Professional Documents
Culture Documents
FACULTY OF BUSINESS
INDICATIVE EXAMINATION
ACC110 ACCOUNTING 2
SUBJECT CONVENOR:
DAY & DATE: TIME:
WRITING TIME: Three (3) hours READING TIME: Ten (10) minutes
MATERIALS SUPPLIED BY UNIVERSITY: 5 x 6 page answer booklets
General Purpose Answer Sheet
MATERIALS PERMITTED IN EXAMINATION: Battery operated calculator (must be no printer
on calculator)
2B Pencil/Eraser
NUMBER OF QUESTIONS: 50 multiple choice questions as follows:
Part A: 50 questions (1 mark each)
Part B: 5 questions (10 marks each)
INSTRUCTIONS TO CANDIDATES:
1. Enter your name and student number and sign in the space provided at the bottom of
this page and complete relevant details on the General Purpose Answer Sheet.
2. No written material, reference books or notes will be permitted into the examination
room.
3. Candidates are to attempt all questions.
4. All questions in Part A are to be answered on the General Purpose Answer Sheet.
Questions for Part B must be answered in the Answer Booklets provided. Answer each
question in a separate answer booklet.
5. The General Purpose Answer Sheet must be completed in 2B pencil. The lettered box
corresponding to the most correct answers must be filled in completely. To change an
answer erase completely and remark.
6. Candidates are advised to show all workings in Part B clearly labelling them as such.
7. Total marks for this paper equal 100.
This examination is worth 60% of the final assessment.
INSTRUCTIONS TO INVIGILATORS:
The examination paper must not be retained by the candidate.
STUDENT SIGNATURE:
This part consists of fifty multiple choice questions. All questions must be attempted.
1. All amounts paid to acquire a non-current asset and to get it ready for its intended use
are referred to as:
A. capital expenditures
B. salvage expenditures
C. the cost of an asset
D. revenue expenditures
E. none of the above.
A. current assets
B. property, plant and equipment
C. intangible assets
D. tangible assets
E. none of the above.
3. Two hundred hectares of land are purchased for $120,000. Additional costs include
$5,000 agent’s commission, $10,000 for removal of an old building, $6,000 for paving,
and an $800 survey fee. What is the cost of the land?
A. $141,800
B. $141,000
C. $135,000
D. $135,800
E. none of the above.
4. Jackson Constructions paid $42,000 for equipment with a fair market value of $46,000.
Jackson Constructions will record equipment at:
A. $42,000
B. $46,000
C. either $42,000 or $46,000
D. $44,000
E. none of the above.
5. Cycle World made a lump-sum purchase of land, buildings, and equipment for
$630,000. The estimated market values for the items are respectively, $210,000,
$322,000, and $168,000. Cycle World should debit the equipment account for:
A. $289,800
B. $189,000
C. $151,200
D. $168,000
E. none of the above.
7. The process of allocating a non-current asset’s cost to expense over the period the asset
is used is called:
A. amortisation
B. depreciation
C. depletion
D. direct write-off
E. none of the above.
8. Which depreciation method generally results in the greatest depreciation expense in the
first full year of an asset’s life?
A. straight-line
B. units-of-production
C. reducing-balance
D. either straight-line or reducing-balance
E. none of the above.
9. On 1 January 20X5, Bark Manufacturing purchased a machine for $27,500, and expects
to use the machine for a total of 32,000 hours over the next four years. Bark set the
residual value on the machine at $3,500. Bark used the machine for 6,000 hours in
20X5 and 7,200 hours in 20X6.
What is the depreciation expense for 20X5 if Bark uses reducing-balance depreciation
(at 1.5 times the straight-line rate)?
A. $9,000
B. $10,312.50
C. $6,875
D. $6,000
E. none of the above.
A. Accumulated depreciation is that portion of an asset’s cost that has already been
recorded as an expense.
B. Depreciation is a process of valuation.
C. Depreciation represents the cash a business has set aside to replace assets as they
become fully depreciated.
D. Accumulated depreciation is classified as a liability account on the balance sheet.
E. none of the above.
11. On 1 January 20X5, Homes Real Estate purchased a $45,000 vehicle to chauffeur
clients to prospective homes. Homes plans on driving the vehicle for five years or
100,000 miles. Expected residual value is $10,000.
Homes Real Estate drove the vehicle 25,000 miles in 20X7. The depreciation expense
for 20X7 using the units-of-production/use method is:
A. $6,480
B. $8,750
C. $6,200
D. $2,880
E. none of the above.
12. Ronnie’s Wings acquired equipment on 1 January 20X3, for $300,000. The equipment
had an estimated useful life of 10 years and an estimated salvage value of $25,000. On
1 January 20X6, Ronnie’s Wings revised the total useful life of the equipment to eight
years. Calculate depreciation expense for the year ended 31 December 20X6, if
Ronnie’s Wings uses straight-line depreciation.
A. $43,500
B. $38,500
C. $60,000
D. $27,500
E. none of the above.
13. June Industries recently sold some used furniture for $3,800 cash. The furniture cost
$19,600 and had accumulated depreciation up to the date of sale totalling $17,300. The
journal entry to record the sale of the furniture is:
14. Goodwill is equal to the excess of the cost of an acquired business over the sum of the:
15. A cost whose total amount changes in direct proportion to a change in volume is a(n):
A. fixed cost
B. variable cost
C. mixed cost
D. irrelevant cost
E. none of the above.
16. As production increases within the relevant range, fixed costs per unit:
17. Renting a car and paying $15 per day plus $.03 per mile driven is an example of a:
A. fixed cost
B. mixed cost
C. variable cost
D. conversion cost
E. none of the above.
18. Cost of goods sold on a conventional profit and loss statement (Statement of Financial
Performance) includes:
Tedder Limited gathered the following information for the year ended 31
December 20X8
Fixed costs:
Manufacturing $165,000
Marketing 52,000
Administrative 24,000
Variable costs:
Manufacturing $113,000
Marketing 39,000
Administrative 48,000
During the year, Tedder produced and sold 75,000 units of product at a sale
price of $6.50 per unit.
A. $287,500
B. $209,500
C. $324,500
D. $122,500
E. none of the above.
A. $(28,500)
B. $46,500
C. $94,500
D. $118,500
E. none of the above.
23. If sales revenue per unit increases to $22 and 10,000 units are sold, what is the
contribution margin?
A. $ 70,000
B. $ 60,000
C. $220,000
D. $ 80,000
E. none of the above.
24. If sales revenue per unit decreases to $18 and 15,000 units are sold, what is the net
profit or loss?
A. $(20,000)
B. $35,000
C. $65,000
D. $45,000
E. none of the above.
A. 32.2%
B. 24.3%
C. 31.1%
D. 75.7%
E. none of the above.
26. If the sale price per unit is $32, total fixed expenses are $45,000, and the break-even
sales in dollars is $180,000, the variable expense per unit is:
A. $24.00
B. $4.22
C. $8.00
D. $4.00
E. none of the above.
27. Roberts Limited management has budgeted the following amounts for its next
financial year:
A. increase of $7,500
B. decrease of $62,500
C. increase of $70,000
D. cannot be determined from the information given
E. none of the above.
28. Lorraine Limited currently sells its products for $25 per unit. Management is
contemplating a 20% increase in sale price for the next year. Variable costs are
currently 30% of sales revenue and are not expected to change next year. Fixed
expenses are $150,000.
If fixed costs were to decrease 10% during the current year, contribution margin
would:
A. increase 10%
B. decrease 10%
C. remain the same
D. impossible to determine with the given data
E. none of the above.
29. On a CVP graph, the horizontal line intersecting the dollar axis at the level of total
cost represents the:
A. total costs
B. total fixed costs
C. total variable costs
D. break-even point
E. none of the above.
30. Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total
$.90. The break-even sales in units is 3,000 and budgeted sales in units is 4,300. The
margin of safety in dollars is:
A. $1,950
B. $780
C. $4,500
D. $2,580
E. none of the above.
31. Management accounting:
A. a direct cost
B. an indirect cost
C. either a direct cost or an indirect cost since management accounting is not
restricted by accounting standards
D. a variable cost
E. none of the above.
A. advertising expense
B. depreciation on office equipment
C. indirect labour
D. research costs
E. none of the above.
A. $470,000
B. $391,000
C. $605,000
D. $733,000
E. none of the above.
A. $733,000
B. $391,000
C. $605,000
D. $470,000
E. none of the above.
37. Cost of goods sold for a manufacturer equals cost of goods manufactured plus:
Lakeside Limited reports the following data for 20X3, its first year of operations
38. What are the total manufacturing costs to account for by Lakeside Limited for 20X3?
A. $160,000
B. $190,000
C. $540,000
D. $300,000
E. none of the above.
39. What is cost of goods sold for Lakeside Limited for 20X3:
A. $240,000
B. $360,000
C. $340,000
D. $480,000
E. none of the above.
A. $19,200
B. $10,200
C. $22,500
D. $13,500
E. none of the above.
41. Coaltowne Limited’s selected cost data for 20X5 is shown below:
A. $121,100
B. $117,100
C. $125,100
D. $150,500
E. none of the above.
42. Work in process inventory decreased $90 during 20X2. Total manufacturing costs
incurred in 20X2 amounted to $680. Cost of goods manufactured in 20X2 is:
A. $770
B. $590
C. $635
D. impossible to determine using the given data
E. none of the above.
43. If the cost of goods manufactured was $665,000, beginning and ending work in
process inventories were $187,000 and $205,000 respectively, direct labour was
$211,000 and manufacturing overhead costs were $298,000, then the direct materials
used were:
A. $156,000
B. $138,000
C. $174,000
D. $273,000
E. none of the above.
44. Expected future data that differ among alternative courses of action are referred to as:
A. irrelevant information
B. historical information
C. predictable information
D. relevant information
E. none of the above.
Use the following information to answer Questions 45, 46, 47 and 48.
Proposal A Proposal B
A. 10.33 years
B. 4.77 years
C. 4.67 years
D. 8 years
E. none of the above.
46. The total present value of future cash inflows from Proposal B is:
A. $426,792
B. $266,750
C. $536,800
D. $640,000
E. none of the above.
A. $136,800 positive
B. $26,792 positive
C. $133,250 negative
D. $0
E. none of the above.
48. Using the net present value model, which alternative should Melvin select, and why?
(1) Proposal B, because its net present value is $22,699 higher than the net present
value of Proposal A.
(2) Proposal B, because it is the only alternative with a positive net present value.
(3) Proposal A, because it is the only alternative with a positive net present value.
A. 1 only
B. 2 only
C. 3 only
D. both 1 and 2
E. none of the above.
49. Which of the following capital budgeting models considers both profitability and the
time value of money?
Year 1 $160,000
Year 2 130,000
Year 3 100,000
Year 4 55,000
Year 5 40,000
$485,000
A. higher
B. lower
C. equal to 14%
D. cannot be determined from the given data
E. none of the above.
PART B
This part consists of five (5) questions. All questions must be attempted. Answer each
question in a separate answer booklet.
CVP Analysis
Blue Sky Pty Ltd produces climbing rope. The company incurs $100 000 of fixed expenses
per month. It sells the rope for $23 per metre, and it incurs variable expenses at the rate of $9
per metre.
Required:
(i) Prepare a contribution margin statement of financial performance, assuming that Blue
Sky sells 15 000 metres of rope in July.
(ii) CEO John Hand thinks Blue Sky could increase its sales to 25 000 metres of rope in
August if the company paid its sales force a commission of $1 per metre. What would
be Blue Sky’s net profit if it adopted the sales commission plan?
Capital Budgeting
Jones Company is considering buying a machine that would increase the company’s cash
receipts by $2,200 per year for five year. Operation of the machine would increase the
company’s cash payments by $100 in each of the first two years, $200 in the third and fourth
years and $300 in the fifth year. The machine costs $6,000 and would have a residual value
of $500 at the end of the fifth year.
Required:
(i) Assuming a 16% required rate of return, compute the net present value of the machine
investment being considered by Jones. (Present value table is attached to this
question paper.)
(ii) Should Jones Company make the investment? Why or why not?
Jensen Company purchased drilling machine on 1 January 2000 for $60,000. The machine
had an expected life of 10 years and a residual value of $2,000.
Required:
(i) Compute the depreciation for 2000 and 2001 under each of the following methods: (a)
straight line and (b) reducing balance (use 15%).
(ii) Show how the company would report the book value of the machine on its 31
December 2001 balance sheet under each method.
QUESTION 4: 10 marks)
1. List five (5) of the more common environmental issues confronting business.
(2½ marks)
2. What are the advantages in using a computer spreadsheet to create a model for a
master budget?
(2½ marks)
3. What will be the affect on total variable costs and on unit variable costs if activity
increases by 20%.
(2½ marks)
The store uses the periodic inventory system, and the physical count at 31 December
indicates that ending inventory consists of 229 units.
Required:
(i) Determine the ending inventory and cost-of-goods-sold amounts for the December
financial statements under the weighted-average, FIFO and LIFO cost methods. Round
weighted-average cost per unit to the nearest cent and all other amounts to the nearest
dollar.
Page 1
1. c
2. c
3. d
4. a
5. c
6. a
7. b
8. c
9. b
10. a
11. b
12. b
13. a
14. c
15. b
16. c
17. b
18. d
19. a
20. a
21. c
22. b
23. a
24. b
25. b
26. a
27. a
28. c
29. b
30. a
31. b
32. b
33. c
34. c
35. c
36. d
37. c
38. c
39. b
40. a
41. c
42. a
43. c
44. d
45. b
46. a
47. b
48. a
49. a
50. a
QUESTION 1: (10 marks)
(i)
Blue Sky Ltd
CVP Statement of Financial Performance for 31 July 2006
(ii)
(iii)
(iv)
The profit is a great deal higher than with the original arrangement. Not only this, but the
contribution margin is much higher.
Question 2:.(10 marks)
Capital Budgeting
Machine will increase cash receipts by $2,200 per year for 5 years.
Costs will increase by $100 in year 1 and year 2, $200 in years 3 and 4 and $300 in year 5.
Each of these cash flows should be discounted using the factors in the tables to derive their
present values:
Total PV 6900
NPV $900
As the NPV is positive ie the return is greater than 16% and if this was the only criteria on
which the investment decision was based then we would make the investment. Other
considerations may include its ranking of other investments, the riskiness of the venture and
the cashflows.
Drilling machine Cost $60,000, residual value $2,000 and useful life of 10 years.
2000
Annual depreciation expense is $60,000 * .15 = $9,000
2001
Depreciation (60,000 – 9,000) * .15 = $7,650
LIFO:
(ii) In periods of changing prices, the difference between profit using FIFO costing
and profit using LIFO costing, can be significant. In a period of inflation (when
prices are rising), FIFO produces a higher value for ending inventory, and thus a
higher profit, as seen in this example. In periods of deflation, it is LIFO that
produces the higher ending inventory value, and therefore the higher profit.