Exam Practice Proper

Question 1

An improvement made to an existing machine enhanced its functionality, increased its fair market value and its production capacity by 30 per cent and extended the machine’s useful life by 5 years. How should the cost of the improvements be accounted for?

a) Expensed on the income statement.
b) Capitalized on the balance sheet.
c) Recorded as a decrease to retained earnings.
d) Recorded as an increase in accumulated amortization.
e) None of the above

Answer 1

b)

Question 2

Which inventory cost flow assumption always matches the physical flow of inventory?
a) The FIFO method
b) The weighted average method
c) Specific Identification
d) Non-weighted average method
e) None of the above

Answer 2

c)

Question 3

The primary reason for a corporation to have a stock split is to
A) decrease the number of shares of stock outstanding
B) increase the book value of the stock
C) decrease the market price of the stock
D) increase the amount of money available for dividends
E) None of the above

Answer 3

c)

Question 4

Bellair Inc. owns equipment with a cost of $28,000 which has an accumulated depreciation
balance of $7,000. The fair market value of the equipment is $18,000. Bellair Inc. exchanges its
equipment for new equipment with Marbello’s Co. The new equipment has a list price of
$25,000. Bellair Inc. is required to pay $6,000 to Marbello’s Co. as part of the exchange
arrangement. How much loss will be recorded by Bellair Inc. on this exchange transaction?
a) $6,000
b) $9,000
c) $7,000
d) There is no loss on this exchange transaction
e) There is a loss but none of the above amounts is accurate

Answer 4

b)

Question 5

The following is select financial information for Maria Rosa Co.:
Leaseholds $34,000
Equipment $95,000
Equipment- accumulated depreciation $22,000
Licensing agreements $21,000
Goodwill $ 1
Research expenditures $56,000

How much is the total intangible asset balance for Maria Rosa Co.?
A) $21,000
B) $77,000
C) $56,000
D) $129,000
E) None of the above

Answer 5

E)

Question 6

You have just qualified for a loan with the Royal Bank of Ontario. The amount of the loan is
$60,000 and the Royal Bank of Ontario’s interest rate is 12%. The Bank has required repayment
in four equal payments at the end of the next four years. You would like to know the amount that
each payment will be in order to set up a repayment plan. How much do you determine each
payment will be (round to nearest whole number)?
a) $16,800
b) $19,754
c) $38,132
d) $47,525
e) None of the above

Answer 6

B)

Question 7

Cuba Inc. sells a product which has a two-year warranty against defects of the product. In the
year of sale, the estimated warranty costs is 8% of sales. If Cuba Inc. sales are $400,000 in 2016
and $500,000 in 2017 and warranty expenditures for 2016 are $10,000 what is the balance in the
warranty liability account at the end of 2017? Assume no further information is available
regarding the warranties at Cuba Inc.
a) $10,000
b) $62,000
c) $72,000
d) $40,000
e) None of the above

Answer 7

B)

Question 8

A major difference between a mortgage and a bond is:
a) Both are long term loans but mortgages typically have lower interest rates which is
why most companies choose bonds instead.
b) Bond payments are separated between principal and interest whereas mortgage
payments are combined.
c) Bonds are used typically by individuals whereas Mortgages are used by corporations
d) Mortgages are much more complex to account for which requires a higher qualified
individual to ensure accurate record keeping.
e) Interest on mortgages is compounded whereas interest on bonds is simple interest.

Answer 8

C)

Question 9

Toronto Inc. has corporate bonds outstanding. The bonds payable account has a credit balance of
$100,000. The balance in the bond discount account is a debit of $4,033. The first period bond
interest expense is $4,222 whereas the second period bond interest expense is $4,333. How is the
bond yield calculated for the first period?
a) $4,333/$100,000 = bond yield
b) $4,222/$100,000 = bond yield
c) $100,000/$4,033 = bond yield
d) $4,033/$100,000 = bond yield
e) None of the above

Answer 9

E)

Question 10

Benjamin’s sells a 2 month 12% $3,000 note receivable to Arora Inc. for $3,030 a month after
issuance. The note is sold without recourse. How should Benjamin’s record the sale of the note?
a) Dr. Cash $3,030, Cr. Note receivable $3,000, Cr. Interest revenue $30
b) Dr. Cash $3,030, Cr. Interest revenue $3,030
c) Dr. Cash $3,030, Cr. Note receivable $3,030
d) Dr. Cash $3,000, Cr. Note receivable $3,000
e) Dr. Cash $3,000, Cr. Loss on note, $360, Cr. Note receivable $2,640

Answer 10

A)

Question 11

If prices in the economy are rising and Vaughan Ltd. uses LIFO to value its inventory, what will
it show as net income compared to using other inventory cost flow assumptions?
a) Vaughan Ltd. will show a higher net income than if it used FIFO
b) Vaughan Ltd. will show a lower net income than if it used FIFO
c) Vaughan Ltd. will show net income that is the same as if it used FIFO
d) Vaughan Ltd. will show net income higher than if it used weighted average
e) None of the above

Answer 11

B)

Question 12

On Feb 3rd, 2017 York Books owns equipment with a historical cost of $27,000. During 2017,
the following equipment-related costs were incurred: equipment repairs $4,000, installation of
new equipment $9,000, purchase of new equipment for $27,000, equipment cleaning for $8,000.
What is the expected book value of the equipment in York Books as at December 31, 2017
before considering depreciation?
a) $63,000
b) $71,000
c) $75,000
d) $67,000
e) None of the above

Answer 12

A)

Question 13

The following information relates to Richmond Hill Boutique at March 31, 2017:
Inventory at cost Inventory at market
Blue t-shirts $74,000 $88,000
White sneakers $33,000 $29,000
Red dresses $67,000 $59,000
If Richmond Hill Boutique applies the “Lower of cost or Market” rule using the aggregate
method, how much will the inventory write-down at March 31, 2017 be?
a) $2,000
b) $4,000
c) $8,000
d) $12,000
e) None of the above

Answer 13

E)

Question 14

A beer company wants to increase its current ratio from present level to 1.5 when it closes the
books next month. The action of ___________ will have the desired effect.
A) Delay of next payroll
B) Write down of obsolete capital assets
C) Payment of dividends
D) Payment of accounts payable from cash
E) None of the above

Answer 14

E

Question 15

) Common shareholders of a company have which of the following basic rights:
A) Pre-emptive right
B) Unlimited voting rights
ADMS 2500 Final Exam, Fall 2018 Page 14

C) Ability to receive dividends
D) Only A and C above
E) All of A, B and C

Answer 15

D

Question 16

Alexander’s Inc. reported total stockholders’ equity of $85,000 on its balance sheet dated
December 31, 2017. During 2018, it reported a net income of $10,000, declared and paid a cash
dividend of $1,000, and issued additional capital stock of $30,000. Therefore, total stockholders’
equity at December 31, 2018, was:
A) $85,000
B) $124,000
C) $95,000
D) $126,000
E) None of the above

Answer 16

B

Question 17

Which of the following statements is correct regarding stock dividends?
A) In a stock dividend transaction a company re-distributes its issued shares so that
shareholders’ receive a dividend by way of this re-distribution
B) A stock dividend requires the shareholder to hold the stock dividend received for a
minimum period of time before selling
C) When a stock dividend is declared the company would debit retained earnings and credit
common shares
D) When a company issues a stock dividend it issues its own unissued shares to self.
E) None of the above

Answer 17

E

Question 18

Bella’s Inc. issues par value shares on December 31, 2016 in return for cash. The par value of
the shares is $10 each. One share was issued at $20, one share was issued at $50 and one share
was issued at $100. How does Bella’s Inc. record the share issuance if par value shares are
allowed and required to be disclosed in its jurisdiction?
A) Dr. Cash $170, Cr. Common Shares $170
B) Dr. Cash $10, Cr. Common Shares $10
C) Dr. Cash $170, Cr. Par value shares premium $170
D) Dr. Cash $170, Cr. Common Shares $30, Cr. Premium on Common Shares $140
E) None of the above

Answer 18

D

Question 19

The qualitative characteristic that best refers to the confidence that financial statement users
have that the statements are free of material error or misrepresentation is:
A) objectivity
B) understandability
C) reliability
D) relevance
E) None of the other alternatives are correct

Answer 19

C

Question 20

) A set of rules of professional conduct that governs the behaviour of accountants in the
performance of their work is called
A) generally accepted accounting principles (GAAP)
B) the Accounting Act
C) the Sarbanes-Oxley Act
D) a code of ethics
E) None of the other alternatives are correct

Answer 20

D

Question 21

Three foundations underpinning financial reporting and transparency are the conceptual
foundations, the technical foundations and
A) the professional foundations
B) the Board of Directors foundations
C) the audit foundations
D) The theoretical foundations
E) None of the other alternatives are correct

Answer 21

A

Question 22

) Business depend on accounting systems to
A) Manage all the sales with point of sales equipment
B) Keep track and collect all outstanding receivables at any point in time
C) Set up accounting policies and records
D) Convert large amount of transactions into useful data to manage the organization
E) None of the other alternatives are correct

Answer 22

D

Question 23

You are the Chief Financial Officer of XYZ Corporation. You receive shares of XYZ as part of
your compensation each year and you sell these shares and use the proceeds from the sale to pay
for nursing home care for your mother. You have just learned that XYZ Corporation has lost its
major customer and know that sales for the year will be sharply impacted. Because reported net
income will be below the expectations of market analysts, you know that when the news of the
loss of the customer becomes public, the market price of XYZ Corporation shares will drop. If
you sell your shares of XYZ before the news becomes public you are
A) Exercising due care in taking care of your money
B) Contributing to an efficient capital market by acting rationally upon all available information
C) Engaging in insider trading and acting unethically
D) Sending a signal to the market
E) None of the other alternatives are correct

Answer 23

C

Question 24

Which of the following is not a desirable attribute of financial statements
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correct

Answer 24

B

Question 25

) Business depend on accounting systems to
A) Manage all the sales with point of sales equipment
B) Keep track and collect all outstanding receivables at any point in time
C) Set up accounting policies and records
D) Convert large amount of transactions into useful data to manage the organization
E) None of the other alternatives are correct

Answer 25

D

Question 26

) GAAP in Canada refers to
A) FASB and ASPE
B) IFRS and ASPE
C) FASB and IFRS
D) ASPE
E) None of the other alternatives are correct

Answer 26

B

Question 27

A set of rules of professional conduct that governs the behaviour of accountants in the performance
of their work is called
A) generally accepted accounting principles (GAAP)
B) the Accounting Act
C) the Sarbanes-Oxley Act
D) a code of ethics
E) None of the other alternatives are correct

Answer 27

D

Question 28

) Which of the following is not a desirable attribute of financial statements
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correct

Answer 28

B

Question 29

Three foundations underpinning financial reporting and transparency are the conceptual foundations,
the technical foundations and
A) the professional foundations
B) the Board of Directors foundations
C) the audit foundations
D) The theoretical foundations
E) None of the other alternatives are correct

Answer 29

A

Question 30

Christina wants to have $10 million to retire 45 years from now. How much would she have
to invest today with an annual rate of return to 15%?
a. $18,562
b. $17,844
c. $20,003
d. $21,345
e. None of the above

Answer 30

A

Question 31

For which of the following errors should the appropriate amount be added to the balance
per bank on a bank reconciliation?
a. Cheque for $56 recorded by the company as $36
b. Deposit of $400 recorded by the bank as $40
c. A returned cheque for $200 recorded by the bank as $20
d. Cheque for $23 recorded by the company as $32
e. None of the above

Answer 31

B

Question 32

Company has a beginning balance in Accounts Receivable of $50,000 and beginning credit
balance in the Allowance for Doubtful Accounts of $1,000. During 2019 they sold $900,000 of
goods on credit and collected $750,000. If Company estimates that 2% of its ending accounts
receivable will eventually not be collected, its adjusting journal entry for the bad debt
expense will include a credit to allowance for doubtful accounts of:
a. $4,000
b. $3,900
c. $4,100
d. $3,000
e. None of the above

Answer 32

D

Question 33

Roman wants to buy from Adrian a Company 10%, $100,000 bond that was issued 5 years
ago. The bond pays interest annually. The bonds currently have exactly five years to
maturity. How much Roman does have to Adrian, if current interest rates are 8%?
a. $107,987
b. $100,000
c. $74,730
d. $92,818
e. None of the above

Answer 33

A

Question 34

A 10 year, $100,000 zero coupon bond is priced to yield 10%. The amount the issuing
company will receive is:
a. $100,000
b. $38,550
c. $42,405
d. $93,452
e. None of the above

Answer 34

B

Question 35

A Company issuing 5 year, $100,000 face, 10% coupon bond to yield 12%. The journal entry
to record the issuance of the bonds would include:
a. Dr. to bond discount of $7,212
b. Dr. to cash of $100,000
c. Cr. to premium on bonds payable of $7,575
d. Cr. to bonds payable of $92,788
e. None of the above

Answer 35

A

Question 36

Which of the following changes describes the declaration of $1,000 in cash dividends payable
next month?
a. Assets and owners’ equity increase by $1,000
b. Assets and owners’ equity decrease by $1,000
c. Liabilities decrease and owners’ equity increase by $1,000
d. Liabilities increase and owners’ equity decrease by $1,000
e. None of the above

Answer 36

D

Question 37

Company Inc. has a balance in the treasury stock of $5,000 representing 1,000 shares of
stock it bought back last year. If Company sells 700 shares of the stock for $7 per share, the
balance in the treasury stock will be:
a) $5,000
b) $2,500
c) $1,500
d) $3,000
e) None of the above

Answer 37

C

Question 38

Use the following information to answer questions 44 and 45:
Equipment was acquired on January 1, 2015, at a cost of $75,000. The equipment was
originally estimated to have a salvage value of $5,000 and estimated life of 10 years.
Depreciation has been recorded through December 31, 2018, using the straight-line method.
On January 1, 2019, the estimated salvage value was revised to $7,000 and the useful life was
revised to a total of 8 years.

44) What was the book value of the equipment at the time of the revision (January 1, 2019)
a) $54,000
b) $47,000
c) $49,000
d) $59,000
e) None of the above

45) What is the revised annual depreciation?
a) $7,000
b) $8,000
c) $9,000
d) $10,000
e) None of the above

Answer 38

B

Question 39

46) The qualitative characteristic that best refers to the confidence that financial statement
users have that the statements are free of material error or misrepresentation is:
A) objectivity
B) understandability
C) reliability
D) relevance
E) None of the other alternatives are correct

Answer 39

D