Acco 310 Midterm

CONCORDIA UNIVERSITY JOHN MOLSON SCHOOL OF BUSINESS DEPARTMENT OF ACCOUNTING ACCO 310/4 Winter 2011 MID TERM EXAMINATION All sections February 11, 2011 6:00 to 9:00 P. M. |Marks |Minutes | | | | | |Question 1 |24 |43 | |Question 2 |25 |45 | |Question 3 |35 |63 | |Question 4 |16 |29 | | |100 |180 | Materials Allowed †¢ Silent, cordless calculators (financial calculators are permitted) †¢ Translation dictionaries QUESTION 1- 24 MARKS- 43 MINUTESPlease answer all parts of this question in your answer booklet PART A- MULITPLE CHOICE Select the Best Answer 1. Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a. The event or item can be measured objectively in financial terms. b. They are probable. c. The event or item is an element. d. All of these must be met. 2. Which of the following is a recordable event or item? a. Changes in managerial policy b. The value of human resources c. Changes in personnel d. None of the se 3. Which of the following never affects the current year’s income statement? a. Correction of an amortization error made two years ago. b. Using raw materials in the production process c.Dividend declaration and subsequent payment d. None of these affect the current year’s income statement. 4. An accrued expense can best be described as an amount a. paid and currently matched with earnings. b. paid and not currently matched with earnings. c. not paid and not currently matched with earnings. d. not paid and currently matched with earnings. 5. If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve a. a liability account and an asset account. b. an asset or contra-asset and an expense account. c. a liability account and an expense account. d. receivable account and a revenue account. 6. In posting from the general journal, an expense item was debited to a lia bility account in error. Which of the following is true? a. The net income for the period will be understated by the amount of the expense. b. The net assets at the end of the period will be unaffected. c. The trial balance will be out of balance. d. None of these. 7. Which of the following statements is not an objective of financial reporting? a. Provide information that is useful to users in making resource allocation decisions. b. Provide information about an entity’s economic resources, obligations, and equity/net assets. c.Provide information on the liquidation value of an enterprise. d. Provide information about changes in an entity’s economic resources, obligations, and equity/net assets. 8. In establishing financial accounting standards, â€Å"due process† refers to a. the process of giving interested parties ample opportunity to express their views. b. the practice of researching, creating a task force, issuing an exposure draft and establishing the new GAAP. c. the researching of the legal implications of proposed new accounting standards. d. the requirement that all accountants must receive a copy of financial standards. 9.. The purpose of the International Accounting Standards Board (IASB) is to: a. evelop a single set of high quality, understandable and international financial reporting standards for general purpose financial statements† b. develop a uniform currency in which the financial transactions of companies throughout the world would be measured. c. increase the transparency of financial reporting by achieving a single, global method of accounting.d. arbitrate accounting disputes between auditors and international companies. 10. Generally accepted accounting principles include a. specific rules, practices and procedures. b. broad principles and conventions of general applications c. underlying concepts (the conceptual framework) d. all of these. 11. Professional judgement plays an important role in Canada because a. he business environment is complex and there cannot be a rule for every situation. b. Canadian accounting standards are based primarily on general principles rather than specific rules. c. professional accountants have the experience and education that enables them to apply GAAP principles. d. all of these. 12. The exercise of professional judgement does not involve which of the following: a. the use of knowledge gained through education. b. the application of knowledge gained through experience. c. the use of ethical decision making. d. none of these. PART B ( 3 MARKS) Explain why providing information to users is a challenging task. PART C ( 9 MARKS)Presented below are three independent, unrelated statements regarding the formulation of generally accepted accounting principles. Each statement contains some incorrect or debatable statement(s). Statement I The users of financial accounting statements have coinciding and conflicting needs for statements of various types. To meet these needs, and to satisfy the financial reporting responsibility of management, accountants prepare different sets of financial statements for different users. Statement II The AcSB should be responsive to the needs and viewpoints of the entire economic community, not just the public accounting profession. The AcSB, therefore, will succeed because it will deal effectively with all interested groups. Statement IIIStarting on January 1, 2011 all companies in Canada must use IFRS. This is because Canada has extensive economic relations with the United States and all US companies are required to use IFRS. Instructions PROVIDE YOUR ANSWERS IN POINT FORM – DO NOT WRITE AN ESSAY Evaluate each of the independent statements and identify the areas of fallacious reasoning in each and explain why the reasoning is incorrect. Complete your discussion of each statement before proceeding to the next statement. QUESTION 2- 25 MARKS- 45 MINUTES For each of the following items, indicate : A. The appropriate balance sheet classification of the item B. the usual valuation of the item C.The additional disclosure required for the item, if any All of your responses should be in accordance with IFRS. 1. Common shares 8. Long-term bonds payable 2. Prepaid expenses 9. Land (in use) 3. Natural resources10. Land (future plant site) 4. Property, plant, and equipment11. Patents 5. Trade accounts receivable12. Trading securities 6. Copyrights13. Trade accounts payable 7. Merchandise inventory QUESTION 3- 35 MARKS- 63 MINUTES The following schedule was prepared by your colleague to summarize the corrections required to adjust the accounts of WNR Inc. and to form the basis of the revised financial statements that will be prepared for the years ending December 31, 2009 and 2010.    | | | | | | |   |Adjustments required: | | | | | | | |3 |depreciation expense- never previously recorded | | (3,200) | | (4,000) | |4 |Removal of unrealized gain on available for sale investments | (40,0 00) | | – | |5 |Adjust for contingent lawsuit | | | (80,000) |   | – | |Total adjustments | | | | | 111,800 |   | (74,000) | |   |Tax (expense) or saving | | | | | (44,720) |   | 29,600 | |   |Revised Net Income | | | | | 292,080 |   | 145,600 | | Additional Information: The company’s tax rate is 40%. The company has only one class of common shares issued and outstanding, Class A common shares. As at the end of 2009, there were 1,000 shares outstanding for a total value of $10,000. As at the end of 2010, the company had 2,500 common shares issued and outstanding for a total amount of $55,000. The company was incorporated on Nov. , 2008 and began operations on January 1, 2009. On December 15, 2010, the company declared a dividend of $5 per share to all its shareholders of record on that date. The dividend was payable on January 15th, 2011. It is now February 11, 2011 and your colleague, a big winner in this week’s 649 lottery draw, has suddenly quit his job, and left the country indefinitely. Your boss has asked that you review the document left and prepare the following: 1. For each adjustment shown on the schedule, an explanation of what the likely error was, to require the adjustment shown on the schedule. It is believed that all of the adjustments shown on the schedule are correct.Ensure that you explain fully the extent and effect of the error on all relevant accounts (balance sheet and income statement accounts). (10 marks) 2. For each of the adjustments shown on the schedule, prepare the required adjusting journal entry assuming that the books for 2010 are still open. INCLUDE INCOME TAXES (15 marks) 3. Using all of the information from above, prepare a Statement of Changes in Shareholders’ Equity, for the period January 1, 2009 to December 31, 2010 in proper format, including all of the disclosures required as per IFRS and Part 1 of the CICA Handbook. ( 10 marks) QUESTION 4-16 MARKS- 29 MINUTES You have just landed an interview with an exciting new start-up company in the biotech industry.As the company management is comprised solely of cientists, they have hired a local CA firm to interview the applicants for the accounting position that you are interviewing for. The company is anxious that the person they hire be technically proficient in all aspects of financial statement presentation as the rest of the management team is not well versed in the area of accounting and finance. During the interview, the CA asks you to take a short written test to explain fully, the disclosure required, for an enterprise that follows Part 2 of the CICA Accounting Handbook ( Private Enterprise Gaap) with respect to the following areas: 1. Discontinued operations ( 8 marks) 2. Statement of Cash Flows ( 8 marks) You may use point form in your response to these issues.