Department of Career & Professional Development

SAMPLE MID-TERM EXAMINATION

ACCOUNTING FOR MANAGEMENT- CACC 520
ACCOUNTING CONCEPTS FOR MANAGERS – CACC220

Instructions:

 This is a CLOSED BOOK examination.

 You are permitted TRANSLATION dictionaries in book format only.
 You are permitted noiseless, non-programmable CALCULATORS.
 Start each question on a new page
 Show all calculations
 The exam represents 40% of the final grade

THIS EXAMINATION IS PRINTED ON BOTH SIDES

This examination paper consists of 7 QUESTIONS and printed on a total of 7 pages, including
this cover page. Please ensure that you have a complete examination before starting.

1
QUESTION 1 - 20 marks; 36 minutes

Larry’s Corporation is a well-known fast-food restaurants company. Examine the accompanying

condensed Trial Balance at January 1, 2017 which is based on Larry’s annual report.

Cash $ 186
Accounts and Notes receivable 315
Inventories 43
Prepaid expenses 119
Property and equipment, at cost 13,459
Other assets 1,291
Accumulated depreciation $ 3,378
Notes and accounts payable 589
Other liabilities 5,172
Capital Stock 1,026
Retained earnings 5,248
TOTAL $ 15,413 $ 15,413

Consider the following assumed partial summary of transactions for 2017 (in millions):

a. Revenues in cash, company owned restaurants, $2,200

b. Revenues, on account from franchised restaurants, $500. Setup a separate revenue account for
these sales.
c. Inventories acquired on account, $827
d. Cost of inventories sold, $820
e. Depreciation, $224
f. Paid rents and insurance premiums in cash in advance, $42
g. Prepaid expenses expired, $37
h. Paid other liabilities, $148
i. Cash collections on receivables, $590
j. Cash disbursements on notes in accounts payable, $747
k. Paid interest expense in cash, $100
l. Paid other expenses in cash, mostly payroll and advertising, $1,510

REQUIRED:

1. Record the transactions including any adjusting entries above using the Balance Sheet
Equation. (15 MARKS)
2. Prepare an Adjusted Trial Balance in good form at December 31, 2017. (5 MARKS)

2
 QUESTION 2 - (10 marks; 18 minutes)

ChemLon is a pesticide manufacturer and has a December 31 year-end. Its sales declined greatly this
year because of new legislation that outlaws the sale of several Die Hard chemical pesticides. Sales in
the next year are expected to be much higher than those of any prior year. The decline in this year’s
sales and profits appears, therefore, to be a one-time event.

Even so, the company president believes that a large dip in the current year’s profits could cause a
significant drop in the market price of ChemLon’s shares and make the company a takeover target.
To avoid this possibility, he urges the company’s controller, to accrue all possible revenues and to
defer as many expenses as possible when making this period’s year-end adjusting entries. The
president says, “We need the revenues this year, and next year can easily absorb expenses deferred
from this year. We can’t let our share price drop significantly!”
The controller did not get around to recording the adjusting journal entries until January 17, but she
dated the entries December 31 as if they were recorded then. She also made every effort to comply
with the president’s request.

REQUIRED:

a) Who are the stakeholders in this situation, and why? (3 marks)

b) What impact would this treatment have on the financial statements? (3 marks)
c) Do you agree with the President’s strategy? Explain. (4 marks)

QUESTION 3 - (20 marks; 36 minutes)

The following independent items for Theatre Ltd. occurred during the year ended December 31, 2017.
Using the balance sheet equation, prepare all the necessary entries for the year ended December 31,
2017 for Theatre Ltd.

1. Supplies on hand were $600 at the beginning of the year. During the year, additional supplies
were purchased for $1,750 cash. At the end of the year, a physical count showed that supplies
on hand amounted to $300. (3 marks)

2. The theatre owns a truck that was purchased on January 2, 2016, for $40,000 cash. The
amortization is $6,400 per year. (2 marks)

3. On June 1, the theatre borrowed $10,000 from La Caisse Populaire Desjardins at an annual
interest rate of 6%. The principal is to be repaid in one year. The interest is to be paid at the
same time as the principal is repaid. (3 marks)

4. The theatre has nine plays each season, which starts in September 2017 and ends in May 2018
(one play per month). Season tickets sell for $225. On August 21, 2017, 2,500 season tickets
were sold for the upcoming 2017-2018 season. The Theatre credited unearned Season Ticket
Revenue for the full amount received on August 21. (3 marks)

3
5. Every Monday, the total payroll for the theatre is $3,000 for wages earned during a six-day
work week (Tuesday-Sunday). This year, December 31 falls on a Thursday. Wages were last
paid (and recorded) on Monday, December 28. (3 marks)

6. Theatre Ltd. rents its facilities for $200 a month to a local seniors’ choir that uses the space for
rehearsals. The choir’s treasurer was ill during December, and on January 4, 2018, the theatre
received a cheque for both the amount owning for the month of December 2017 and the rent for
the month of January 2018. (3 marks)

7. Upon reviewing its books on December 31, the theatre noted that a telephone bill for the month
of December had not yet been received. A call to Bell determined that the telephone bill was
for $375. The bill was paid on January 12. (3 marks)

QUESTION 4 - 20 marks; 36 minutes

PART 1:

Using the balance sheet equation, record the disposal of the following assets:

a) A machine that cost $50,000, with an estimated useful life of 12 years and a salvage value of
$2,000, was being amortized using the straight-line method. After 10 years, the machine was
completely worn out and sold for $500 as scrap. (4 marks)

b) An asset that cost $40,000, with a salvage value of $2,000 and an estimated useful life of four
years, was being amortized using the double-declining balance method. After three years, it was
sold for $10,000. (4 marks)

PART 2:

For each of the independent situations below, provide full explanations.

1) The XYZ Company is deciding which method – straight-line or double-declining – to use for a
new asset. Which method will result in higher net income in the first year of the asset’s useful
life? Why? Which method will result in the higher net income in the last year of the asset’s
useful life? Why? (4 MARKS)

2) ABC Company assigned a $100,000 residual value to a machine that cost $900,000 and was
amortized over an 8 year life. At the end of the 9th year, assuming the machine is not sold or
scrapped, what amounts if any will appear on the balance sheet? Explain your reasoning. (4
MARKS)

3) Two different companies purchase identical long-lived assets with identical costs. Company 1
uses straight-line amortization, and Company 2 uses double-declining balance amortization. At
the end of the assets’ useful lives, what will be the numerical relationship between the two
companies Retained Earnings balances? (2 MARK) Why? (2 MARKS)

4
QUESTION 5 - (15 marks; 27 minutes)

Amos Corporation was incorporated and began business on January 1, 2013. It has been successful
and now requires a bank loan for additional working capital to finance an expansion. The bank has
requested an audited income statement for the year ending December 31, 2017. The accountant for
Amos Corporation provides you with the following income statement, which Amos plans to submit to
the bank. After your review, you realize that there are a number of errors in the presentation. You
therefore take it upon yourself to make the changes by preparing a multi-step income statement.

AMOS CORPORATION
Income

Sales $ 850,000
Dividends Income 32,300
Gain on sale of building 126,000
Income tax on loss on discontinued operations 14,580
Gain on sale of computer equipment 5,000
1,040,600

Less:
Selling expenses $ 100,000
Prepaid expenses 11,000
Accumulated amortization (89,000)
Cost of goods sold 510,000
Advertising expense 26,000
Dividends paid 10,000
Amortization expense 13,000
Sale of Common Shares (70,000)
Loss on inventories that cannot be sold 34,000
Salaries payable 18,000
Loss on discontinued operations 48,600
Administrative expense 73,400 685,700

Income before income tax 354,900

Income tax (this is the correct amount) 77,070
Net income $ 431,900

5
QUESTION 6 - (10 marks; 18 minutes)

Below you will find the accounts that make up Apple Computer Inc.’s latest financial information for
December 31, 2017.

Cash & Equivalents 5,263

Opening Retained Earnings 40,311
Accounts Receivable - Trade 3,361
Other Receivables 1,696
Inventory 455
Other Current Assets 2,270
Loss on Discontinued Operations before tax 45,459
Capital Assets 4,667
Goodwill 206
Long Term Investments 10,528
Other Long Term Assets 1,905
Accrued Expenses 1,293
Taxes on gain of non-recurring item 17,395
Unearned Revenue 2,216
Common Stock 8,210
Taxes on Loss on Discontinued operations 13,637
Cost of Goods Sold 25,683
Selling/General/Admin. Expenses 4,149
Research & Development 1,333
Extraordinary loss (net of tax) 8,768
Intangibles 353
Prepaid Expenses 309
Income tax on operating income 3,522
Other Equity 77
Other Current liabilities 4,612
Accounts Payable 5,601
Cash and Short Term Investments 23,464
Revenue 42,905
Other Liabilities 2,139
Gain on non-recurring item (before-tax) 57,986
Short Term Investments 18,201

REQUIRED:

Using the above accounts, prepare a classified balance sheet in good form.
Proper presentation (2 marks), Amounts in correct place (8 marks)

6
QUESTION 7 - (5 marks; 9 minutes)

XYZ Corporation issued the following statement of cash flow in the most recent year:

Net cash used from operating activities $-10,000,000

Net cash provided by investing activities $ 6,000,000
Net cash provided by financing activities $ 7,000,000

Increase in cash during the year $ 3,000,000

Beginning cash balance $ 8,000,000
Ending cash balance $11,000,000

REQUIRED:

Is there any reason to be concerned about this company’s viability? (5 marks)