You are on page 1of 38

Cover Type B

TO BE RETURNED AT THE END OF THE EXAMINATION.


THIS PAPER MUST NOT BE REMOVED FROM THE EXAM CENTRE.
SURNAME:

_______________________

FIRST NAME:

_______________________

STUDENT NUMBER: _______________________


COURSE:
_______________________
__________________________________________________________________________________________________

AUTUMN SEMESTER, 2011


FINAL EXAMINATION
SUBJECT NAME

ACCOUNTING FOR BUSINESS DECISIONS A

SUBJECT NO.

22107

DAY / DATE

14 June 2011

TIME ALLOWED

Three (3) Hours plus Ten (10) Min. reading time

START/END TIME

9:30am 12:40pm

NOTES / INSTRUCTIONS TO CANDIDATES:

Answer all questions - all questions are compulsory


Part 1
- 75 multiple choice questions to be answered on the data sheet provided.
- Please use a 2B pencil
- These questions will not be negatively marked

Part 2
-

3 questions to be answered in the space provided on this question paper.

This is a closed book examination: Students are permitted writing implements, non data storage
calculators, rulers and white out.
Please do not bring any red pens, paper, notes, books, mobile phones, data storage devices,
transmitting or receiving equipment, any electronic or telecommunication equipment into this
examination room. ALL students are reminded that you are not to have notes written on your body or
clothing either. Students caught cheating will be penalised.
Please take note of the marks allocated to each question and allocate your time carefully.

Please write your answers legibly.


This Exam Booklet has 38 printed pages including this Cover Page.

Pages 37 & 38 provide space for additional working that will not be marked.

Part 1
Multiple Choice Questions

Please answer on the multiple answer data sheet provided


DO NOT ANSWER PART 1 ON THIS QUESTION
PAPER
Choose the alternative which best answers the questions. Record it on the
data sheet provided using a 2B pencil (you can rub it out), blue or black
pen (you cannot rub out). DO NOT cross out wrong answers - rub them
out. Neatly colour in the circle. If you colour more than one circle for a
question, the question will be marked wrong.

Please remember a computer marks this and it will not be able to


determine what you mean, unless you have indicated it clearly on the
sheet.

Part 1 Multiple Choice (50% or approximately 90 minutes)


1. The average share market performance on the Australian Securities Exchange is measured by two
leading indices, The All Ordinaries Index (All Ords) and the ASX 200. During the semester, these
two indices have been (fluctuated) around?
a.
b.
c.
d.
e.

1,600
2,900
3,600
4,900
5,900

2. During the semester there has been news media coverage concerning the:
a.
b.
c.
d.
e.

Continual fall of the stock market


Effect of natural disasters on the economy
Instability of the Australia dollar
Falling inflation rates
Sharp increase in federal government spending

3. One Australian Dollar would buy approximately how many United States of America Dollars over
the semester?
a.
b.
c.
d.
e.

.75
.90
1.05
2.20
5.20

4. The price of gold is usually quoted in US Dollars ($US) and for one ounce (oz). The current price
of gold in $US/oz is approximately:
a.
b.
c.
d.
e.

$ 0.15
$ 1.50
$ 150
$ 1,500
$ 15,000

5. The price of crude oil is quoted in United States dollars per barrel. This price of crude is currently
approximately how many $US per barrel:
a.
b.
c.
d.
e.

$ 1.50
$ 15.00
$ 85.00
$ 115.00
$ 1,415.00

6. Official interest rates in Australia are set by the Reserve Bank. The average rate during the
semester has been approximately:
a.
b.
c.
d.
e.

There is no such thing as official rates; banks charge whatever they can get away with.
10.75%
8.75%
6.75%
4.75%

7. Chrysler Jeep Australia purchases vehicles from Chrysler Jeep USA using American dollars.
Chrysler Jeep Australia records the value of these vehicles purchased in the books of business in
Australian dollars. Over the last 12 months the Australian dollar has appreciated significantly
against the US dollar. Which inventory costing method gives the lowest cost of goods sold at the
end of the period for Chrysler Jeep Australia?
a.
b.
c.
d.
e.

First-in, first-out
Last-in, first-out
First-out, first in
Last out, first-in
Weigted Average

8. In the first year of an assets life an accountant decided to use the straight line method of
depreciation. The use of the straight line method, rather than the accelerated (dimishing-balance)
method depreciation will result in the reporting of:
a.
b.
c.
d.
e.

Higher assets and lower net profit


Lower assets and lower net profit
Higher assets and higher net profit
Higher liabilities and higher assets
None of the above

9. The primary purpose of the closing entries is to:


a.
b.
c.
d.
e.

prove the equality of the debit and credit entries in the general journal
ensure that all assets and liabilities are recognised in the appropriate period
measure revenue, expense, and dividend accounts in the next period
assure that adjusting entries balance
calculate the net balance of non-current assets

ARE YOU RECORDING YOUR ANSWERS ON THE (RED) COMPUTER CODING SHEET?
HAVE YOU ALSO RECORDED YOUR NAME AND STUDENT NUMBER ON THIS
SHEET?

10. Laurens Corporation uses the periodic FIFO method to value inventory and had the following
transactions in the period. What are the cost of goods sold and ending inventory balances in
dollars for the period?
Date
Transaction
# of units
Cost per unit
1/1
Beginning balance
150
$10
2/1
Purchase
200
$12
5/1
Sale
100
6/1
Sale
200

a.
b.
c.
d.
e.

COGS
3 900
2 500
3 100
3 300
3 500

Ending Inventory
1 000
1 400
800
600
400

11. Alberts Pty. Ltd. provides the following budget data:


Quarter
Estimated Sales (in units)

1
400

2
500

3
600

4
560

Each unit sells for $15 and 70% of sales are on credit. Credit sales are collected as follows: 30% in
the quarter of sale and the balance in the following quarter. How many dollars of 3rd quarter sales will
be collected in the 4th quarter? Ignore the effects of GST.
a.
b.
c.
d.
e.

$2,520
$4,410
$5,880
$6,300
$9,000

12. The general term to describe how costs are affected by a change in the level of a given activity
within an organization is called:
a.
b.
c.
d.
e.

Cost behaviour
Cost driver
Cost management
Cost reduction
Cost sensivity

13. The accounting equation is:


a.
b.
c.
d.
e.

Revenues = Net profit - expense


Revenues Expenses = Net profit
Assets = Liabilities + Shareholders equity
Assets + Liabilities = Shareholders equity
Assets + Shareholders equity = Liabilities

14. The purpose of the statement of financial position is to report:


a.
b.
c.
d.
e.

Net profit of a business over a period of time.


Net profit of a business at a point in time.
Difference between cash inflows and cash outflows for the period.
Assets, liabilities and shareholders equity at a point in time.
Assets, liabilities and shareholders equity over a period of time.

15. Which of the following effects on the accounting equation is not correct as a result of a journal
entry?
a.
b.
c.
d.
e.

Increase a liability and decrease an asset.


Increase shareholders' equity and increase an asset.
Increase an asset and decrease an asset.
Decrease shareholders' equity and decrease an asset.
All of the above are not possible.

16. Assume that in one accounting period liabilities increased by $6,000, assets increased by $16,000,
and net profit was $22,000. The owner must therefore have:
a.
b.
c.
d.
e.

Contributed $10,000
Received dividend $10,000
Contributed 12,000
Received dividend $12,000
Cannot be calculated from the above limited information.

17. The book value of a tangible operating asset is the:


a. Acquisition cost.
b. Current estimated market value.
c. Acquisition cost minus the balance in accumulated depreciation.
d. Total depreciation that has been recorded for the asset to date.
e. Future value of cash flows.

18. Which of the following is an example of revenue or an expense recognised in the current periods
statement of comprehensive income?
a.
b.
c.
d.
e.

Cash received from a client before the lawyer represents them in court.
Inventory purchased by a retail store.
Wage costs owed to employees who worked during the period.
Cash collected from an accounts receivable.
Rent paid for the following period.

19. On 1 January 2011, Scott Pty. Ltd, started the year with a $200,000 credit balance in the retained
earnings account. During 2011, the company earned net income of $70,000 and declared and paid
dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by
its owners. Therefore, the balance in retained earnings on 31 December 2011, would be:
a.
b.
c.
d.
e.

$200,000
$215,000
$245,000
$260,000
$275,000

20. Two basic accounting principles determine when revenues and expenses are to be recorded under
accrual basis accounting. They are:
a.
b.
c.
d.
e.

Revenue recognition and matching principles.


Revenue recognition and measurement principles.
Cost and matching principles.
Relevance and reliability principles.
Prudence principle.

21. On the last day of its financial year, Hooper Pty Ltd received $2,150 cash for a one year insurance
policy. What is the appropriate journal entry ignoring GST, assuming the insurance policy
becomes effective (starts) on the first day of the next financial year (i.e. the next day)?
a. Unearned Insurance Revenue
Cash

2,150

b. Cash

2,150

2,150

Prepaid Insurance

2,150

c. Prepaid Insurance
Cash

2,150

d. Prepaid Insurance
Insurance Expense

2,150

e. Cash

2,150

2,150

2,150

Unearned Insurance Revenue

2,150

22. Moran Corporation purchased supplies for $2,000. Due to an error in recording the journal entry
for this transaction, the inventory account was debited for only $200 while accounts payable was
credited for $2,000. During which phase of the accounting cycle would this error be discovered?
a.
b.
c.
d.
e.

Recording the transaction in the journal.


Preparation of the financial statements.
Preparation of the trial balance.
Analysis of each transaction.
Preparation of the consolidated analysis.

23. Which is the correct order of the steps in the accounting cycle at the end of the accounting period?
a. Prepare financial statements, journalise and post adjustments, journalise and post the closing
entries, and prepare a trial balance.
b. Prepare a trial balance, journalise and post adjustments, journalise and post the closing entries,
and prepare financial statements.
c. Journalise and post adjustments, journalise and post the closing entries, prepare financial
statements, and prepare a trial balance.
d. Prepare a trial balance, journalise and post adjustments, prepare financial statements, and
journalise and post the closing entries.
e. Journalise and post the closing entries, prepare a trial balance, journalise and post adjustments
and prepare financial statements.

24. On 1 July 2011, the Jin Corporation rented a property at a rate of $120,000 per year. On that date,
rent was paid in advance for ten months and credited to a expense account. At 31 December 2011
(Jin's financial year end), which of the following adjusting journal entries should be made?
Debit
a.
b.
c.
d.
e.

Rent expense
Rent revenue
Unearned rent revenue
Rent expense
Prepaid rent expense

Credit
$40,000
$60,000
$60,000
$40,000
$40,000

Cash
Unearned rent revenue
Rent revenue
Prepaid rent expense
Rent expense

$40,000
$60,000
$60,000
$40,000
$40,000

25. Failure to make an adjusting entry to recognise accrued wages payable would cause an:
a.
b.
c.
d.
e.

Understatement of expenses, liabilities and shareholders equity.


Overstatement of expenses and liabilities.
Understatement of expenses and liabilities and an overstatement of shareholders equity.
Understatement of assets and shareholders equity.
Overstatement of expenses and shareholders equity.

26. The primary basis for the classification of assets in the balance sheet (statement of financial
position) is:
a.
b.
c.
d.
e.

Liquidity
Profitability
Alphabetical
Size
Risk

27. Kamal Corporation reported 2011 net income of $450 000 including the effects of depreciation
expense, $60 000 and amortisation expense on a patent, $10 000. Also, cash of $50 000 was
borrowed on a 5-year note payable. Based on this data, total cash inflow from operating activities
for 2011 was:
a.
b.
c.
d.
e.

$440 000
$470 000
$500,000
$520 000
$570 000

28. The books of Saune Corporation provided the following information:


Beginning balances:
Accounts receivable
Allowances for doubtful accounts (a credit)

$ 50 000
3 000

Transactions during the year:


Sales revenue (of which 1/2 were on credit)
2 000 000
Collections on accounts receivable
980 000
Accounts written off as uncollectible
4 000
Past collection experience has indicated that 2% of credit sales normally are not collected. Therefore,
an adjusting entry for bad debt expense should be made in the amount of:
a.
b.
c.
d.
e.

$47,000
$20,000
$10 000
$7,000
$500

29. Which of the following statements is CORRECT?


a. Consistency becomes an important consideration when alternative accounting methods are
considered acceptable in a given situation.
b. Once an inventory costing method has been selected, managements can indiscriminately switch
to another.
c. Accounting data produced in different accounting periods is still comparable if indiscriminate
changes in accounting method are permitted.
d. Consistency completely rules out switching to an alternative acceptable method.
e. All of the above.

30. Which principle may conflict with the guidance provided by the relevance principle in the
preparation of the financial statements?
a.
b.
c.
d.
e.

Matching principle
Entity principle
Valuation principle
Reliability principle
None of the above
9

31. An extraordinary item is:


a. The amount reflected on the statement of comprehensive income for adjustments made to
balance sheet accounts when applying different accounting principles.
b. The result of the disposal of a major segment of the business.
c. A gain or loss that is both unusual in nature and infrequent in occurrence.
d. A prediction of earnings for future accounting periods.
e. Possible liability in the future.

32. Provision for bad debts appears on the:


a. Statement of financial position debit column of a worksheet
b. Adjusted trial balance credit column and balance sheet credit column of a worksheet
c. Statement of comprehensive income debit column and balance sheet credit column of a
worksheet
d. Statement of comprehensive income credit column of a worksheet only
None of the above

33. Which of the following describes the prudence principle?


a.
b.
c.
d.
e.

Avoid overstating assets and revenues and avoid understating expenses and liabilities.
The benefits of accounting for and reporting information should outweigh the costs.
Amounts large enough to influence a users decisions.
Differences due to long-standing and accepted accounting practices in particular industries.
Allocating revenues and expenses to the correct period.

34. When you receive payment for goods you previously sold on credit:
a.
b.
c.
d.
e.

assets increase
revenues increase
liabilities decrease
expenses increase
none of the above

35. The primary responsibility for the information reported by a company rests with:
a.
b.
c.
d.
e.

Shareholders
Companys management
Stock exchange
Companys auditors
Sales manager

36. An events coordinator purchases $81,000 of supplies, paying $21,000 cash and agrees to pay the
rest later. The correct journal entry for this transaction would be:
a.
b.
c.
d.
e.

Debit Supplies, Credit Cash at Bank, Credit Supplies Payable.


Debit Cash at Bank, Debit Supplies Payable, Credit Supplies.
Debit Supplies, Credit Cash at Bank.
Debit Supplies, Credit Supplies Payable.
Debit Cash at Bank, Debit Supplies Payable.
10

37. If Accounts Receivable had a normal balance of $50,000 on 31st December (end of the month).
There were debit postings totalling of $32,000 and credit postings of $17,000 during December.
What would the Accounts Receivable balance on 1st December have been?
a.
b.
c.
d.
e.

$35,000 credit
$65,000 credit
$28,000 debit
$35,000 debit
$65,000 debit

38. Pundrich Productions had a net profit of $750 for the month of October. During the month,
dividends of $300 were paid, and the business incurred rent expense of $425, salary expense of
$210, and gas and electricity expense of $175. No other expenses were incurred. What was
Pundrich Productions revenue during October?
a.
b.
c.
d.
e.

$1,135
$1,385
$1,560
$1,860
$2,070

39. On 1 February fees revenue was credited for the amount of $24,000, representing revenue for eight
months for the period 1 February to 30 September. On the last day of the financial period, 28
February, the company should:
a.
b.
c.
d.
e.

Debit fees revenue for $3,000


Debit fees revenue for $21,000
Credit fees revenue for $21,000
Credit fees receivable for $21,000
Credit unearned fees for $3,000

40. Residual value is:


a.
b.
c.
d.
e.

Equal to the acquisition cost of a tangible operational asset.


Equal to acquisition cost plus repairs expenditure.
The same as book value of an asset.
Expected amount recovered when asset disposed.
The current value of an asset as of the balance sheet date.

41. A retailer purchased inventory for $1,500 on 5 October with terms 5/15, n/30. They returned
inventory costing $200 on 7 October, because it was defective. When the account was paid on 17
October, the journal entry to record the payment (ignoring GST) would include a:
a.
b.
c.
d.
e.

debit Cash at Bank $1,235


credit Purchase Discount $75
debit Accounts Payable $1,300
credit Purchase Discount $10
debit Purchases $1,500
11

42. In a period of increasing inventory prices, which inventory method will result in the highest profit
(lowest expense)?
a.
b.
c.
d.
e.

FIFO
LIFO
Weighted average cost
Cannot be determined with the limited information given
This depends on the level of inventory held at the end of the period

43. Which inventory method reports the most current inventory costs (values) on the balance sheet at
the end of the financial year?
a.
b.
c.
d.
e.

FIFO
LIFO
average cost
both a and b
physical inventory system

44. Liquidity is the ability to pay:


a. for asset purchases
b. non-current obligations
c. current obligations
d. future obligations
e. medium term obligations

45. Jon Company's inventory was destroyed by fire. Its records show net sales of $325,000, beginning
inventory of $50,000, net purchases of $145,500 excluding GST, and a gross profit rate of 60%.
What is the estimated value of the ending inventory?
a.
b.
c.
d.
e.

$50,000
$65,500
$145,500
$195,500
$275,500

46. The Purchases account is used with:


a.
b.
c.
d.
e.

only the perpetual inventory system


only the periodic inventory system
both perpetual and periodic inventory systems
neither perpetual nor periodic inventory systems
the buying of supplies in any organisation

12

47. Which principle provided the basis for recordings assets at cost:
a.
b.
c.
d.
e.

real principle
comparability principle
reliability principle
relevance principle
matching principle

48. Amortising the cost of a patent is justified by the:


a.
b.
c.
d.
e.

expense recognition principle


disclosure principle
comparability principle
write off principle
matching principle

49. Reporting Non-Current Assets at an amount significantly higher than their net realisable value (the
price they would sell for) may be justified by:
a.
b.
c.
d.
e.

prudence principle
matching principle
the going concern principle
materiality
it cannot be justified

50. If the date on a financial statement is at June 30, 2010 then the financial statements could be:
a.
b.
c.
d.
e.

statement of comprehensive income


statement of financial position
the statement of cash flow
the statement of changes in shareholders equity
the information given is insufficient to determine the statement

51. A set of interrelated activities which when taken together define how an organisation conducts its
operations is called:
a.
b.
c.
d.
e.

Value chain
Joint venture
Business model
Supply chain
Operating cycle

13

52. The description of the organisational culture and attitude whereby an entitys primary goal is to
provide customers with quality products and services that satisfy their needs is called:
a.
b.
c.
d.
e.

Just in Time
Total Quality Management
6 Sigma
Balanced Scorecard
Economic Value Added

53. Which of the following is a contra account?


a.
b.
c.
d.
e.

Prepaid insurance expense


Bad debt expense
Accounts receivable
Accumulated depreciation
Unearned sales revenue

54. The adjusting entry for supplies involves:


a.
b.
c.
d.
e.

A debit to Supplies Expense


A credit to Supplies On Hand
A debit to Cash
A credit to Accounts Payable
It depends if supplies are originally recorded as an asset or expense

55. As a starting point in the budgeting process which of the following is usually carried out?
a.
b.
c.
d.
e.

Cash budgeting
Variance analysis
Sales forecasting
Financial statement analysis
Cost estimation

56. A potential future liability arising from an event that has already happened usually is called:
a.
b.
c.
d.
e.

an accrued liability
a contingent liability
a deferred liability
an estimated liability
a current liability

57. In any organisation budgeting is important because:


a.
b.
c.
d.
e.

It provides accountants with work.


It allows the organisation to know the future.
It aids in financial statement analysis.
It helps in the recording of transactions.
It aids management planning.
14

58. Expected future data that differs among alternative courses of action are referred to as:
a.
b.
c.
d.
e.

comparable information
historical information
predictable information
relevant information
reliable information

59. A sunk cost is:


a.
b.
c.
d.
e.

a historical cost that is irrelevant to future decisions


an outlay expected to be incurred in the future because of a decision
a historical cost that may be relevant to future decisions
relevant to a decision because it changes depending on the alternative selected
a cost that can be hidden

60. Which of the following statements is INCORRECT regarding relevant range?


a.
b.
c.
d.
e.

Variable cost per unit varies in different relevant ranges


Total cost is the sum of variable and fixed costs
Total fixed cost cannot vary in different relevant ranges
Total variable cost is not fixed in a relevant range
Relevant range is related to capacity contraints

61. Starnucks is a cafe specialising in making Turkish coffee. Being new, it can also afford to purchase
60 cups for $2 each. The cups come with matching saucers for $0.20 per saucer. Beans are
purchased in 1kg bags for $15 each, capable of providing enough coffee for 60 persons. It buys 10
bags of coffee beans. It serves 300 people in its first week selling coffee for $3.80 per cup. Based
on the scenario above, how much does the fixed costs amount to at the end of the first week?
a.
b.
c.
d.
e.

$132
$120
$12
$150
$140

62. The benefit that can be gained from the next best course of action is referred to as:
a.
b.
c.
d.
e.

sunk cost
variable cost
incremental cost
second choice cost
opportunity cost

15

63. Advanced Mowers manufactures two products; a mower and a blower. The following data is
available:

Sale Price
Variable cost

Mower
$358
$125

Blower
$173
$ 65

The company can manufacture two mowers per machine hour or three blowers per machine hour.
Advanced Mowers has production capacity of 2500 machine hours per month. The contribution
margin per machine hour for the mower is
a.
b.
c.
d.
e.

$125
$233
$358
$466
$483

64. Refer to the information in question 63 above. To maximise profits Advanced Mowers should
produce:
a.
b.
c.
d.
e.

5,000 mowers
7,500 blowers
2,500 mowers and 3,750 blowers
1,000 mowers and 6,000 blowers
500 mowers and 6,750 blowers

65. Gabriel is considering replacing a boat that is presently used in his business. The following
information is available:
Original cost
Remaining useful life
Current age
Carrying amount
Current disposal cash value
Future disposal value (in 5 years)
Annual cash operating costs

$ 36,000
5 years
7 years
$ 20,000
$ 6,400
$ Zero
$ 5,600

The TOTAL relevant costs associated with SELLING the vehicle NOW are:
a.
b.
c.
d.
e.

$ 37,600
$ 28,000
$ 48,000
$ 57,600
$ 6,400

16

66. The excess of expected sales over break-even sales is:


a.
b.
c.
d.
e.

net profit
margin of safety
contribution margin
sales revenue
unexpected sales

67. Kai Pty Ltd paid six months rent on June 1 and debited Prepaid Rent $18,000. To be able to
prepare accurate financial statements on June 30, Kai Pty Ltd should make an adjusting entry that
includes:
a.
b.
c.
d.
e.

debit Prepaid Rent $15,000


credit Rent Expense $18,000
debit Rent Expense $3,000
credit Prepaid Rent $21,000
nothing there is no need to make an adjusting entry

68. If Net Sales Revenue is $980,000 Gross profits $260,000 and Operating expenses are $280,000.
What is the Cost of goods sold and Net profit or loss?
a.
b.
c.
d.
e.

COGS $260,000 and Profit $20,000


COGS $980,000 and Loss $280,000
COGS $720,000 and Loss $20,000
COGS $700,000 and Profit $280,000
None of the above

69. Cost of Goods sold is $25,000. Beginning inventory is $12,000. Ending inventory is $14,000. If
there is no freight-in and total purchases are $29,000, calculate purchase returns and allowances?
a.
b.
c.
d.
e.

$1,000
$2,000
$3,000
$5,000
Cannot be calculated because of the limited information given

70. Laurens Limited sells two types of products X and Y. Product X sells for $25 per unit and has a
variable cost of $15. Product Y sells for $30 and has a variable cost of $20. Total fixed costs are
$20,000. Kai Limited typically sells three Xs for every one Y. The break-even point in units is:
a.
500
b. 1,091
c. 1,500
d. 2,000
e. 10,000

17

71. One of the main roles of a forensic accountant is:


a.
b.
c.
d.
e.

Advising clients on investment options.


Interpreting financial statements prepared under different accounting standards.
Responsibility for the financial archives of large corporations.
Pursuing customers who have over due accounts with a business.
Examining financial records and identifying fraudulent transactions.

72. The journal article Accruals and the Predictions of Future Cash Flows by Barth, Cram and
Nelson (2001) finds that:
a. Increases in inventory and accounts receivable lead to an increase in cash inflows in the next
period.
b. Increases in accounts payable lead to an increase in cash inflows in the next period.
c. Decreases in cash flow in the current period lead to an increase in cash flow in the next period.
d. Decreases in depreciation and amortisation lead to decreases in cash flow in the next period.
e. All the relationships were insignificant and no clear finding were reached.

The following 3 questions (questions 73, 74 & 75) refer to the journal article: The Relationship
between Two Consequences of Budgetary Controls: Budgetary Slack Creation and Managerial ShortTerm Orientation by Van der Stede (2000).
73. The results indicate that business units that pursue either a differentiation strategy or have been
more profitable are subject to:
a.
b.
c.
d.
e.

Very rigid budgetary controls


Less rigid budgetary controls
Long term managerial orientation
Short term managerial orientation
Budgetary slack

74. The article finds that reducing slack creation through a rigid budgetary control style leads to:
a.
b.
c.
d.
e.

Lower managerial short-term orientation


Lower managerial participation
Higher managerial short-term orientation
Higher managerial participation
No clear findings are presented in the paper

75. What does the paper suggest about the use of management accounting tools including budgets?
a.
b.
c.
d.

These tools are best avoided due to thecomplexities associated with using them.
A one size fit all approach is appropriate for the use of these tools.
The budget is the most useful management accounting tool available.
These tools have behavioural implications which differ according to the context in which they
are used.
e. All of the above
18

YOU SHOULD HAVE NOW ANSWERED THE ABOVE 75 QUESTIONS AND


RECORDED YOUR ANSWER ON THE COMPUTER DATA SHEET USING A
PENCIL or a BLUE or BLACK pen.
HAVE YOU ALSO RECORDED YOUR NAME AND STUDENT NUMBER?

If you colour more than one circle for a question, the question will be
marked incorrect.

19

BLANK PAGE

20

Part 2
Practical and Theory Questions

PLEASE WRITE YOUR ANSWERS FOR PART 2 IN


THE SPACES PROVIDED IN THIS QUESTION
PAPER.

PLEASE WRITE YOUR ANSWER LEGIBLY


Remember, if it cannot be read it cannot be marked.

21

Question 2 Financial Statement Analysis (16 2/3% or 30 minutes)


The following data is presented for A4BDA.
A4BDA
Statement of Comprehensive Income
For the year ended 31/05/2011
Net Sales (all on credit)
Less Cost of Goods Sold
Equals Gross Profit
Less Expenses:
Selling and Distributing
Admin and Management
Interest Expenses
Operating Profit before Income Tax
Income Tax
Operating Profit after Income Tax

1,000,000
(430,000)
570,000
130,000
140,000
20,000
280,000
(120,000)
160,000

A4BDA
Statement of Financial Position
As at the 31/05/2010
Current Assets
Cash
Accounts Receivable (net)
Inventory
Prepaid expenses
Total Current Assets
Non-current Assets
Land
Buildings
Less Accumulated Depreciation
Total Non-current Assets

1,000
79,000
110,000
43,000

A4BDA
Statement of Financial Position
As at the 31/05/2011
17,000
50,000
140,000
43,000

233,000

250,000

200,000
328,000
(211,000)

350,000
360,000
(250,000)
317,000
.

Total Assets
Total Current Liabilities
Non-current Liabilities

550,000
105,000
230,000
335,000
200,000
15,000

360,000
200,000
150,000

215,000
.

Total Liabilities and Shareholders Equity

710,000
100,000
260,000

Total Liabilities
Share Holders Equity
Ordinary shares (100,000 shares)
Retained Profits
Total Shareholders' Equity

460,000
.

350,000
.

550,000

710,000

QUESTION TWO CONTINUED OVER


22

A4BDA
Statement of Cash Flows
For the year ended 31/05/2011
Net cash flow from Operating Activities

$ 193,000

Net cash flow from Investing Activities

($182,000)

Net cash flow from Financing Activities

5,000

Net increase in Cash

$ 16,000

Other Information:
Market price of one ordinary share for A4BDA on 31/05/2011 was $26.00.

REQUIRED

Calculate and Comment on Financial Analysis (30 minutes)


From the data in question 2 above calculate the following seven ratios for A4BDA for the year ended
31/05/2011 or as at 31/05/2011 (not as at 31/05/2010). Comment on the use of the ratio. (In
commenting on the use of the ratio, you may care to write about the financial or operating aspect the
ratio is measuring, why a larger or smaller number would indicate an improvement in the ratio and
any limitations in using the ratio to assess past or predict future financial or operating performance of
A4BDA. Do not attempt to write about the financial or operating performance of A4BDA based on
the number you have calculated.)

1. Current Ratio
Your Answer (rounded to 2 decimal places): __________________
Your Working (not marked)

Comment on the use of the current ratio:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
23

2. Price / Earnings Ratio


Your Answer (rounded to 2 decimal places):

____________________

Your Working (not marked) - first calculate earnings per share

Comment on the use of the price earnings ratio:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
3. Gross Profit Margin Ratio
Your Answer (rounded to 2 decimal places): ____________________
Your Working (not marked)

Comment on the use of the gross profit margin ratio:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
24

4. Receivables Turnover
Your Answer (rounded to 2 decimal places):

____________________

Your Working (not marked)

Comment on the use of the receivables turnover ratio:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
5. Inventory Turnover Ratio
Your Answer (rounded to 2 decimal places): ____________________
Your Working (not marked)

Comment on the use of the inventory turnover ratio:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
25

6. Quality of Income:
Your Answer (rounded to 2 decimal places):

____________________

Your Working (not marked) - use both the Income and Cash Flow Statements

Comment on the use of the quality of income:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
7. Financial Leverage Percentage
Your Answer (rounded to 2 decimal places): ____________________
PLEASE NOTE: Use Earnings before Interest and Tax (EBIT) when calculating Return on Assets
(ROA). Need to calculate two returns ratios to find Financial Leverage Percentage.

Comment on the use of the financial leverage percentage:

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
NEXT PAGE QUESTION THREE
26

Question 3 Management Decision Making (16 2/3% or 30 minutes)


Please Note: There are THREE parts to this question.

Part A. Cash Budget

(6 minutes)

J.W. Fields is expected to begin June with $100,000 cash. He forecasts that collections in June from
cash sales will be $65,000, from account customers $42,000 and he is scheduled to receive $76,000
cash on a bill receivable. Projected cash disbursements include payments for inventory of $200,000
and operating expense of $99,000. J.W. Fields requires a $50,000 minimum cash balance at the end of
each month and the bank automatically extends credit to the store in multiples of $10,000.
REQUIRED: Prepare J.W. Fields cash budget for June.

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
QUESTION THREE CONTINUED OVER

27

Part B. Cost-Volume-Profit Analysis

(12 minutes)

Charlie Buckett Confectionary is a wholesale distributor of candy. The company services groceries,
convenience stores, and drugstores in a large metropolitan area. Small but steady growth in sales has
been achieved over the past few years while candy prices have been increasing. The company is
formulating its plans for the coming fiscal year. Presented below are the data used to project the current
years after-tax net income of $ 264,960.
Average selling price
Average variable costs:
o Candy Production
o Selling Expense
Total
Average fixed costs:
o Selling
o Administrative
Total
Expected annual sales volume
Tax rate

$ 9.60 per box


$ 4.80 per box
$ 0.96 per box
$ 5.76 per box
$ 384,000
$ 672,000
$1,056,000
390,000 boxes
40%

Required:
Answer the following questions in the space provided. Marks will be given for relevant additional
calculations.
(i) What is Charlie Buckett Confectionarys break-even point in boxes of candy for the current
year?

__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
QUESTION THREE CONTINUED OVER

28

(ii)

Manufacturers of candy have announced that they will increase prices of their products in the
coming year due to increases of 15 percent in direct materials, direct labour and variable
overhead costs. Charlie Buckett Confectionary expects that all other costs will remain at the
same rates or levels as the current year. What selling price per box must Charlie Buckett
Confectionary charge to cover the increase and still maintain the current contribution margin
percentage?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
QUESTION THREE CONTINUED OVER

29

(iii)

What volume of sales in dollars must Charlie Buckett Confectionary achieve in the coming year
to maintain the same net income before taxes as projected for the current year if the selling price
of candy remains at $9.60 per box and variable production costs of candy increase 15 percent?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
QUESTION THREE CONTINUED OVER

30

(iv)

What is the Contribution Margin of a company? Explain why it is important in cost accounting?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
QUESTION THREE CONTINUED OVER

31

Part C. Overheads & Flexible Budgets


(i)

(12 minutes)

What is meant by applying overhead? Why is this done? List and explain one advantage and one
disadvantage of applying overhead.

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
(ii)

What is meant by flexible budgets? How are they different from static budgets? List and
explain one advantage and one disadvantage of applying overhead.

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
NEXT PAGE QUESTION FOUR

32

Question 4 The Conceptual Framework (16 2/3 % or 30 minutes, 16 marks)


PART A
Explain the concept of earnings management.

(4 marks)

PART B
(8 marks)
Provide two examples of how management can manage earnings (2 marks). In each
case, explain how managers further their self-interest. For example, using a certain
accounting method may result in higher asset numbers this year; why would this be
in managements interest? (6 marks).
PART C
(4 marks)
Given the incentives managers have to manipulate numbers, what prevents managers
from just reporting any numbers they like?
Answer parts A, B and C in the space provided below.

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
33

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
34

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
35

______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
36

ADDITIONAL WORKING
(THIS SECTION WILL NOT BE MARKED)

37

ADDITIONAL WORKING
(THIS SECTION WILL NOT BE MARKED)

PLEASE MAKE SURE THAT YOU HAVE RECORDED YOUR MULTI CHOICE ANSWERS ON
THE SEPARATE ANSWER CODING SHEET AND YOY ANSWERS TO THE PRACTICAL AND
THEORY QUESTIONS IN THIS QUESTION PAPER
Thank you for studying Accounting For Business Decisions A (22107) in Autumn Semester 2011
Carin, Tom, Naibuka, Matthew, Gabriel, Daryl, Oday, Kai, Barry, Robert, James, TK, Jonathan

END OF EXAMINATION

38