BUSN 1001 SEMESTER 2, 2015 Final examination

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)

Net profit before tax

35000

Taxation (30% of profits before tax)

(10500)

Net profit after tax (NPAT)

24500

Accounting rate of return = average NPAT / Average Investment

= 24500 / [(170000 + 20000)/2]
= 24500 / 95000
= 25.79%

Q10 D Separation of record keeping from handling of assets.

Q11 B III and V
Q12 A 50,000
Q 13. C Increase in Total Contribution = (1800 1620) x 400 = 72,000
Q 14 C As a liability in the balance sheet (page 13)
Q15 B As a cash outflow on the statement of cash flow
Q16 D Inventory = 5+14 12 = 7 units; 6 @ 30 and 1 @ 36 = 216 but higher than NRV of
7x30=210
Q17 E See definition of depreciation in glossary. C is close but not the best.

Q18 A Decrease profit by $1,000 and decrease total assets by $1,000.

Q19 B SHE = 800,000+1,000,000 + 150,000 50,000 +300,000 = B 2,200,000

Q20 A 720,000 = 30,000 + 300,000 -10,000 + 400,000
Q21 C 39,000; Profit = 60,000 - wages 20,000 accrual (1/5 x 5,000) = 39,000
Q22 D (check) 2,100 = proceeds 3,300 + purchase property -1,200 = 2,100
Q23 B resources controlled by the entity as a result of past events, from which future
economic benefits are expected to flow.
Q24 D a profit of $ 430,000.
Rock
Classical
Revenue
$2,000,000
$200,000
2,200,000
Variable costs
1,500,000
60,000
1,560,000
Fixed costs
210,000
Profit
430,000

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.

Deposits in transit, $7,205 [$15,889 ($10,784 $2,100)]

Outstanding checks, $2,780 [$10,080 ($11,100 $3,800)]
Adjusted cash balance at April 30 is $32,420
($27,995 + $7,205 $2,780)
OR
($30,355 + $3,000 $35 $900)

Q40 Full bank reconciliation information

Balance as per Bank
27,995
+ Outstanding Deposits:
7,205
(Last month should have arrived 2,100 + should have been made this month 15,889 actually
recorded by bank 10,784 = 7,205 )
- Unpresented cheques
- 2,780
(Last month presented 3,800 + 10,080 more written 11,100 cashed by bank = 2,780
outstanding)
= Adjusted Balance per Bank
32,420
Balance per books (given in problem)
+ Note collected (in bank not in books)
- Bank service charge
- NSF
= Adjusted Balance per Books

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

Q31 to 39 Cash flow statement check figures:

Cash received from customers
Paid to suppliers
Paid to insurance
Paid to tax
Other cash expenses

492
-208
-47
-70
-110

Cash from Operations

+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

Cash from Financing

Change in Cash
Cash at Beginning
Cash at End

+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

T3. Credit Sales for the month of July were $ 5,000.

Accounts
1. 1 Receivable
a Sales

5,000

5,000

T4. Creditors were paid $ 3,000.

Accounts
1. 1 Payable
a Cash

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

T6. Employee salaries paid amounted to $ 500.

Salaries
1. 1 expense
a Cash

500

500

T7. A count of ending inventory on July 30 revealed inventory worth $ 6,000.

Inventory
1. 1 (ending)
a Inventory (beginning)
Purchases
Cost of Goods Sold (or P&L summary)

6,000
2,000

0
8,000

T8. Cash transfers received during the month on accounts receivable.

Cash
1. 1
a Accounts receivable

500
500

T9. Doubtful debts are expected to be 5% of ending accounts receivable.

Bad
2. Debt
1 Expense (or Doubtful Debts)
a Allowance for Doubtful Debts

225

225

T10. Tax at 20% of profit before tax (1075 x .20)

Tax
1. expense
1
a Tax Payable

215
215

Closing entries not required or marked.

Cash
T1
T2
T3
T4
T5
T6
T7

Accounts Allowance Inventory

Receivable

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

-225 Bad debt expense

1,075
-215 tax
-860
0

Amy Beach Ltd

Balance Sheet as at 31 July 2015
$
Current assets:
Cash
Accounts Receivable
Less: Allowance for doubtful debts
Inventory
Prepaid Rent
Non-current assets:

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

(b) ) profit = total contribution - fixed overhead costs

= 10,000 units * $11 + 8,000 units * $9 - $30,000
= $182,000 - $30,000 = $152,000

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

The priorities would be B, A and then C.

Priority
Contribution
materials cost
1.
B 10,000 units gives
10,000 x 11 = 110,000
110,000 x 1/0.61 = 180,000
This leaves only $120,000 of materials cost available.
2.
The second priority is A
Given that the contribution to materials cost ratio is 0.6 the maximum contribution
available is 120,000 x 0.6 =72,000
.
So the maximum output of product A is calculated by solving for
output x $9 = 72,000
Output of product A is 8,000.
3.
There are no materials available for any production of C.
Total contribution is $182,000.
Profit = total contribution - fixed overhead costs
= 10,000 units * $11 + 8,000 units * $9 - $30,000
= $182,000 - $30,000 = $152,000

Section D Solution notes:

(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).