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SOLUTION NOTES
PART A Multiple Choice Questions
Q1 C Accounts Receivable
Q2 A. $ 4,100
Q3 B Dr Accounts Payable 10,000; Credit Cash 10,000
An asset decreased and a liability decreased by $ 10,000.
Q4 E. Expense = 5 mths x 306/12=127.50; advance 7 mths x 306/12=178.50
Q5 C Revenue received in advance
Q6 D Unearned revenue
Q7 A NBV = 40,000 [42,000 26,000] = gain of 24,000
Q8: A Assets are overstated and profit is overstated.
Q9 B 25.8%
Revenues
125000
Cash expenses
(60000)
Depreciation
(30000)
35000
(10500)
24500
Q25 E 5.50 Overhead rate = 6,600 / 24,000= 0.275 per dollar labour; 0.275 per dollar labour x
$ 20
Q26 C 1,100 ;
FC / (Sp vc) = 3,300 / ( 5-2) = 1,100
Q27 E 20,808; (3,300+59124)/(5-2)= 20,808
Q28 A assets -5345 = liabilities -10,678 + SHE + 5,333
Q29 E Indirect method cash flow:
Profit 127,000 + N-Cash Expenses 10,000 +CLICAD +1,000 -3,000 = 135,000
Q30 A 492,000
Q31 C 208,000
Q32 B 47,000
Q33 D 190,000
Q34 A 57,000 inflow
Q35 D 337,000
Q36 A 20,000
Q37 D 250,000
Q38 C 110,000
Q39 C 30,000
Q 40 A $ 32,420 difficult
1.
2.
3.
30,355
3,000
-35
-900
32,420
There is however an apparent inconsistency in this problem in that if you are estimating the
balance in the books at the end of April then Beginning book 25,046 + Book deposits 15,889
Book cheques 10,080 = 30,855 which is not the balance for the books given in the problem.
That is, the information per books is not internally consistent. You could not however
reconcile if you assume an error in the books without an additional assumption as to the
nature of the error.
Balance per books (Calculated)
- Unidentified error in books
Balance per books (given in problem)
+ Note collected (in bank not in books)
- Bank service charge
- NSF
= Adjusted Balance per Books
30,855
-500
30,355
3,000
-35
-900
32,420
492
-208
-47
-70
-110
+57
Purchase of land
Purchase of equipment
Proceeds sale of vehicle
Purchase of vehicle
-80
-190
+123
-190
Cash to Investing
-337
New borrowing
Issued shares
Paid dividends
80
190
-20
+250
-30
+50
20
SECTION B
During the month of July the following transactions occurred:
T1. Amy set up a company bank account and transferred $ 10,000 from her own bank account
to the company account on July 1 in exchange for 100 shares in her company.
Cash
1. 1
a Share Capital
10,000
10,000
T2.Purchased inventory costing $ 8,000 for cash of $ 1,000 and the remainder on credit from
suppliers.
Purchases
1. 1
(as periodic inventory being used)
a Cash
Accounts Payable
8,000
1,000
7,000
5,000
5,000
3,000
3,000
T5. Paid one month rent by cheque for July amounting to $ 1,200.
Rent
1. (1can use Rent Paid in Advance and then adjust)
a Cash
1,200
1,200
500
500
6,000
2,000
0
8,000
500
500
225
225
215
215
Cash
T1
T2
T3
T4
T5
T6
T7
Accounts Tax
Payable
Payable
10,000
-1,000
7,000
5,000
-3,000
-1,200
-500
T8
500
T9
Total
4,800
Tax
Clear Income
Total
4,800
Share
Retained Income
Capital
Earnings
10,000
-8,000 Purchases
5,000 Sales
-3,000
-1,200 Rent
-500 Salaries
6,000 Purchases + 8,000
Cost of Goods sold -2,000
6,000
-500
4,500
4,500
-225
-225
-225
6,000
6,000
4,000
0
215
4,000
215
10,000
10,000
860
860
4,500
-225
4,800
4,275
6,000
0
15,075
0
15,075
Total Assets
Less:
Current liabilities
Accounts Payable
Tax Payable
Net Assets
4,000
215
Shareholders equity
Share capital
Retained profits
10,000
860
10,860
10,860
SECTION C
Ten marks with 4 marks in part (a) and 6 in part (b).
(a)
FC CM
= $30,000 ($39 [$18 + $10])
= $30,000 $11
= 2,728 / 2,727 carton lots
If the variable materials represent the constraint the priority should be given to the products that yield the higher
contribution per dollar of variable materials. This means that the contributions need to be reassessed as shown
below:
Contribution
Variable materials
Contribution per
dollar of variable materials
A
9
15
B
11
18
C
5
10
.60
.61
.50
(a) The weakness in the current internal controls is the lack of appropriate segregation of duties. The
sales clerk has access to both the asset (cash) and the recording of the asset (expected cash based upon
cash sales records). The sales clerk should not have the ability to change the sales records without
reference to a supervisor to approve the change to the sales record. (1 mark)
OR, Cash sales should have locked-in sales registers or other controlled records that ensure that all
proceeds that have been processed through the till will be recorded (page 391)
(b) Disadvantage of NPV includes that it relies on the accuracy of the estimates of future cash flows.
Future cash flows can be particularly uncertain for software development projects. (2 marks)
(Another disadvantage is that NPV relies on the reliability of the discount rate chosen but that is much
less likely to explain the huge magnitude of this difference between expectations and actual costs.)
Also the question asks: what is the main difference. for evaluating such a software development
proposal? so an answer linking back to the nature of the project is better.
(Background: In December 2002, the Auditor-General of Canada, Sheila Fraser, reported that the
project was running vastly above initial cost estimates. The report showed that the implementation of
the firearms registry program by the Department of Justice has had significant strategic and
management problems throughout. Taxpayers were originally expected to pay only $2 million of the
budget while registration fees would cover the rest. In 1995, the Department of Justice reported to
Parliament that the system would cost $119 million to implement, and that the income generated
from licensing fees would be $117 million. This gives a net cost of $2 million. At the time of the 2002
audit, however, the revised estimates from the Department of Justice were that the cost of the program
would be more than $1 billion by 2004-05 and that the income from licence fees in the same period
would be $140 million. https://en.wikipedia.org/wiki/Canadian_Firearms_Registry)
(c) Expenses are typically recognised in the income statement when there is a decrease in future
economic benefits (e.g. definition of expenses). (2 marks)
Or, expenses are typically recorded so as to match the resources used to the revenue recognised
(matching concept).
Or, expenses are typically recognised at the point of sale (discussion of a critical event).