CONCORDIA UNIVERSITY FINANCIAL ACCOUNTING

DEPARTMENT OF ACCOUNTANCY COMM 217 ALL SECTIONS

SAMPLE FINAL EXAM 1 - DURATION: 3 HOURS
Instructions (very important):
1. This exam paper consists of 9 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!
Exam Breakdown:

Total
Question Topic
Marks
A Accounting for inventory 15
B Accounting for long-lived assets 15
C Accounting for current liabilities 15
D Accounting for equity transactions 8
E Taxation topics 9
F Financial ratios (multiple choice) 12
G Miscellaneous topics (multiple choice) 26
Total 100

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Question A (15 marks, 27 minutes) Accounting for Inventory

Golf Experts Inc. sells golf supplies and equipment, including golf balls, which are sold in small
boxes. It reported the following information related to purchases and sales of golf ball boxes for
the third quarter of the current year:

Number Cost per

of Boxes box
July 1: Beginning inventory 10 $14
July 22: Purchase 70 16
July 30: Sale (at $30 per box) 40
August 19: Purchase 20 18
September 29: Sale (at $33 per box) 40

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

Required:

1. Calculate the cost of ending inventory, cost of sales, and gross profit for the quarter ended
September 30. A statement of earnings, or portion thereof, is not required. (7 marks)
2. Identify the accounts that were affected by the transactions that occurred on August 19 and
September 29. Specify the amount and direction of the change in each of these accounts. (5
marks)
3. If the company determines on September 30 that the net realizable value of its inventory is
$17 per box, what effect, if any, would this information have on the company’s financial
statements? (1 mark)
4. Calculate the inventory turnover ratio for the third quarter of the current year and interpret
the result. (2 marks)

Question B (15 marks, 27 minutes) Accounting for Long-lived Assets

During 2022, Singh Ltd. paid $150,000 for a lot of land and built a coffee shop in Kirkland,
Quebec. Prior to construction, Singh Ltd. paid $20,000 for a building permit and $25,000 for
architect’s fees. The construction cost of $200,000 was financed by a five-year loan from the
local bank with interest payable annually on December 31 at the rate of 6 percent. The loan
contract with the bank was signed on February 1, 2022.

The construction was completed in September 2022, and the coffee shop opened for business on
September 30, 2022. Singh Ltd. plans to depreciate the building using the straight-line method
over a period of 25 years, with an estimated residual value of $40,000.

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Required:

1. Determine the cost of the building that must be depreciated over time. (2.5 marks)
2. Identify the accounts that are affected by the purchase of the land and the construction of the
building. State the direction of the effect (increase or decrease) and the amount of the effect.
(6 marks)
3. What effects will the transactions related to the acquisition of land and the construction of the
building have on the Company’s statement of earnings for the year ended December 31,
2022? Show details. (3.5 marks)
4. How will the land and building be reported on the Company’s statement of financial position
at December 31, 2022? Show details. (3 marks)

Question C (15 marks, 27 minutes) Accounting for Current Liabilities

Farhad Inc. is a retail company selling household items. Farhad’s fiscal year end is December 31.
Below is selected information about Farhad’s operations during November 2023.
1. Farhad sold 100 units of a blender at $300 each, subject to the federal goods and services tax
(GST) and a provincial sales tax of 8% of the sales price. Customers paid for their purchases
using a credit card that charges Farhad Inc. a fee of 2% for their service.
Each blender carries a one-year warranty. Farhad promises to repair the unit should it
become defective. The estimated cost to the company to honour the warranty is $40 per
blender and experience has shown that approximately 6% of the blenders sold may have to
be repaired during the warranty period.
Required:

Record the effects of the November 2023 sales and the associated warranty expense on the
relevant accounts of Farhad Inc. using the accounting equation. (7 marks)
2. The payroll register for November 2023 showed the following totals. Salaries were paid on
November 30.
Gross salaries $39,000
Income taxes withheld 8,400
Quebec Pension Plan (QPP) withheld 1,950
Private medical insurance deductions 1,350
Employment insurance (EI) withheld 896
Union dues withheld 648

Required:
a) How much cash did Farhad Inc. pay to the employees on November 30? (2 marks)
b) What is the total compensation expense that should be recorded on Farhad Inc.’s books
for November 30, assuming that the employer is required to pay a matching amount of
the QPP deductions and 1.40 times the EI deductions? (1 mark)
c) Record the effects of the payroll transactions for November 30 on the relevant accounts
of Farhad Inc. using the accounting equation. (5 marks)
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Question D (8 marks; 15 minutes) Accounting for Equity Transactions
The shareholders’ equity section of Kovacs Inc. showed the following details as at January 1,
2022:

Common shares, no par value, 50,000 shares issued and outstanding $1,000,000
Retained earnings 800,000
Total shareholders’ equity $1,800,000

The following events related to equity occurred in 2023:

April 5 Purchased a building that was appraised for $2,000,000. The seller agreed to receive
80,000 common shares of Kovacs in exchange for the building. The common shares
were trading actively in the market at $25.50 per share on that day.

July 1 Declared a cash dividend of $2 per common share, payable on July 31 to shareholders
of record on July 15.

July 31 Paid the cash dividend declared on July 1.

Dec. 31 Determined that net earnings for the year amounted to $320,000.

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 Kovacs’s statement of financial position as at
December 31, 2022. (3.5 marks)

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Question E (9 marks, 14 minutes) Taxation Topics

The following information is available concerning the preparation of the 2023 income tax return
for professional engineer Sarah Nguyen, a Canadian citizen.

a) Employment income, $156,870.

b) Interest earned on certificates of deposit with National Bank, $2,350.
c) Gain on sale of investment in shares of Metro Inc., $5,346.
d) Contribution to a registered retirement savings plan (RRSP), $26,650.
e) Union dues, $1,326.
f) Interest on loan used to purchase shares in Shopify Inc., $1,320.
g) Child care expenses, $5,600
h) Contribution to Quebec Pension Plan, $4,038.40.
i) Employment insurance premium, $781.05.
j) Provincial parental insurance premium, $417.18.

Required:

1. Determine Sarah’s total income for 2023. (2 marks)

2. Identify the items that Sarah is eligible to deduct from her total income to determine her
taxable income. (2 marks)
3. Assume that Sarah’s taxable income for 2023 is $127,269, regardless of the details presented
above. Calculate Sarah’s federal tax on taxable income. The tax rates applicable to specific
tax brackets are as follows: (2.5 marks)

Income tax bracket Tax Rate

Up to $53,359 15%
Between $53,359 and $106,717 20.5%
Between $106,717 and $165,430 26%
4. Is Sarah eligible for any additional tax credits from the federal tax payable you determined
in requirement 3? Explain. (2.5 marks)

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Question F (12 marks, 25 minutes) Financial Ratios (Multiple Choice)

For each of the following multiple-choice questions, choose the letter that corresponds to the
best answer and blacken the corresponding letter on the Scantron answer sheet.
Use the information below to answer questions 1 to 6.
The financial statements of Borex Inc. at December 31, 2022, included the following
information, presented in typical financial statement order:
Financial Statement Item (in thousands of dollars) 2022 2021
Cash and cash equivalents 860 740
Accounts receivable, net 320 260
Inventories 1,050 960
Property, plant, and equipment, net 1,420 1,400
Intangible assets, net 560 540
Goodwill 780 780
Total assets 4,990 4,680

Current liabilities 1,630 1,420

Long-term debt 840 690
Deferred warranty plan revenue 200 190
Other non-current liabilities 140 150
Total liabilities 2,810 2,450

Common shares 430 430

Retained earnings 1,750 1,800
Total shareholders’ equity 2,180 2,230

Sales revenue 5,000 4,750

Cost of sales 2,800 2,700
Selling, general and administrative expenses 1,660 1,600
Interest expense 40 50
Income tax expense 100 80
Net earnings 400 320

Net cash flows from operating activities 450 410

Interest paid 50 40
Income taxes paid 90 90

Round the results of your calculations to two decimal places.

1. The current ratio of Borex at December 31, 2022 equals

A. 1.37 B. 0.72 C. 3.02 D. 1.78 E. None of the other answers.

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2. The inventory turnover ratio of Borex for the year 2022 equals

A. 2.67 B. 2.74 C. 2.79 D. 4.97 E. None of the other answers.

3. The times interest earned ratio of Borex for the year 2022 equals

A. 5.4 B. 6.0 C. 10.8 D. 13.5 E. None of the other answers.

4. The return on assets ratio of Borex for the year 2022 equals

A. 8.27% B. 8.93% C. 9.10% D. 8.66% E. None of the other answers.

5. Which of the following statements is correct?

A. The net profit margin for 2022 equals 8%.

B. Borex has a higher net profit margin in 2021 than in 2022.
C. The gross profit percentage for 2022 is 43.15%.
D. Borex has a lower gross profit percentage in 2021 than in 2022.
E. Both answers A and D.

6. The total assets turnover ratio of Borex for the year 2022 equals

A. 0.97 B. 0.98 C. 0.08 D. 1.03 E. None of the other answers.

Question F (26 marks, 45 minutes)

Questions 7 – 19 are independent of each other (2 marks each).

7. On December 31, 2021, the statement of financial position of Trac Ltd. included the
following items:

Equipment, at cost $20,000

Accumulated depreciation, equipment 5,000

A reader of Trac’s statement of financial position would reasonably conclude that:

A. the equipment is two years old.

B. the company has used 25 percent of the expected benefits from this asset.
C. the remaining useful life of the equipment is six years.
D. the market value of the equipment at December 31, 2021 was $15,000.
E. the market value of the equipment at December 31, 2021 was $5,000.

8. Which of the following items would you expect to find in a public company’s annual report?

A. Notes to the financial statements.

B. Management’s discussion and analysis of the company’s performance.
C. Photographs and/or charts that assist in communicating the company’s message.
D. Only items A and B above
E. Items A, B, and C.

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9. Which of the following statements provides the best definition of earnings per share (EPS)?
A. EPS equals the increase in cash during the accounting period divided by the average
number of shares outstanding during the period.
B. EPS equals net earnings divided by the average number of shares outstanding during the
accounting period.
C. EPS equals retained earnings at the end of the accounting period divided by the average
number of shares outstanding during the period.
D. EPS equals net earnings divided by the average shareholders’ equity during the
accounting period.

10. A customer purchased merchandise from Trimac, Inc. at a total price of $1,000. The
customer paid the company a total of $1,125, which includes the Goods and Services Tax
(GST) of 5% and the Provincial Sales Tax (PST) of 7.5%. The sales revenue recognized by
Trimac should be:
A. $1,050. B. $1,125. C. $1,075. D. $1,000

11. The primary responsibility of the audit committee of the board of directors is
A. to hire, and if needed, fire the company lawyers.
B. to oversee the conduct of the company’s middle managers.
C. to oversee the company’s financial reporting system and internal controls.
D. to audit the company’s financial statements.
E. to conduct surprise or unexpected audits of the company’s operations.

12. On January 1, 2022, NOL’s accounts showed a balance of $21,000 for Estimated Liability
for Warranties. Sales for the year totalled $1,000,000. The company’s experience has shown
that warranty costs averaged 3% of sales. Cash payments for providing warranty service were
$25,000 during the year ending on December 31, 2022. Based on these details,

A. the balance of the Estimated Liability for Warranties at December 31, 2022 should be
$26,000.
B. the warranty expense for 2022 should be $25,000.
C. the warranty expense for 2022 should be $26,000.
D. the balance of the Estimated Liability for Warranties at December 31, 2022 should be
$30,000.
E. the balance of the Estimated Liability for Warranties at December 31, 2022 cannot be
determined without additional information.

13. The balance of the account Retained Earnings

A. reflects the net amount of revenues, expenses, gains, losses and dividends for the current
accounting period.
B. indicates the amount of cash available for the distribution of dividends.
C. is the net of all net earnings and losses that have accumulated since the creation of the
company, but have not been distributed to shareholders as dividends.
D. reflects the maximum amount that can be distributed as cash dividends, but not stock
dividends.

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14. The inventory turnover ratio

A. is used to analyze profitability.

B. is used to measure solvency.
C. depends on the type of inventory valuation method.
D. validates the acid-test ratio.
E. measures how quickly a firm sells its merchandise inventory.

15. If accounts receivable are collected quickly, it may indicate that

A. the accounts receivable turnover is low.

B. the company's credit policies may be overly stringent.
C. credit is often granted to customers with high credit risk.
D. the company is becoming more profitable.
E. the company’s net profit margin ratio is low.

16. Brad & Kelly Company has borrowed $100,000 from the bank to be repaid over the next five
years, with payments beginning next month. Which of the following best describes the
presentation of this debt in the statement of financial position as of the date of the loan?
A. $100,000 in the non-current liabilities section.
B. $100,000 plus the interest to be paid over the five-year period in the non-current
liabilities section.
C. A portion of the $100,000 in the current liabilities section and the remainder of the
principal in the non-current liabilities section.
D. A portion of the $100,000 plus interest in the current liabilities section and the remainder
of the principal plus interest in the non-current liabilities section.

17. Which of the following transactions would usually cause the accounts payable turnover ratio
to increase?
A. Payment of cash to a supplier for merchandise previously purchased on credit.
B. Collection of cash from a customer.
C. Purchase of equipment on credit.
D. Purchase of merchandise for cash.
E. None of the above transactions.

18. Which of the following account(s) would be included in the debt-to-equity ratio calculation?

A. Deferred revenue
B. Income tax payable
C. Contributed surplus
D. A and B
E. A, B, and C.

19. Which of the following assets should be amortized using the straight-line method?

A. Intangible assets with definite lives

B. Intangible assets with indefinite lives
C. Goodwill
D. All of the above.
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