CONCORDIA UNIVERSITY FINANCIAL ACCOUNTING

DEPARTMENT OF ACCOUNTANCY COMM 217 ALL SECTIONS

SAMPLE FINAL EXAM 2 - DURATION: 3 HOURS
Instructions (very important):
1. This exam paper consists of 10 pages including this page. Please make sure your copy has
all pages before commencing to write.
2. Write your name (last & first), Student ID and Section on both the computer input sheet and
the exam booklet.
3. For the multiple choice questions, darken the letter you choose on the computer input sheet.
Please note that all the information on the computer input sheet must be entered in
PENCIL. Write your answers to the other questions in pen in the exam booklet. You may
answer the questions in any order you prefer. Only the answers on the computer input
sheet and in the exam booklet will be graded.
4. If an answer to a question requires calculations, show the details on the exam booklet, except
for multiple-choice questions which are marked as correct or incorrect, regardless of showing
detailed calculations.
5. Read the questions carefully and budget your time wisely.
6. Using abbreviated account names, headings, subheadings, totals and subtotals is not
recommended, and it may be subject to mark deduction.
7. This is a closed book exam. However, a silent hand-held (not graphical or programmable)
calculator and one standard language (not electronic) dictionary are permitted.
8. Professors and invigilators will not answer questions unless you think there is an error
in the exam.
9. Return the computer input sheet, exam booklet(s) and exam paper to the invigilator when you
have finished.

GOOD LUCK!

Total
Question Topic
Marks
A Multiple Choice (various topics) 40
B Accounting for Inventory 14
C Accounting for Current Liabilities 12
D Accounting for Shareholders’ Equity 9
E Analysis of Financial Statements 14
F Taxation topics 11
Total 100

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Question A Multiple choice (40 marks; 20 questions, 2 marks each; 72 minutes)
For each of the following multiple-choice questions, choose the letter that corresponds to the best answer
and blacken the corresponding letter on the computer input sheet. Make sure to use a pencil.

1. The word “dividends” represents

A. Periodic expenses deducted from revenues to determine net earnings.
B. A reduction from the proprietor’s capital account in a proprietorship.
C. Assets that are held by the entity to finance future capital expenditures.
D. A distribution of assets to shareholders as a result of profitable operations.
E. None of the above statements.

2. Goodwill is determined for accounting purposes as:

A. the financial effect of activities undertaken by companies that are for the best interest of society,
even if they have a detrimental effect on the company's short-run financial results.
B. the amount of contributions that a corporation makes to charitable organizations.
C. the value of a company's reputation for such things as service, quality, and product reliability.
D. the excess of the cost of an acquired company over the fair market value of its net assets
(identifiable individual assets minus liabilities).

3. If a company has a current ratio of 1.2, what respective effects will the borrowing of cash on a short-
term basis and the collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivables
A. Increase No effect
B. Increase Increase
C. Decrease No effect
D. Decrease Decrease

4. The capital structure of a company is

A. its property, plant and equipment.
B. the mix of debt and equity to finance a company.
C. the composition of its shareholders’ equity.
D. the different types of debt that the company has outstanding.

5. Which one of the following would normally be considered a disadvantage of the corporate form of
organization?
A. Limited liability of shareholders B. Separate legal existence
C. Continuous life D. Government regulation

6. Provo Co. buys a piece of equipment with a selling price of $9,000. The dealer grants the company a
reduction of 15% on the list price. The company made the following additional expenditures: sales
taxes that are refundable, $1,350; insurance on the equipment for one year, $250; and a delivery charge,
$300, paid by Provo. At what cost should Provo record the equipment on its books?

A. $7,950 B. $8,797.5 C. $8,200 D. $7,650 E. None of the other amounts

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7. On January 1, 2022, KJK Company had $12,000 in assets, $3,000 in liabilities, $4,000 in share capital
and $2,000 in other components of equity. During 2022, the Company had revenues of $10,000,
expenses of $7,000, and distributed $1,000 in dividends. The amount of retained earnings that would
appear on the statement of financial position at December 31, 2022 would be:

A. $6,000 B. $5,000 C. $7,000 D. $8,000 E. None of the other amounts.

8. The following totals for the month of April were taken form the payroll register of Minsk Company.

Salaries $12,000
CPP withheld 550
Income taxes withheld 2,500
Medical insurance deductions 450
EI withheld 196
Union dues withheld 216

The recording of the monthly payroll on April 30 would include

A. an increase to Salaries Expense by $12,000.

B. an increase to Salaries Payable by $12,000.
C. a decrease to Salaries Payable by $8,088.
D. an increase to Salaries Expense by $8,088.

9. Lucky Dubois Inc. operates in a province where customers pay a federal sales tax of 5% but do not pay
a provincial sales tax. If a customer purchased merchandise for $300 cash plus sales tax, then the effects
of this sale on Lucky Dubois’s accounts should include

A. an increase to Cash for $300.

B. an increased to Sales Tax Payable for $15.
C. an increase to Sales Revenue for $315.
D. an increase to Sales Tax Expense for $15.

10. While preparing adjustments to various accounts at the end of its fiscal year ending December 31,
2022, Cheung Company neglected to adjust the account Deferred Rent Revenue for the amount of
rental fees earned in 2022. The error was discovered and corrected on January 31, 2023. What effect
does this error have on the following:
Net Earnings Assets Liabilities
for 2022 . Dec. 31, 2022 Dec. 31, 2022
A. Understated Overstated Overstated
B. Overstated No Effect Overstated
C. Understated No Effect Overstated
D. Understated No Effect No Effect

11. Which of the following statements best reflects the meaning of the debt-to-equity ratio?
A. It measures the company’s ability to secure new financing.
B. It shows the relative amounts of financing provided by creditors and owners.
C. It provides an indicator of the company’s ability to pay interest in the next period.
D. It reveals the company’s ability to pay current debts from money in equity.
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12. Which of the following tasks is not commonly performed by external auditors?
A. External auditors examine the transactions of a company during the accounting period, but the
number of transactions examined depends on the strength or weakness of the internal control
system.
B. External auditors evaluate the system of internal controls.
C. External auditors are expected to provide an opinion on whether the company’s transactions are
reported in accordance with International Financial Reporting Standards.
D. External auditors usually advise the company on various accounting and tax issues.
E. External auditors prepare the financial statements of companies.

Use the information below to answer questions 13 to 15.

K.C. Rybak decided to expand his business by buying a franchise from “Bike Collective,” a business
specializing in bike sales and repairs. This business was incorporated and commenced operations on July 1,
2023 as K.C. Bike Collective Inc.
On August 1, 2023, K.C. Bike Collective Inc. bought a piece of land and an abandoned warehouse on the
land for $915,000. The company paid $75,000 cash and signed a note for the balance. A real estate broker
estimated the market values of the land and warehouse to equal $350,000 and $700,000, respectively.
Prior to buying the warehouse the company determined that $105,000 of renovations would have to be
done in order to make it usable for the operations of the business. The renovations were completed on
October 1, 2023 and the amount was paid in cash.
The company’s fiscal year ends on December 31.

13. The cost of land that should be recorded in the account Land as a result of the above details should be

A. $305,000. B. $350,000. C. $340,000. D. $610,000 E. $715,000.

14. The cost of the warehouse that should be recorded in the account Building as a result of the above
details should be
A. $700,000.
B. $805,000.
C. $610,000.
D. $715,000.
E. None of the above amounts.

15. Assume the warehouse has a useful life of 25 years, a residual value of $65,000, and is depreciated on
a straight-line basis. The warehouse was not ready for use until the renovations were completed. Which
of the following statements is incorrect?

A. The annual depreciation expense is $26,000.

B. The adjustment to record depreciation expense for fiscal year 2023 should equal $6,500.
C. The net realizable value of the Building at December 31, 2023 should be $708,500.
D. The balance of the account Accumulated Depreciation – Building should be $32,500 at December
31, 2023.

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16. Miga Company and Porter Company both bought a new delivery truck a few years ago on January 1.
Both companies paid exactly the same cost, $40,000, for their respective vehicles. As of December 31
of the current year, the carrying value of Miga’s truck was less than Porter Company’s carrying value
for the same vehicle. Which of the following is an acceptable explanation for the difference in carrying
value?

A. Miga Company estimated a lower residual value, but both estimated the same useful life and both
used straight-line depreciation.
B. Both companies used straight-line depreciation, but Miga Company used a longer estimated life.
C. Because IFRS specifies rigid guidelines regarding the calculation of depreciation, this situation is
not possible.
D. Miga Company is using the straight-line method of depreciation, and Porter Company is using a
different method of depreciation.

17. When recording depreciation, which of the following statements is true?

A. Total assets increase and shareholders’ equity increases.
B. Total assets decrease and total liabilities increase.
C. Total assets decrease and shareholders’ equity increases.
D. Both total assets and shareholders’ equity decrease.
E. None of the other statements are true.

18. Which of the following transactions would usually cause accounts payable turnover to decrease?
A. Collection of cash from a customer.
B. Purchase of equipment on credit.
C. Payment of cash to a supplier for merchandise purchased through cash.
D. Purchase of merchandise on credit.

19. Which of the following ratios is used to analyze liquidity?

A. Accounts payable turnover ratio.
B. Debt-to-equity ratio.
C. Current ratio.
D. Cash coverage ratio.
E. Both A and C.

20. Which of the following statements regarding the lower of cost and net realizable value (LC&NRV)
rule for inventory are true?
1. The LC&NRV rule is a departure from the cost principle.
2. When the net realizable value of inventory drops below the cost shown in the financial records, net
earnings is reduced.
3. When the net realizable value of inventory drops below the cost shown in the financial records, total
assets are reduced.
A. Only (1) is true.
B. Only (2) is true.
C. Only (3) is true.
D. Both (2) and (3) are true.
E. All three statements are true.
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Question B (14 marks, 25 minutes) Accounting for Inventory

Joung Inc. sells item A as part of its product line. Simplified information about the beginning inventory,
purchases, and sales for item A for the year 2023 is given in the following table.

Year 2023 Purchases Sales

Number Unit Number Sales
Date of Units Cost of Units Price
January 1 (beginning inventory) 3,000 $1.40
a) March 5 5,000 $1.60
b) June 21 7,000 $4.50
c) September 30 2,500 $1.98
d) December 17 2,000 $4.80

All purchase and sale transactions are on account. Joung uses a perpetual inventory system and the
weighted-average cost method. Round your calculation of the average cost to three decimal places.

Required:

1. Compute the cost of sales for June 21, 2023. (3 marks)

2. Compute the cost of ending inventory on December 31, 2023, the end of Joung’s fiscal year. (2.5
marks)
3. Identify the accounts that were affected by the transactions that occurred on March 5 and June 21,
2023. Specify the amount and direction of the change in each of these accounts. (6.5 marks)
4. Assume that the company’s quick ratio is 0.65 on December 31, 2023. Will the quick ratio increase,
decrease, or remain unchanged if the unit cost for the purchase on December 17 was $1.95 instead of
$1.98? Explain. (2 marks)

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Question C (12 marks; 22 minutes) Accounting for Liabilities
Modern Furniture Ltd. is local retailer of home furnishings. The company reported the following items in
its statement of financial position dated October 31, 2023 (amounts in thousands):

October 31, 2023 October 31, 2022

Dividends payable $4,424 $ 3,844

Deferred warranty plan revenue 9,971 10,299
Notes payable 35,800 24,600

The company’s annual report included the following information:

1. Warranty revenues are deferred and taken into income on a straight-line basis over the life of the
warranty period. Warranty revenues for fiscal year 2023 are $9,818 compared to $9,450 in 2022.
2. On July 31, 2023, the Company increased its borrowings from Provincial Bank by signing notes
payable totalling $11,200. Interest on these notes, at a rate of 7 percent is payable annually on July 31,
starting in 2024. The other notes payable have been outstanding since January 1, 2020, and are due on
December 31, 2025. Interest on these notes is payable annually on December 31 at an average annual
interest rate of 5 percent.

Required:
1. Determine the amount that the Company received from customers to purchase deferred warranty plans
during fiscal year 2023, and identify the accounts affected by the transactions related to the deferred
warranty plans, including the direction of the changes in the account balances. (4.5 marks)
2. The company’s board of directors declared dividends of $14,725 during 2023. Record the effects of the
declaration and subsequent payment of dividends on the relevant accounts using the accounting
equation. (4 marks)

3. Determine the balance of the account Interest Payable on October 31, 2023. (3.5 marks)
______________________________________________________________________________________

Question D (9 marks; 16 minutes) Accounting for Equity Transactions

MLW Limited was incorporated on January 1, 2023 with the following share capital:
Common shares, no par value, unlimited number of shares authorized

The following events occurred during the year 2023:

Jan. 2 Issued 50,000 common shares for cash, $100,000.
Jan. 2 Issued 5,000 common shares to a supplier in exchange for used equipment. The original cost of
the equipment to the supplier was $250,000 and its accumulated depreciation was $150,000 up to
the date of sale. The market value of this equipment was $125,000 on that date.
Dec. 31 Declared a cash dividend of $0.30 per common share outstanding, payable on January 15, 2024.
The company reported net earnings of $40,000 for the year 2023.

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 D WPR L
10299 10299 9818 X 9971
9818
194902
9971

5
 Warranty Provision
6,000 beg for fthturns
actual
warranty 50000 03000 warranty expense
returns
4.000 end

Warranty Expense 3000

Warranty Provision 3000
Warranty Provision 5000
Cash 5000
 A L SE

Jan 2 Cash HOOR CS look

Jan 2
Equipment 125K S 125k

Dec 31 DP 16500 DD 16500

MLW
Partial Statement of FP
As at Dec 31 2023
gg
Common share 225000
Retained Earnings 23,500
Total Shareholders Equity 2 4 8 500

40000 16500 23500

Eps Net Earnings 40,000 0.73
Av shares 55,000
Required:
1. Record the effects of the transactions on the relevant accounts using the accounting equation. (4.5
marks)
2. Prepare the shareholders’ equity section of MLW’s statement of financial position as at December 31,
2022. (3.5 marks)
3. Calculate the Company’s earnings per share for 2023. (1 mark)

Question E (14 marks; 25 minutes) Analysis of Financial Statements

LFL Group is a Canadian retail conglomerate specializing in major home furnishings, mattresses,
appliances and electronics. Selected information from LFL’s statements of financial position at December
31, 2022 and 2021 (with comparative amounts for 2020) and condensed statements of earnings for the
years 2022 and 2021 are shown below.

LFL GROUP
Excerpts from Statements of Financial Position at December 31
(in millions of dollars)
2022 2021 2020
Assets
Cash and cash equivalents $ 382 $ 369
Short-term investments 108 124
Accounts receivable, net 160 131 $ 141
Inventories, at cost 396 332 334
Total current assets 1,075 982
Property, plant, and equipment 658 714 721
Total assets 2,453 2,419 2,130
Liabilities
Accounts payable 544 305 257
Total current liabilities 1,200 821
Total liabilities 1,662 1,403
Shareholders' Equity 791 1,016 916

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 LFL GROUP
Statements of Earnings
For the Years Ended Dec. 31, 2022, and Dec. 31, 2021
(in millions of dollars)
2022 2021

Revenue $2,513 $2,220

Cost of sales 1,404 1,236
Gross profit 1,109 984
Selling, general and administrative expenses 819 751
Earnings from operations 290 233
Finance costs (21) (22)
Finance income 8 –
Earnings before income taxes 277 211
Income tax expense 69 47
Net earnings $ 208 $ 164
Earnings per share $2.67 $2.05

Additional information:
2022 2021
Cash provided by operating activities $ 314 $ 511
Cash provided by (used in) investing activities 16 (43)
Cash provided by (used in) financing activities (316) (189)
Interest paid 20 24
Income taxes paid 55 46
Market price per common share at December 31 25.23 20.63

Required (Round your calculations to three decimal places):

1. Calculate the quick ratio for 2022 and explain its significance in terms of LFL’s liquidity position at
December 31, 2022. (3 marks)
2. Assume that you are interested in buying common shares in LFL.
a. Identify three ratios that would be most useful for your investment decision, and explain why you
chose these ratios. (3 marks)
b. Calculate the ratios that you identified above for each of the years 2022 and 2021. (6 marks)
c. Would you purchase shares in LFL based on the calculated ratios? Explain. (2 marks)

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Question F (11 marks; 20 minutes) Taxable Topics

The following statement of earnings and notes are part of the financial statements for Freidoun Inc. for the
year ending December 31, 2022. The company’s shares are owned by Freidoun Mamdou, a Canadian
resident.

Freidoun Inc.
Statement of Earnings
For the Year Ended December 31, 2022
Sales (note b) $250,000
Cost of sales 150,000
Gross profit 100,000
Operating expenses:
Salaries 54,000
Management bonuses (note c) 5,000
Depreciation (note d) 4,600
Advertising expenses (note e) 5,500
Legal fees 2,500
Office expenses 3,000
Entertainment expenses (note f) 2,400
Bad debts 3,600
Total operating expenses 60,600
Income from operations 39,400
Gain on sale of investment 2,600
Income before income taxes 42,000
Provision for income taxes 6,300
Net Income $ 35,700

Notes:
a) All of the company’s sales had the same cost per unit.
b) A sale for $6,000 was recorded on December 31, 2022. The terms of the sale are F.O.B. destination
point and the goods were delivered to the customer on January 4, 2023.
c) These bonuses will only be paid in August 2023.
d) Capital cost allowance (CCA) for tax purposes has been correctly calculated as $6,000.
e) The reported amount includes a payment of $600 for a business suit for the Company president.
f) These were for entertaining clients and suppliers.

Required:

Prepare a statement showing the adjustments to net income that are needed to determine taxable income for
Freidoun Inc. for fiscal year 2022.
3.

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