in using complex passwords that change frequently is that employees cannot remember them, so they write them down in a location nearby and accessible to others. Choice c) False While the integration in the ERP may result in the one user having duties that would be considered incompatible in other systems, the focus of supervision moves from the transaction level to overall performance.

100.

Answer: a. The service provider would be responsible for testing all changes in the operating systems and programs. The results would then have to be approved by the IT department. Choice b) False Generally, the user departments are not directly involved in the maintenance of operating systems. Choice c) False Parallel runs are typically done with application software, but not with operating systems. Choice d) False Application software would not be the subject of these changes. It is the operating software that is maintained by the service provider.

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Supplement of Formulae and Present Value Tables Formulae


1. CAPITAL STRUCTURE a) After-Tax Marginal Cost of Debt:

kb = k(1 T) or
where b)

(1 T)I F

k = interest rate; T = corporate tax rate; I = annual interest payment on debt; F = face value of debt

Cost of Preferred Shares:


kp = Dp NPp

where c)

Dp = stated annual dividend payment on shares; NPp = net proceeds on preferred share issue

Cost of Common Equity: i) Cost of Common Shares (Capitalization of Dividends with Constant Growth Rate):
ke = D 1 +g NP e

where ii)

D1 = dividend expected for period 1; NPe = net proceeds on common share issue; g = annual long-term dividend growth rate

Cost of Retained Earnings:


kre = re = D 1 +g P e

where

Pe = market price of a share; re = expected return on common equity

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iii)

Capital Asset Pricing Model:


Rj = Rf + j Rm Rf

where d)

Rj = expected rate of return on security j; Rf = risk-free rate; Rm = expected return for the market portfolio j = beta coefficient for security j (measure of systematic risk)

Weighted Average Cost of Capital:


B P E k = kb + kp + ke V V V

where

B = amount of debt outstanding; P = amount of preferred shares outstanding; E = amount of common equity outstanding V = B + P + E = total value of firm

2.

PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS a) Present Value of Total Tax Shield from CCA for a New Asset Present Value = b)

CTd 2 + k CdT 1 + 0.5k = (d + k ) 2 (1 + k ) (d + k ) 1 + k

Present Value of Total Tax Shield from CCA for an Asset that is Not Newly Acquired

dT Present Value = UCC d +k


c) Present Value of Total Tax Shield Lost From Salvage Present Value =
Sn (1 + k )n Sn dT or n 1 d + k (1 + k ) dT , depending on cash flow assumptions d +k

Notation for above formulae: C = net initial investment; UCC = undepreciated capital cost of asset; Sn = salvage value of asset realized at end of year n; T = corporate tax rate; k = discount rate or time value of money; d = maximum rate of capital cost allowance; n = total life of investment

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Table 1 Present Value of One Dollar Due at the End of n Years


P= 1

(1+ i) n
13% 0.885 .783 .693 .613 .543 .480 .425 .376 .333 .295 .261 .231 .204 .181 .160 .142 .125 .111 .098 .087 .077 .068 .060 .053 .047 14% 0.877 .769 .675 .592 .519 .456 .400 .351 .308 .270 .237 .208 .182 .160 .140 .123 .108 .095 .083 .073 .064 .056 .049 .043 .038 15% 0.870 .756 .658 .572 .497 .432 .376 .327 .284 .247 .215 .187 .163 .141 .123 .107 .093 .081 .070 .061 .053 .046 .040 .035 .030 16% 0.862 .743 .641 .552 .476 .410 .354 .305 .263 .227 .195 .168 .145 .125 .108 .093 .080 .069 .060 .051 .044 .038 .033 .028 .024 17% 0.855 .731 .624 .534 .456 .390 .333 .285 .243 .208 .178 .152 .130 .111 .095 .081 .069 .059 .051 .043 .037 .032 .027 .023 .020 18% 0.847 .718 .609 .516 .437 .370 .314 .266 .225 .191 .162 .137 .116 .099 .084 .071 .060 .051 .043 .037 .031 .026 .022 .019 .016 19% 0.840 .706 .593 .499 .419 .352 .296 .249 .209 .176 .148 .124 .104 .088 .074 .062 .052 .044 .037 .031 .026 .022 .018 .015 .013 20% 0.833 .694 .579 .482 .402 .335 .279 .233 .194 .162 .135 .112 .093 .078 .065 .054 .045 .038 .031 .026 .022 .018 .015 .013 .010 21% 0.826 .683 .564 .467 .386 .319 .263 .218 .180 .149 .123 .102 .084 .069 .057 .047 .039 .032 .027 .022 .018 .015 .012 .010 .009 22% 0.820 .672 .551 .451 .370 .303 .249 .204 .167 .137 .112 .092 .075 .062 .051 .042 .034 .028 .023 .019 .015 .013 .010 .008 .007 23% 0.813 .661 .537 .437 .355 .289 .235 .191 .155 .126 .103 .083 .068 .055 .045 .036 .030 .024 .020 .016 .013 .011 .009 .007 .006 24% 0.806 .650 .524 .423 .341 .275 .222 .179 .144 .116 .094 .076 .061 .049 .040 .032 .026 .021 .017 .014 .011 .009 .007 .006 .005 25% 0.800 .640 .512 .410 .328 .262 .210 .168 .134 .107 .086 .069 .055 .044 .035 .028 .023 .018 .014 .012 .009 .007 .006 .005 .004

n 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1% 0.990 .980 .971 .961 .951 .942 .933 .923 .914 .905 .896 .887 .879 .870 .861 .853 .844 .836 .828 .820 .811 .803 .795 .788 .780

2% 0.980 .961 .942 .924 .906 .888 .871 .853 .837 .820 .804 .788 .773 .758 .743 .728 .714 .700 .686 .673 .660 .647 .634 .622 .610

3% 0.971 .943 .915 .888 .863 .837 .813 .789 .766 .744 .722 .701 .681 .661 .642 .623 .605 .587 .570 .554 .538 .522 .507 .492 .478

4% 0.962 .925 .889 .855 .822 .790 .760 .731 .703 .676 .650 .625 .601 .577 .555 .534 .513 .494 .475 .456 .439 .422 .406 .390 .375

5% 0.952 .907 .864 .823 .784 .746 .711 .677 .645 .614 .585 .557 .530 .505 .481 .458 .436 .416 .396 .377 .359 .342 .326 .310 .295

6% 0.943 .890 .840 .792 .747 .705 .665 .627 .592 .558 .527 .497 .469 .442 .417 .394 .371 .350 .331 .312 .294 .278 .262 .247 .233

7% 0.935 .873 .816 .763 .713 .666 .623 .582 .544 .508 .475 .444 .415 .388 .362 .339 .317 .296 .277 .258 .242 .226 .211 .197 .184

8% 0.926 .857 .794 .735 .681 .630 .583 .540 .500 .463 .429 .397 .368 .340 .315 .292 .270 .250 .232 .215 .199 .184 .170 .158 .146

9% 0.917 .842 .772 .708 .650 .596 .547 .502 .460 .422 .388 .356 .326 .299 .275 .252 .231 .212 .194 .178 .164 .150 .138 .126 .116

10% 0.909 .826 .751 .683 .621 .564 .513 .467 .424 .386 .350 .319 .290 .263 .239 .218 .198 .180 .164 .149 .135 .123 .112 .102 .092

11% 0.901 .812 .731 .659 .593 .535 .482 .434 .391 .352 .317 .286 .258 .232 .209 .188 .170 .153 .138 .124 .112 .101 .091 .082 .074

12% 0.893 .797 .712 .636 .567 .507 .452 .404 .361 .322 .287 .257 .229 .205 .183 .163 .146 .130 .116 .104 .093 .083 .074 .066 .059

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Table 2 Present Value of One Dollar per Year n Years at i%


1 1 1+ i n ) ( P n= i

n 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1% 0.990 1.970 2.941 3.902 4.854 5.796 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046 18.857 19.661 20.456 21.244 22.023

2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 17.011 17.658 18.292 18.914 19.523

3% 0.971 1.914 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.753 14.324 14.877 15.415 15.937 16.444 16.936 17.413

4% 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 14.029 14.451 14.857 15.247 15.622

5% 0.952 1.859 2.723 3.547 4.330 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 12.821 13.163 13.489 13.799 14.094

6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470 11.764 12.042 12.303 12.550 12.783

7% 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 10.836 11.061 11.272 11.469 11.654

8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.224 8.560 8.851 9.122 9.372 9.604 9.818 10.017 10.201 10.371 10.529 10.675

9% 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 9.292 9.442 9.580 9.707 9.823

10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 8.649 8.772 8.883 8.985 9.077

11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963 8.075 8.176 8.266 8.348 8.422

12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.562 7.645 7.718 7.784 7.843

13% 0.885 1.668 2.361 2.975 3.517 3.998 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.303 6.462 6.604 6.729 6.840 6.938 7.025 7.102 7.170 7.230 7.283 7.330

14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.687 6.743 6.792 6.835 6.873

15% 0.870 1.626 2.283 2.855 3.352 3.785 4.160 4.487 4.772 5.019 5.234 5.421 5.583 5.725 5.847 5.954 6.047 6.128 6.198 6.259 6.313 6.359 6.399 6.434 6.464

16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.576 5.669 5.749 5.818 5.878 5.929 5.973 6.011 6.044 6.073 6.097

17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 4.988 5.118 5.229 5.324 5.405 5.475 5.534 5.585 5.628 5.665 5.696 5.723 5.747 5.766

18% 0.848 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.384 5.410 5.432 5.451 5.467

19% 0.840 1.547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 4.487 4.611 4.715 4.802 4.876 4.938 4.990 5.033 5.070 5.101 5.127 5.149 5.167 5.182 5.195

20% 0.833 1.528 2.107 2.589 2.991 3.326 3.605 3.837 4.031 4.193 4.327 4.439 4.533 4.611 4.676 4.730 4.775 4.812 4.844 4.870 4.891 4.909 4.925 4.937 4.948

21% 0.826 1.510 2.074 2.540 2.926 3.245 3.508 3.726 3.905 4.054 4.177 4.279 4.362 4.432 4.489 4.536 4.576 4.608 4.635 4.657 4.675 4.690 4.703 4.713 4.721

22% 0.820 1.492 2.042 2.494 2.864 3.167 3.416 3.619 3.786 3.923 4.035 4.127 4.203 4.265 4.315 4.357 4.391 4.419 4.442 4.460 4.476 4.488 4.499 4.507 4.514

23% 0.813 1.474 2.011 2.448 2.804 3.092 3.327 3.518 3.673 3.799 3.902 3.985 4.053 4.108 4.153 4.189 4.219 4.243 4.263 4.279 4.292 4.302 4.311 4.318 4.323

24% 0.807 1.457 1.981 2.404 2.745 3.021 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 4.033 4.059 4.080 4.097 4.110 4.121 4.130 4.137 4.143 4.147

25% 0.800 1.440 1.952 2.362 2.689 2.951 3.161 3.329 3.463 3.571 3.656 3.725 3.780 3.824 3.859 3.887 3.910 3.928 3.942 3.954 3.963 3.971 3.976 3.981 3.985

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