multiple choice Question 1

1 mark each
1 C 13 C
2 A 14 D note changes to question or answer
3 B 15 C
4 C 16 C
5 D 17 C
6 C 18 B
7 D 19 C
8 D 20 D
9 C 21 A
10 D 22 B
11 C 23 D
12 A 24 B
25 A
tion or answer
 Platinum Inc.
Cash Flow Statement
For Fiscal Year 2012
Operating Activities
Net Income $290,000
Adjustments for non-cash items and changes in working capital accounts
Depreciation expense 290,000
Bond amortization expense 2,800
Decrease in accounts receivable 150,000
Increase in inventory (160,000)
Purchase of short-term investments (400,000)
Increase in accounts payable 180,000
Cash provided by operating activities $352,800

Investing Activities
Purchase of long-term investments (150,000)
Cash used by investing activities (150,000)

Financing Activities
Proceeds from bank loan 200,000
Repayment of bank loan (824,000)
Issuance of common shares 132,000
Payment of dividends (56,000)
Cash used by financing activities (548,000)
Net increase in cash (345,200)
Cash at beginning of year 550,000
Cash at end of year $204,800

Notes:
1. Cash consists of cash on hand and balances at banks.
2. Taxes paid were $116,000. Interest paid totals $127,200.*
3. $15,000 of preferred shares were converted to common shares during the year.

*Students may also include taxes and interest in the cash flow statement either by adding back expense then deducting paym
ck expense then deducting payment or by starting with income before taxes.
FROM THE QUESTION

Candace Inc
Balance Sheet
31-Dec-11

Cash $57,000 Accounts payable $85,000

Accounts receivable ( 52,200 Long-term liabilities 100,000
Inventories 90,000 Shareholders’ equity 308,500

Investments 76,300

Equipment (net) 186,000

Patents 32,000
$493,500 $493,500

this is part of solution

detailed calculations :

Retained earnings dec 31, 2011 as given 150,000

add other comp income belongs here 58,500
less net income as given - 60,000
Jan 1, 2011 retained earnings should be 148,500

Revised opening retained earnings 148,500

adjusted net income 44,040
ending retained earnings dec 31 , 2011 192,540

recalculate net income PE gaap

as given 60,000
adjust for $20000 of unrecorded purchases - 20,000
adjust for unrealized gain 5,000
note adjust for depreciation change in estimate - 18,600
adjust for insurance belonging in prepaids 7,000
total adjusts - 26,600
 tax effect 10,640
- 15,960
revised net income 44,040
Adjusted net income
these marks are detail info- not to double count
counted in totals in red on right

note change in accounting policy is treated as a change in estimate as it

is due to new information- therefore prospective
therefore the calculation fo the effect as at the end of 2010 is useless information
simply take nbv as given and depreciate over 10 years
reclass
 see calcs in cell
SOLUTION

PART 1

Assets
Current Assets
Cash $57,000
Accounts receivable (net of allowance for d/a of $4,800) 67,200
Income taxes receivable 10,640
Inventories 90,000
Prepaid insurance 2,400
227,240

Prepaid insurance 4,600

Investments in term deposits (note -int rates, maturity dates and f 26,300
Investments of available for held for trading at market( sale financ 55,000
Equipment (net of accumulated amortizations of _______$) 167,400
Patents 32,000

Total Assets 512,540

Liabilities and Shareholders' Equity

Liabilities

Current liabilities
Accounts payable $120,000

Long-term liabilities 100,000

100,000

Total Liabilities $220,000

Shareholders’ equity

Share capital- 100,000 common shares at $1 each (and disclose rig 100,000

Retained earnings 192,540

Total Liabilities and Shareholders' Equity 292,540

Total Liabiliteis and Shareholders Equity 512,540

 MAXIMUM POSSIBLE CAP = 10 PRESENTATION MARKS

overall max this part of the question = 15

note- for non current assets student can use other subheading if wish- they
are not necessary though so as long as listing is by separate category of asset, with appropriate disclosure
then ok
ess information
note also- must have details of comments disclosure required to get presentation mark for each item

PART 2
Solution
this part has 7 marks

Candace Inc.
Statement of Retained Earnings
December 31, 2011

Opening balance, January 1, 2011

Restatement of OCI
Opening balance, as restated

Net income for the year

Ending balance, Dwecember 31, 2011

for presentation

overall max this part of question is 7

Note could use another format of this statement as long as has all components noted for marks

PART 3
journal entries books still open
dr

1 purchases 20,000
accounts payable

2 Prepaid insurance- current 2,400

 Prepaid insurance- non-current 5,600
Insurance expense

3 income taxes payable/ receivable 10,640

income tax expense

4 Investments - held for trading 5,000

unrealized gain

5 depreciation exp 18,600

accum depreciation

6 accounts receivable 15,000

accounts payable

7 Other Comprehensive Income 58,500

Retained Earnings

PART 4
for max of 5 marks

student must discuss at least-

2 of the following limitations of the balance sheet-
as at a point in time- subject to manipulation
effects of estimates and allocations
measurement difficulties- ie we do not record human resources, internally generated goodwill
some discussion of undervaluation of assets and liabilities as a result of these difficulties
accept reasonable discussion which uses examples to explain even if precise terminology is not
e calcs in cell
Candace Inc.
Balance Sheet
December 31, 2011

could also show allowances on separate line- ok this way as long as disclose

one year's worth is current

assume all invests were originally recorded at cost

must add both credit balances in A/R and $20,000 re purcahses

see calc detail for tax effect

see mark details on left with calc

ppropriate disclosure

mark for each item

Retained
Earnings
90,000
58,500
148,500

44,040
192,540

omponents noted for marks

cr

20,000
 7,000

10,640

5,000

18,600

15,000

58,500

ernally generated goodwill

t of these difficulties
f precise terminology is not used
Q4 20 marks max mark as per competency grid below

The student should identify/ discuss the following conceots and issues in their discussion
the entity concept
the monetary unit- sheep?
historical cost
inflation/ present value
fair value increases
measurement difficulties and estimation uncertainty
usual vs unusual circumstances and how to report thereon
transaction based accounting
unrecorded assets and liabilities= goodwill
imitations of accounting vis a vis the immeasurable
what is income
what is an asset
student should attempt some sort of numerical analysis
must astate assumptions in doing so- inflation, pv, fair vlaue etc

If student assumes the exchange rate will be the no. of sheep and given the short period of time ( 1 year) that in

if Argone gave20 sheep for 10 additional acres of land

ARGON
so if we assume 2 sheep = 1 acre of land start 300 sheep
20 acres land
sold 20 sheep
got 10 acres
sold 3 acres at cost
cost has changed got 9 sheep in excahnge
new sheep
no change in overall wealth exchange 1 fence for 50 sheep
interest owing on borrowed sheep
assumes fence depreciation not yet started since first year of acquisition
could also assume it has

explain why did /did not count borrowed sheep

explain why did/did not count spouses sheep
explain why did/did not count spouses sheep
explain why did/did not count spouses sheep
using historical cost- how would differ if using fair values
protective benefits of fence not estimable= goodwill self generated
d issues in their discussion

and given the short period of time ( 1 year) that interest rates are fixed and inflation is negligible

sheep equiv AUBERGINE sheep equiv

300 start 300 sheep 300
20 acres land 40 20 acres land 40
sold 20 sheep 0 new sheep 37
got 10 acres 0 less- dead sheep -2
sold 3 acres at cost -6
got 9 sheep in excahnge 9
new sheep 75
exchange 1 fence for 50 sheep 0
interest owing on borrowed sheep -24

394 375
sheep question
competency grid Q4

Rubric

Student prepares a memo and explains point is to

measure well-offness and defines "what is
income"and "what is an asset"with reference to
course concepts
Student reaches a conclusion and makes a
recommendation based on his/her assumptions

marks
Student discusses the following theoretical
concepts

the entity concept

fair value increases
inflation/ present value
measurement difficulties and estimation uncertainty
usual vs unusual circumstances and how to report thereon
transaction based accounting
unrecorded assets and liabilities= goodwill
limitations of accounting vis a vis the immeasurable

explains the above with reference to the case situation

marks

Student dperformed a numerical/quantitative

analysis using logic and concepts as a base

marks

totals
max 20 marks

Excellent understanding Good Understanding

Prepared a memo Prepared a memo

Defined well-offness in some meaningful way and attempted to define well-offness in some
explained income and assets fully meaningful way but discussion was incomplete

5 3

Student performed a
Student performed a good
reasonable though incomplete
discussion and incorporated many
discussion and incorporated at
of the course concepts and issues
least 3 of the concepts

10 7
Student performed a
Student performed a good
reasonable attempt at a
quantitative analysis and was able
quantitative analysis but
to come up with a numerical value
analysis was incomplete or
which was logical
logically incom=nsistent

5 3

20 13
Limited Understanding

Prepared a memo but did not

really explain objective

Student did not attempt a theoretical

discussion or discussion was wrong or
very weak

Student did not attempt quantitative

analysis or analysis was very weak or
loginally inconsistnet