Question

Transcription

Question

The Societies of Management Accountants of Alberta, Manitoba, New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Ontario,
Prince Edward Island, Saskatchewan, and the Yukon, Certified Management Accountants Society of British Columbia,
Ordre des comptables en management accrédités du Québec
Sample 2007
Entrance Examination
(Time Allowed: 4 hours)
Notes:
i)
All answers must be indicated on the scannable multiple-choice answer sheet.
Work done on the question paper and examination foolscap will NOT be marked.
ii)
Included in the examination envelope is a supplement consisting of formulae and
tables. It is a standard supplement that may be useful for answering questions on
this paper.
iii)
Examination materials must NOT BE REMOVED from the examination
writing centre. All examination materials (i.e. answer sheet, used and unused
foolscap sheets, envelope, supplement and question paper) must be submitted
to the presiding officer before you leave the examination room.
Copyright © 2007 by The Society of Management Accountants of Canada. All rights reserved.
This material, in whole or in part, may not be reproduced or transmitted without authorization.
Sample 2007 Entrance Examination
TABLE OF CONTENTS
Examinaton:
Instructions ........................................................................................ 1
Management Accounting ................................................................... 2
Corporate Finance ........................................................................... 20
Financial Accounting........................................................................ 25
Taxation ........................................................................................... 41
Solution:
Summary ......................................................................................... 45
Management Accounting ................................................................. 46
Corporate Finance ........................................................................... 61
Financial Accounting........................................................................ 66
Taxation ........................................................................................... 78
Supplement of Formulae and Tables*................................................... 82
* This supplement is provided to all candidates with the examination.
Copyright © 2007 by The Society of Management Accountants of Canada. All rights reserved.
This material, in whole or in part, may not be reproduced or transmitted without authorization.
INSTRUCTIONS:
Use the multiple-choice answer sheet provided to record your answers to the questions.
Be sure to enter your four-digit PART 1 envelope number on the multiple-choice answer
sheet. Select the BEST answer for each of the following 114 questions and record your
answer on the multiple-choice answer sheet by blackening the appropriate answer
space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE
ANSWER for each question.
Sample Question:
189.
(-) Market research and public relations costs are
a)
b)
c)
d)
e)
engineered variable costs.
discretionary variable costs.
committed fixed costs.
discretionary fixed costs.
engineered fixed costs.
Assuming you select choice d) for your answer, you should blacken the “d” space on
line 189 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:
189
a
b
c
d
e
Question Weighting:
Your performance on Part 1 will be based on the total weighted value of the questions
answered correctly. Note that all questions are assigned the same weight, except for
those specified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a
lower weight). In the above example, there is a minus sign at the beginning of the
question, signifying that the question has a lower weighted value than the average
question.
Singular Versus Plural Phrasing:
For simplicity of wording, all questions are phrased as though there is a single correct
answer, even when there are multiple correct answers. For example, the correct answer
to a question that is worded, “Which of the following is...,” may be the choice that refers
to two or more of the other choices, e.g. “Both a) and b) above.”
CMA Canada
Page 1
Management Accounting
1.
In contrast to the users of financial accounting information, the users of management
accounting information focus on
a) the precision, objectivity, and verifiability of the information more than the timeliness
of the information.
b) whether the organization has adhered to government regulations.
c) the consequences of past activities of the organization.
d) a comparison of the income and assets of various companies to assess the relative
returns and risks associated with investment opportunities.
e) the relevance of the information in making decisions to fulfill the goals of the
organization.
2.
(-) Staff management, as opposed to line management,
a) is directly responsible for the achievement of the organization’s basic objectives.
b) makes capital expenditure decisions for the production line in a manufacturing
organization.
c) provides information and analysis to support decisions pertaining to the
organization’s basic objectives.
d) both a) and b) above.
e) both b) and c) above.
3.
Which of the following actions committed by a management accountant is ethically
questionable?
a) Near the end of a fiscal year with lower than expected profits, suggesting that an
expensive advertising campaign be delayed until the next fiscal year.
b) Recommending that the highest quality and least expensive bid for a certain supply
be rejected on the basis that the supplier’s practices have a detrimental effect on the
ecological environment.
c) At the request of the division manager, using the most favourable projections to
support a proposal without drawing any attention to the potentially unfavourable
projections.
d) Reporting to the controller a suspicion that a line manager is providing incorrect
production data in an effort to increase his year-end bonus.
e) Near the end of a fiscal year with lower than expected profits, suggesting that
performance incentives to sales staff for the fourth quarter be increased.
Page 2
CMA Canada
4.
The following information is available for the manufacturing operations of ABC Ltd. for
the month of March:
Direct materials purchased
Direct labour payroll
Direct labour rate per hour
Factory overhead rate per direct labour hour
Direct materials
Work in process
Finished goods
Opening Inventory
March 1
$30,000
$12,000
$72,000
$82,000
$60,000
$15.00
$10.00
Ending Inventory
March 31
$37,000
$18,000
$93,000
Cost of goods available for sale for the month of March is
a)
b)
c)
d)
e)
5.
$241,000.
$169,000.
$148,000.
$187,000.
$175,000.
Lampco has determined that, for its “Slender” model of lamp, the direct materials cost is
$5 per unit and the direct labour cost is $4 per unit. Based on 20 monthly observations,
the company ran a regression that projected the overhead associated with this model of
lamp as follows:
Overhead = 16,500 + .75x, where x is the direct labour cost.
The selling price for the Slender lamp is $17 per unit. What is the expected gross margin
from sales of the Slender lamp next month if sales volume is estimated to be 5,000
units?
a)
b)
c)
d)
e)
$36,250
$23,500
$8,500
$19,750
$25,000
CMA Canada
Page 3
The following information pertains to questions 6 and 7.
Ex Company produces a single product. Material A is added at the start of the production
process and packaging material B is added at the end of the process. Conversion costs are
incurred uniformly throughout the process. Inspection takes place when manufacturing is
completed, but before packaging material B is added. Spoiled units are discarded. Normal
spoilage for this production process is 5% of good output. Production data for Year 10 was as
follows:
Beginning work-in-process inventory (75% complete)
Units started
Good units completed and sold
Ending work-in-process inventory (60% complete)
6.
Using a weighted-average process costing system, the equivalent units for Year 10 are
a)
b)
c)
d)
e)
7.
4,000 units
21,000 units
19,000 units
3,500 units
Material A
21,000
21,000
25,000
25,000
19,000
Material B
19,000
15,000
19,000
21,000
19,000
Conversion
20.600
18,100
23,600
21,100
19,000
(+) Now assume that Ex Company uses a first-in, first-out (FIFO) process costing system
and that the costs for Year 10 were as follows:
Beginning work-in-process
inventory
Costs added during Year 10
Material A
Material B
Conversion
Total
$ 460,000
$
0
$ 424,700
$ 884,700
2,415,000
161,500
2.997,300
5,573,800
$2,875,000
$161,500
$3,422,000
$6,458,500
What is the total cost of the units completed and sold by Ex Company in Year 10?
a)
b)
c)
d)
e)
Page 4
$5,346,675
$5,101,500
$5,348,500
$5,145,808
$4,908,460
CMA Canada
The following information pertains to Questions 8 and 9.
Omega Company manufactures three chemicals in a joint process. The manufacturing costs of
the joint process include $25,000 of direct materials and $35,000 of conversion costs. All three
chemicals can be sold in their unrefined form immediately after the split-off point or they can be
further refined before they are sold. During May, all three chemicals were further refined. The
following is data regarding production for the month of May:
Sales price per litre before refining
Sales price per litre after refining
Cost of refining
Total output of chemical at split-off
Total output of chemical after refining
8.
C
$10
$18
$12,000
3,000 litres
2,700 litres
(+) Using the sales value at split-off method, the total joint costs allocated to Chemical B
in May (rounded to the nearest hundred dollars) is
a)
b)
c)
d)
e)
9.
A
$20
$35
$28,000
2,500 litres
2,300 litres
Chemical
B
$25
$40
$10,000
1,600 litres
1,500 litres
$12,000.
$20,000.
$21,600.
$13,500.
$19,000.
(+) Now assume that Omega Company uses the physical measures method, that the
refining process for Chemical A also produces a hazardous by-product that must be
disposed of at a cost of $5 per litre, and that refining 100 litres of Chemical A results in
8 litres of this by-product. For the month of May, what effect would refining Chemical A
have on Omega Company’s profits as compared with its profits if Chemical A was sold at
split-off without being further refined (rounded to the nearest hundred dollars)?
a) $5,500 more profits by refining.
b) $10,000 less profits by refining.
c) $29,500 more profits by refining.
d) $1,500 more profits by refining.
e) $19,600 less profits by refining.
CMA Canada
Page 5
Markham Company applies overhead on the basis of machine hours in Department 1 and direct
labour hours in Department 2. Data for the two departments for the year are as follows:
Overhead cost
Machine hours (MH)
Direct labour hours (DLH)
Direct labour rate per hour
10.
Department 1
Budget
Actual
$180,000
$179,000
40,000
36,000
60,000
55,000
$25.00
$24.80
Department 2
Budget
Actual
$360,000 $368,000
60,000
62,000
90,000
94,000
$27.00
$27.15
Overhead for the year was
a) $2,000 underapplied (underallocated).
b) $7,000 underapplied (underallocated).
c) $1,544 underapplied (underallocated).
d) $10,000 underapplied (underallocated).
e) $9,000 underapplied (underallocated).
11.
One job completed by Markham Company during the year was Job 669. Data pertaining
to this job are as follows:
Machine hours (MH)
Department 1
5,000
1,000
Department 2
2,500
3,000
The overhead applied to Job 669 using normal job order costing is
a)
b)
c)
d)
e)
Page 6
$15,000.
$18,000.
$34,500.
$37,500.
$34,120.
CMA Canada
The following information is summarized from the preliminary budget of Hamilton Limited for
product EE01. Budgeted costs and revenues are based on a normal volume of 100,000 units for
the year. Capacity is 120,000 units. There are no beginning inventories.
Total
Per Unit
Budgeted revenue
Budgeted costs:
Raw materials
Direct labour
Variable factory overhead
Fixed factory overhead
Variable selling and general
Fixed selling and general
Total budgeted costs
$7,200,000
$72
900,000
1,200,000
1,500,000
1,800,000
600,000
600,000
6,600,000
9
12
15
18
6
6
66
Budgeted income
$ 600,000
$6
During the year, 100,000 units were produced and 70,000 units were sold. There were no
flexible budget variances for manufacturing, selling and general expenses, and no sales price
variance.
12.
Under standard direct (variable) costing, what amount of profit or loss from product EE01
would Hamilton Limited record for the year?
a)
$300,000 loss
b)
$420,000 profit
c)
$240,000 profit
d) $2,100,000 profit
e) $1,380,000 loss
13.
If Hamilton Limited uses standard absorption costing, its income for the year would be
a)
b)
c)
d)
e)
$540,000 lower than under standard direct (variable) costing.
$720,000 higher than under standard direct (variable) costing.
$720,000 lower than under standard direct (variable) costing.
CMA Canada
Page 7
14.
(-) Which of the following statements regarding activity-based costing (ABC) is true?
a) ABC is useful for costing products, but not services.
b) When using ABC in a manufacturing operation, indirect overhead costs are charged
to products on the same basis as direct manufacturing costs.
c) Under ABC, service department costs are first charged to production departments
and then the resulting production department costs are charged to the products.
d) ABC is usually easy to implement.
e) ABC shows product designers possible opportunities for cost reduction.
15.
(+) Dundas Company uses an activity-based costing system. Consider the following
information:
Manufacturing
Activity Area
Machine setup
Material handling
Milling
Assembly
Cost Driver Used As
Application Base
Number of setups
Number of parts
Machine hours
Direct labour hours
Conversion Cost per Unit of
Application Base
$180
$15
$50
$30
During the past month, 60 units of a component were produced. Three setups were
required. Each unit needs 35 parts, 4 direct labour hours and 6 machine hours. Direct
materials cost $140 per finished unit. All other costs are classified as conversion costs.
If the company would like its gross margin to be 35% of sales, what price should it
charge per unit of the component (rounded to the nearest dollar)?
a)
b)
c)
d)
e)
16.
Downward Ltd. produces a line of products that it customizes to customer specification.
These products use the same core components, which the company mass-produces
and holds in inventory until required. Which of the following costing systems would be
most appropriate for Downward Ltd.?
a)
b)
c)
d)
e)
Page 8
$1,477
$1,468
$1,683
$1,094
$3,126
Kaizen costing.
Hybrid costing.
Product life cycle costing.
Backflush costing.
Target costing.
CMA Canada
The following information pertains to questions 17 to 18.
The managers of ACME Manufacturing are discussing ways to allocate the cost of service
departments, such as Quality Control and Maintenance, to the production departments. To aid
them in this discussion, the controller has provided the following information:
Production
Departments
Service Departments
Quality
Control Maintenance Machining Assembly
Budgeted overhead costs
before allocation
Budgeted machine hours
Budgeted direct labour hours
Budgeted hours of service:
Quality control
Maintenance
17.
$350,000
$200,000
$400,000
$300,000 $1,250,000
—
—
—
—
50,000
—
—
25,000
50,000
25,000
—
10,000
7,000
—
21,000
18,000
7,000
12,000
35,000
40,000
(+) Using the direct allocation method, the total service department costs allocated to the
Machining department would be
a)
b)
c)
d)
e)
18.
Total
$782,500.
$300,000.
$120,000.
$382,500.
$262,500.
(+) Using the step-down method of allocating service costs beginning with maintenance,
the quality control costs allocated to the Machining department would be
a)
b)
c)
d)
e)
$300,000.
$262,500.
$234,000.
$210,000.
$252,632.
CMA Canada
Page 9
19.
Joie Inc. produces Product X. Each unit of the product requires 0.2 hour of direct labour,
2 kilograms of material A, and 1 kilogram of material B. The company has a production
capacity of 30,000 units of Product X per year, but its current production and sales are
25,000 units per year. For the current year, costs and revenues are as follows:
Price per unit of Product X
Direct labour cost per hour
Material A cost per kilogram
Material B cost per kilogram
Variable selling and administration costs
All other fixed expenses
$13.50
$15.00
$0.80
$2.40
$50,000
$12,500
$37,500
At the current level of production, the contribution margin per unit of Product X is
a)
b)
c)
d)
e)
20.
$6.50.
$4.50.
$6.80.
$4.00.
$6.00.
A company produces a product for sale at $24 per unit. Total fixed costs are $48,000
and variable costs per unit are $16. The number of units to be produced and sold to
obtain a $14,400 net income when the income tax rate is 40% would be
a) 7,800.
b) 10,500.
c) 4,500.
d) 9,000.
e) 3,000.
Page 10
CMA Canada
West Coast Laser (WCL), a producer of precision tools, has a production capacity limit of 5,000
laser machine hours and 2,000 image machine hours. The direct costs per hour to operate the
machines are $20 and $25, respectively. Both machines are operating at 85% of capacity.
All current production is sold at $1,800 per unit. Each unit requires $240 of direct materials, five
laser machine hours and two image machine hours to produce. Indirect variable overhead costs
are $280 per unit, and indirect fixed overhead costs are $250 per unit based on full capacity.
A prospective new customer, Company L, offers to buy 360 units at $1,650 per unit. If the offer
is accepted, all 360 units must be delivered by the end of the year.
21.
(+) What is the opportunity cost of accepting this offer?
a)
b)
c)
d)
e)
22.
$378,000
$184,800
$237,300
$54,000
$406,800
Now assume that WCL can lease machinery to accommodate Company L’s order at a
cost of $120,000. By what amount would WCL’s income change if Company L’s offer is
accepted and the machinery is leased?
a)
b)
c)
d)
e)
$232,800 increase
$142,800 increase
$174,000 decrease
$178,800 increase
$474,000 increase
CMA Canada
Page 11
HGML Co. produces one product using a single machine that has a capacity of 100,000 units
per year. Last year, the company produced and sold 80,000 units. It is considering replacing the
machine with a new, automated machine that would eliminate all direct labour costs, but would
require a higher grade of direct materials and a licensing fee of $1 per unit. The production
costs using the new versus the old machine at two production activity levels are as follows:
Direct materials
Direct labour
Amortization
Licensing fee
Other overhead
Total
80,000 units
Old Machine New Machine
$120,000
$152,000
80,000
50,000
70,000
80,000
350,000
280,000
$600,000
$582,000
100,000 units
Old Machine New Machine
$150,000
$190,000
100,000
50,000
70,000
100,000
380,000
310,000
$680,000
$670,000
The selling price of the product is $10 per unit. All selling and administration costs are fixed at
$300,000 per year, which would not change if the new machine is acquired. The company has a
40% tax rate and an after-tax cost of capital of 10%. The new machine would have a life of three
years, which is the same as the remaining useful life of the old machine. Neither machine would
have a material disposal value at the end of three years. Other data pertaining to the two
machines are as follows:
Original capital cost
Current market value
Current book value
Undepreciated capital cost
Capital cost allowance rate
23.
Old Machine
$250,000
$120,000
$180,000
$195,500
30%
New Machine
$210,000
$210,000
30%
Assuming the company continues to use the old machine, what is the contribution
margin per unit of the product?
a)
b)
c)
d)
e)
Page 12
$7.50
$4.00
$6.925
$3.70
$6.00
CMA Canada
24.
(+) What is the incremental CCA tax shield if the new machine is purchased as opposed
to keeping the old machine?
a) $25,773
b) $27,000
c) $8,591
d) $4,152
e) $20,618
25.
(+) Assume HGML Co. expects to sell 100,000 units per year for the next three years.
What is the present value of the annual incremental cash flows (rounded to the nearest
$100) if the company replaces the old machine with the new one (ignore the CCA tax
shield)?
a)
b)
c)
d)
e)
$29,800
$74,600
$90,000
$44,800
$15,000
---------------------------------------------26.
The budgeted income for RST Ltd. for next year is as follows:
Sales – 100,000 units @ $20
Variable manufacturing costs
Fixed manufacturing costs
Sales commissions - $1.50 per unit
Fixed selling and administration expenses
Operating income
$2,000,000
$800,000
300,000
150,000
350,000
1,600,000
$ 400,000
Assume that a regular customer has requested RST Ltd. to provide a quote for a special
order of 8,000 units. RST Ltd. has sufficient capacity to fill the order and would be
required to pay only $6,000 in sales commissions for the order. If RST Ltd. would like the
special order to make a contribution to operating income of $28,000, the sales price per
unit that should be quoted to the customer for the special order is
a)
b)
c)
d)
e)
$12.25.
$20.00.
$15.75.
$15.25.
$19.25.
CMA Canada
Page 13
JKL Ltd. manufactures three lines of televisions: Portable, Sound Around and Big Screen. Last
year, JKL Ltd. had sales and variable costs as follows:
Sales volume
Total sales
Variable costs
Portable
5,000 units
$1,500,000
$250 per unit
Sound Around
1,000 units
$1,300,000
$1,100 per unit
Big Screen
1,500 units
$3,750,000
$2,000 per unit
JKL Ltd. had fixed costs of $500,000 and a profit before taxes of $650,000 last year.
27.
(+) Assuming that the information from last year, including unit sales mix, remains the
same for next year, how many Big Screen televisions would JKL Ltd. need to sell next
year to break even?
a)
200
b) 1,000
c)
667
d)
625
e) 3,125
28.
(+) Assume the following information is provided by the marketing department regarding
sales volume projections for next year:
Scenario
1
2
3
Probability
60%
15%
25%
Portable
5,000
4,000
6,000
Sound Around
1,200
1,500
1,000
Big Screen
1,600
1,200
1,800
Given the above information, the expected profit before taxes for next year is
a)
b)
c)
d)
e)
Page 14
$789,000.
$790,000.
$600,000.
$900,000.
$763,334.
CMA Canada
Willy Mftg Inc. produces two products, X and Y. Sales and production data for next month are
as follows:
Selling price per unit
Variable cost per unit
Production time on Machine 1 per unit
Production time on Machine 2 per unit
Demand for next month
X
$2,000
$750
0.6 hours
1.2 hours
450 units
Y
$1,500
$500
0.4 hours
0 hours
800 units
During the next month, Willy Mftg Inc. has 500 hours of machine time available on each of
Machines 1 and 2. The company maintains no beginning or ending inventories of the products.
Management wants to formulate the linear programming problem in planning production for next
month.
29.
Which of the following is a proper formulation of the problem?
a) Objective function:
Constraints:
b) Objective function:
Constraints:
c) Objective function:
Constraints:
d) Objective function:
Constraints:
e) Objective function:
Constraints:
30.
Maximize $2,000X + $1,500Y
1.2X + 0.4Y ≤ 500
X ≤ 450; Y ≤ 800; X, Y ≥ 0
Maximize $750X + $500Y
1.2X ≤ 450; 0.4Y ≤ 800 ; X, Y ≥ 0
Maximize $1,250X + $1,000Y
6X + 4Y ≤ 5,000
6X
≤ 2,500
X ≤ 450; Y ≤ 800; X, Y ≥ 0
Maximize (0.6X x $1,250) + (0.4 Y x $1,000) +(1.2X x $1,250)
X + Y ≤ 500
X ≤ 450; Y ≤ 800; X, Y ≥ 0
Maximize $2,000X + $1,500Y
0.6X + 0.4Y ≤ 500
1.2X
≤ 500
X ≤ 450; Y ≤ 800; X, Y ≥ 0
Assume that there will be sufficient available machine time on Machine 2 next month to
produce as many units of Product X as required. Also assume that, given the Machine 1
constraint and certain contractual commitments, it has been decided to produce 400
units of Product X and 650 units of Product Y next month. What is the maximum rate per
machine hour that Willy Mftg Inc. should be willing to spend to increase the capacity of
Machine 1 such that all demand for both products can be filled next month (rounded to
the nearest dollar)?
a) $2,361
b) $1,063
c) $3,611
d)
$464
e)
$0
CMA Canada
Page 15
31.
Zen Inc. is a retail operation and its cost of goods sold is made up entirely of the
purchase cost of its merchandise. In preparing its cash budget for June, Zen Inc. made
the following projections:
Sales
Gross margin (percentage of sales)
Decrease in inventories
Decrease in accounts payable for inventories
$3,000,000
25%
$140,000
$240,000
The estimated cash disbursements for inventories in June are
a)
b)
c)
d)
e)
32.
$2,350,000.
$2,110,000.
$2,150,000.
$1,870,000.
$2,250,000.
Sawdust Inc. desires to reduce its inventory of a particular direct material by 40%. The
inventory at the beginning of the budget period is 120,000 kilograms at $9.90 per
kilogram. The production budget requires the company to manufacture 84,000 units of
output during next month. Each of these units requires 2.5 kilograms of the direct
material. If the budgeted cost of this direct material is $10.00 per kilogram, what amount
should the purchases budget include for this direct material for next month?
a)
b)
c)
d)
e)
Page 16
$900,000
$1,632,000
$1,380,000
$1,620,000
$2,580,000
CMA Canada
Lynn Company uses a standard cost system. Overhead is applied on the basis of direct labour
hours (DLH) and the annual practical capacity of 42,000 DLH is used in establishing the
standard overhead rates. The following summarizes budget and actual data for the past year:
Units produced
Direct materials (kilograms)
Production costs:
Direct materials
Direct labour
Variable factory overhead
*applied (allocated)
Budget
100,000
50,000
40,000
Actual
92,000
47,840
37,720
$200,000
$500,000
$80,000*
$160,000*
$188,968
$471,500
$84,640
$162,000
During the year, 90,000 units were sold. There were no beginning or ending work-in-process
inventories, but there were 3,000 units of finished goods on hand at the end of the year.
33.
The standard cost of goods sold for the past year is
a)
b)
c)
d)
e)
34.
$983,000.
$940,000.
$874,200.
$864,800.
$846,000.
The direct labour efficiency variance is
a) $28,500 favourable.
b) $21,500 unfavourable.
c) $11,500 unfavourable.
d) $6,500 unfavourable.
e)
$0.
35.
The fixed overhead production volume (denominator, capacity) variance is
a) $24,000 unfavourable.
b) $20,800 unfavourable.
d) $12,800 unfavourable.
e) $8,000 unfavourable.
CMA Canada
Page 17
Acme Beds Inc. produces two models of beds: Regular and Majestic. Budget and actual data
are as follows:
Sales volume in units
Selling price per unit
Variable costs per unit
Sales revenue
Variable costs
Contribution margin
Fixed costs
Operating income
Budget
Regular
Majestic
4,500
5,500
$300
$800
$220
$590
Actual
Regular Majestic
7,200
4,800
$325
$700
$238
$583
Master Budget
$5,750,000
4,235,000
1,515,000
882,500
$ 632,500
Actual
$5,700,000
4,512,000
1,188,000
919,500
$ 268,500
Market Data:
Expected total market sale of beds
Actual total market sales of beds
36.
500,000 beds
666,667 beds
The sales volume (activity) variance is
a) $300,000 unfavourable.
b) $69,000 favourable.
d) $153,000 favourable.
e) $234,000 unfavourable.
37.
(+) The industry volume (market size) variance is (to the nearest hundred dollars)
a)
b)
c)
d)
e)
38.
$303,000 favourable.
$202,000 unfavourable.
The lower than budgeted operating income for Acme Beds Inc. was partially a result of
a)
b)
c)
d)
e)
Page 18
selling less of the model with the higher contribution margin.
realizing a lower than budget average contribution margin.
incurring higher average variable costs.
both b) and c) above.
both a) and b) above.
CMA Canada
39.
(-) Which of the following best describes the responsibility of an investment centre
manager?
a)
b)
c)
d)
e)
40.
A well-designed performance measurement system will include measures that
a)
b)
c)
d)
e)
41.
Evaluating alternative capital investments the organization must make.
Achieving a certain target revenue within the manager’s organizational segment.
Achieving a certain target profit within the manager’s organizational segment.
Maximizing segment revenues given a predetermined expenses limit.
Maximizing segment profit while making efficient use of the segment’s investment in
capital assets.
are related to the goals of the organization.
primarily focus attention on immediate short-term concerns.
are reasonably objective and easily quantified.
both a) and c) above.
all of a), b) and c) above.
ZIL Inc. operates two divisions, which are treated as investment centres. Data for each
division for Year 4 are as follows (in ’000s):
Net income
Total assets
Division A
$65,000
$400,000
Division B
$140,000
$850,000
The company’s required rate of return is 15%. The president wishes to evaluate the
performance of these divisions and is not sure whether to use return on investment
(ROI) or residual income (RI) as the performance measure. Which division performed
better based on the ROI and RI performance measures?
a)
b)
c)
d)
e)
42.
Division A, because its RI is higher than that of Division B.
Division B, because its ROI and RI are higher than those of Division A.
Division A, because its ROI is higher than that of Division B.
Both a) and c) above.
None of the above.
To determine the transfer price that will govern the sale of goods between divisions in
different countries, in addition to respecting the laws of the countries, a firm should
a)
b)
c)
d)
e)
ignore the fair market value for the product.
give prime consideration to the overall profit of the firm.
do whatever is necessary to minimize customs duties.
do whatever is necessary to maximize foreign subsidiary net income after taxes.
none of the above.
CMA Canada
Page 19
43.
Ruce Ltd. has two manufacturing divisions, located in the same plant. Division X is
evaluated as a cost centre and Division Y is evaluated as a profit centre.
Division X produces component X98 at a budgeted full cost of $108 per unit, of which
$100 represents variable costs. Currently, Division X is operating at full capacity and
transfers all of its output to the sales division at $108 per unit. The sales division sells
component X98 to external customers for $133 per unit; it incurs variable costs of $9 per
unit to sell the component.
Division Y purchases a component similar to X98 from an outside supplier for $125/unit
plus a $2 per unit delivery charge. Ruce Ltd.’s production engineers have determined
that component X98 could be used by Division Y with no adverse effects on the quality
of the final product. Assume that no selling or delivery expenses would be incurred for
internal transfers. What is the highest transfer price per unit that Division Y should be
willing to accept for component X98?
a)
b)
c)
d)
e)
44.
$133
$124
$125
$108
$127
Which of the following problems is unique to not-for-profit organizations when going
through the capital budgeting process?
a)
b)
c)
d)
e)
Urgency when determining how to allocate funds.
Project estimates that are systematically biased.
Tendency to cut capital budgets when a deficit needs to be reduced.
Determining what discount rate to use.
None of the above.
Corporate Finance
45.
(-) XYZ Inc. is a Canadian publicly-traded corporation with a controller and a treasurer
reporting to the vice-president of finance. Which of the following is the LEAST LIKELY
to be a responsibility of the treasurer?
a)
b)
c)
d)
e)
Page 20
Investing in and managing long-term assets.
Distributing funds through a cash dividend policy.
Securing and servicing short-term financing.
Preparing financial statements.
Assessing the viability of growth through a merger.
CMA Canada
46.
(-) According to finance theory, which of the following best states what should be the
primary goal of a large public company’s vice-president of finance?
a)
b)
c)
d)
e)
47.
(-) An initial public offering of shares by a company would be made in a
a)
b)
c)
d)
e)
48.
money market.
secondary market.
primary market.
stock exchange.
auction market.
The measurement of the systematic risk associated with Avery Inc. shares in relation to
average assets results in a value of 3. The market risk premium is 12% and the current
return on short-term government bonds is 5.5%. Avery Inc.’s rate of return on equity is
a)
b)
c)
d)
e)
49.
Minimize the risks taken by the company.
Maximize the current value per share of the company’s existing stock.
Maximize the asset value of the entire company.
Maximize the company’s current accounting profit.
Maximize the company’s current earnings per share.
41.5%.
17.5%
36.0%.
25.0%.
28.5%.
(+) A company borrows $100,000 for one year. The lenders perceive a 2% chance of
default in which case the lenders receive nothing. To provide an expected yield of 8%,
what is the default premium for the company loan?
a) 0.16%
b) 2%
c) 2.2%
d) 8%
e) 10%
50.
An all equity firm is expected to have a net income (NI) of $5,000,000 per year for each
of the next five years. Its NI in year six is expected to be 60% higher than its NI in year
five. Its annual NI after year six, and into perpetuity, is expected to be equal to its NI in
year six. The firm’s discount rate is 10%. Assuming NI approximated net cash flows,
what is the total value of the firm today?
a)
b)
c)
d)
e)
$25,000,000
$68,635,000
$18,955,000
$98,955,000
$49,680,000
CMA Canada
Page 21
51.
(+) A bond was issued on June 1, Year 1, and it matures on June 1, Year 20. The
present date is June 1, Year 8, and the June 1, Year 8, coupon payment has just been
paid. The bond has a face value of $50,000, a coupon rate of 6% compounded semiannually, and a current yield of 8% compounded semi-annually. Ignoring taxes, what is
the current dollar price of the bond (to the nearest hundred dollars)?
a)
b)
c)
d)
e)
52.
$40,200.
$42,500.
$58,500.
$61,500.
$42,400.
Which of the following best explains the shape of the yield curve (term structure of
interest rates)?
a) A downward slope can be explained by the expectations theory, as investors expect
short-term interest rates to decrease, thereby reducing the inflation premium.
b) A downward slope can be explained by the expectations theory, as investors expect
long-term interest rates to increase, thereby increasing the inflation premium.
c) An upward sloping curve can be explained by the liquidity preference theory,
whereby investors demand a liquidity premium.
d) Both b) and c) above.
e) Both a) and c) above.
YG Inc. is determining its cost of capital for future investment decisions. Management believes
that the company’s current market value capital structure is optimal and intends to maintain this
structure into the future. Current debt has an interest rate of 9%, but any new debt will only
require an interest rate of 6%. Preferred shares have a par value of $80 and pay a dividend of
$8 per year. These preferred shares are currently trading in the market at a price of $45 per
share. The current price of YG Inc.’s common stock is $50 per share and the company just paid
the annual cash dividend of $4 per share. YG Inc. expects to increase its dividend by 10% each
year into the foreseeable future. The current market value of the company’s debt and equity are
as follows:
Debt
Preferred shares
Common equity
$8,000,000
$2,000,000
$10,000,000
The company’s marginal tax rate is 40%.
53.
What are YG Inc.’s after-tax cost of debt and preferred shares for purposes of
determining the weighted average cost of capital (rounded to the nearest tenth of a
percent)?
a)
b)
c)
d)
e)
Page 22
Cost of debt = 3.6%
Cost of debt = 5.4%
Cost of debt = 3.6%
Cost of debt = 5.4%
Cost of debt = 3.6%
Cost of preferred shares = 10.7%
CMA Canada
54.
(+) Assume that, for purposes of determining the weighted average cost of capital, the
appropriate after-tax cost of debt is 3.9% and the appropriate cost of preferred shares is
14.2%. What is YG Inc.’s weighted average cost of capital (rounded to the nearest tenth
of a percent)?
a) 7.4%
b) 10.6%
c) 12.4%
d) 12.0%
e) 8.6%
------------------------------55.
Acme Limited offers credit terms of a 1% discount if paid within 45 days or the full
balance is due within 60 days (1/45, net 60). If 20% of Acme’s customers pay cash on
delivery, 60% pay on day 45, and 20% pay on day 60, the average collection period is
a)
b)
c)
d)
e)
56.
15 days.
39 days.
52.5 days.
45 days.
35 days.
Determining the appropriate level of working capital for a firm requires
a) evaluating the risks associated with various levels of capital assets and the types of
debt used to finance these assets.
b) changing the capital structure and dividend policy for the firm.
c) maintaining current liabilities at the lowest possible level because it is generally more
expensive than long-term liabilities.
d) trading-off profitability against the risk of technical insolvency.
e) maintaining a high proportion of liquid assets to total assets in order to maximize the
return on total investments.
57.
A company issued rights as part of a recent financing. It takes two (2) rights plus $10 to
purchase one new share. Shares currently trade at $12 each and the rights are about to
expire. The minimum value of one right is
a)
b)
c)
d)
e)
$4.00.
$1.67.
$1.00.
$0.
$2.00.
CMA Canada
Page 23
58.
Which of the following is a feature of debentures?
a) They are backed by the credit of the issuing corporation.
b) They are unsecured.
c) In the event of default, debenture holders have a claim on assets that come before
claims of mortgage bond holders.
d) Both a) and b) above.
e) All of a), b) and c) above.
59.
(+) The revenues, expenses and capital structure of a company are as follows:
Sales
Variable costs (40% of sales)
Fixed costs (excluding interest and taxes)
Debt (at 10% annual interest)
Equity (100,000 shares)
$500,000
$200,000
$120,000
$800,000
$1,200,000
Given the information provided above, what is the degree of operating leverage for this
company?
a)
b)
c)
d)
e)
60.
What is the effect of a stock dividend?
a)
b)
c)
d)
e)
61.
1.5
1.7
2.8
1.8
2.5
Decreases the debt to equity ratio of a firm.
Increases the firm’s future earnings per share.
Decreases the size of the firm.
Increases the shareholder’s wealth.
None of the above.
The financial markets often witness a target firm take a ‘poison pill’ as a defensive tactic
against the hostile takeover attempt made by another firm. Which of the following is an
example of a target firm taking a poison pill?
a) Changing the target firm’s corporate charter such that a merger must receive
approval from 80% of the target firm’s shareholders.
b) Repurchasing some of its shares at a substantial premium from the firm attempting
the takeover.
c) Selling off the assets that originally made it a desirable takeover target.
d) Issuing rights to current shareholders that entitle them to exchange their current
shares for those of the acquirer on a 2-for-1 basis in the case of a merger.
e) Granting such lucrative compensation to the target firm’s executives, in the case of a
takeover, that the cash drain from the payments would render the takeover
unfeasible.
Page 24
CMA Canada
62.
GEF Inc. believes that if it acquires HIP Ltd., the resulting combined company will
experience synergistic annual operating savings of $1,000,000 before taxes. Currently,
HIP Ltd. generates annual after-tax cash flows of $4,000,000. Both the current annual
cash flows and the synergistic savings are expected to continue indefinitely. Assuming
an income tax rate of 40% and a required rate of return of 16%, what would be the
maximum amount that GEF Inc. should be willing to pay for HIP Ltd?
a)
b)
c)
d)
e)
$21,250,000
$31,250,000
$18,750,000
$28,750,000
$25,000,000
Financial Accounting
63.
(-) A primary user of accounting information with a direct financial interest in the
business is a
a)
b)
c)
d)
e)
64.
labour union.
customer.
regulatory agency.
creditor.
taxing authority.
Which of the following is true with regard to the objectives of financial reporting?
a) Financial reporting provides a basis for owners or prospective owners to evaluate the
desirability of investment in the organization.
b) Financial reporting, utilizing conservatism to understate net assets and net income,
provides a basis for management to minimize taxation.
c) Financial reporting, utilizing historical costs, provides a basis for creditors and
potential creditors to assess the desirability of extending credit to the organization.
e) Both a) and c) above.
65.
(-) Amortization expense is most justified based on the concept of
a)
b)
c)
d)
e)
conservatism.
full disclosure.
matching.
materiality.
none of the above.
CMA Canada
Page 25
66.
Which of the following organizations is NOT involved in the development of generally
accepted accounting principles (GAAP) in Canada?
a)
b)
c)
d)
e)
67.
Preparing closing entries is one step in the accounting cycle. Which of the following
would qualify as a closing entry?
a)
b)
c)
d)
e)
68.
Canada Revenue Agency (CRA).
Financial Accounting Standards Board (FASB).
Canadian Institute of Chartered Accountants (CICA).
Accounting Standards Board (AcSB).
Provincial Securities Commissions.
Interest expense
Interest payable
Retained earnings
Income summary
Income tax expense
Income tax payable
Unearned rental revenue
Rental revenue
Dividends payable
Retained earnings
$126,000
$126,000
$108,000
$108,000
$288,000
$288,000
$432,000
$432,000
$332,000
$332,000
The Farell Co. Ltd. had a net loss of $60,000 last year. The following data for last year
are available:
Dividends paid
Amortization expense
Proceeds from issuing shares
Increase in accounts payable
Retirement of debt
$40,000
$30,000
$100,000
$15,000
$50,000
What was the amount of net cash provided (or used) from operations last year?
a)
b)
c)
d)
e)
Page 26
$85,000
$(30,000)
$(15,000)
$(5,000)
$(70,000)
CMA Canada
69.
Information regarding accounting policies adopted by a company is essential to financial
statement users. Which of the following is an example of a required disclosure for
merchandise inventory?
a)
b)
c)
d)
e)
70.
Identification of major suppliers.
Composition of inventory, i.e. raw material, work-in-process, and finished goods.
Change in the basis of inventory valuation from the previous period.
Method of determining cost of inventory.
Both c) and d) above.
Contingent gains should be accrued in the financial statements only when
a) it is likely that a future event will confirm that an asset has been acquired at the date
of the balance sheet.
b) the amount of the gain can be reasonably estimated.
c) the asset acquired will be consumed within one year of the balance sheet date or
one operating cycle, whichever is longer.
d) a contingent loss of an equal or greater amount exists at the date of the balance
sheet.
e) none of the above.
71.
Benoit Inc.’s December 31, Year 4, records showed that the accounts receivable
balance was made up of the following amounts:
1. Trade accounts receivable in the amount of $141,900. These receivables are
currently in good standing, but it is estimated that $23,000 will become uncollectible
eventually.
2. Down payment on a new delivery van in the amount of $5,000.
3. Deposit for June Year 5 rent (i.e. the last month of the lease) in the amount of
$8,500.
4. Amount receivable for goods on consignment in the amount of $13,000, which
represents the selling price for goods originally costing Benoit Inc. $10,000.
Using the allowance method, what is the correct balance for the Accounts Receivable
account as at December 31, Year 4?
a)
b)
c)
d)
e)
$118,900
$141,900
$154,000
$145,400
$150,400
CMA Canada
Page 27
72.
Concept Inc.’s recorded cash balance on December 31, Year 4, was $12,500. However,
the controller had not yet recorded any of the following items in the corporation’s books:
1. A customer’s cheque dated January 3, Year 5, in the amount of $2,300 was
deposited on January 3rd, Year 5. This cheque was in payment of a sale made on
December 31, Year 4.
2. A cheque issued by Concept Inc. to a supplier in the amount of $1,400, dated and
mailed on December 31, Year 4, was not picked up by the post office until January 4,
Year 5. This was a payment against an amount owing at year end.
3. A customer’s cheque in the amount of $2,500 originally deposited on December 15,
Year 4, was returned by the bank with the December 31st bank statement and was
marked NSF. The cheque was replaced by the customer on January 15, Year 5, and
cleared Concept Inc.’s bank on January 21, Year 5.
4. A customer’s cheque in the amount of $300 dated December 31, Year 4, was
received on January 4 and deposited by Concept Inc. on January 5, Year 5.
What should be the cash balance on Concept Inc.’s balance sheet as at December 31,
Year 4?
a) $8,600
b) $11,200
c) $11,100
d) $10,000
e) $8,900
73.
The balance of all Company K’s current asset accounts combined was $125,000 on
December 1. During December, the following transactions took place:
•
•
•
•
Purchase of $20,000 of inventory for cash
Receive a $15,000 deposit from a customer for work to be completed next month
Purchase of $10,000 of machinery on account
Retirement of $30,000 in bonds payable with cash
What is the combined December 31 balance in the current asset accounts?
a) $90,000
b) $80,000
c) $140,000
d) $120,000
e) $110,000
Page 28
CMA Canada
74.
(+) B Ltd., which began retail operations on January 1, Year 1, uses a periodic last-infirst-out (LIFO) inventory system. B Ltd. has a December 31 fiscal year end. The
following purchases were made by B Ltd.:
Units Purchased
4,500
2,000
5,000
6,500
8,000
12,000
January 1, Year 1
April 1, Year 1
October 1, Year 1
February 1, Year 2
September 1, Year 2
June 1, Year 3
Unit Cost
$ 9
10
9
11
8
11
The following sales were recorded by B Ltd.:
Units sold
Average unit selling price
Year 1
9,000
$18
Year 2
11,000
$19
Year 3
14,000
$23
In Year 3, B Ltd. decided to change its inventory accounting method to a periodic first-in
first-out (FIFO) system. On its Year 3 balance sheet, with comparative figures for Year 2,
B Ltd. would report which of the following amounts as inventory?
a)
b)
c)
d)
e)
75.
Year 3 - $44,000
Year 3 - $44,000
Year 3 - $44,000
Year 3 - $39,000
Year 3 - $36,000
Year 2 - $61,000
Year 2 - $48,000
Year 2 - $66,000
Year 2 - $61,000
Year 2 - $54,000
ABC Incorporated and DEF Limited have entered into a business arrangement to
develop and market a new computer product. The life of the product is expected to be
two years. The venturers have agreed to call this business arrangement GHI Joint
Venture. ABC holds 60% of the equity of GHI as Class A shares and DEF holds 40% of
the equity as Class B shares. Each venturer contributed assets valued at $1 million and
agreed to share equally in all profits and losses as well as in making all decisions. The
essential attribute of this arrangement that distinguishes it as a joint venture is that
a) each of the venturers contributed equally to the joint venture and agreed to share
equally in all profits and losses.
b) the venturers agreed to call the arrangement a joint venture.
c) the life of the product is short, only two years.
d) each of the venturers agreed to share equally in making all decisions.
e) each of the venturers agreed to share equally in all profits and losses even though
they have different ownership interests in the venture.
CMA Canada
Page 29
76.
On January 1, Year 5, Co. Q purchased 25% of the publicly-traded common shares of
Co. R for $3 million. Co. Q is a major customer of Co. R. The book value of Co. R on
that date was $11 million and the fair value of a major asset with a 25-year remaining life
was $1 million greater than its book value. During Year 5, Co. R’s reported net income
was $500,000 and it paid dividends of $200,000. The market value on December 31,
Year 5, of the Co. R shares held by Co. Q was $3.1 million. What amount(s) should Co.
Q record on its Year 5 income statement in relation to its investment in Co. R’s shares?
a) $115,000 of investment income.
b) $50,000 of dividend income.
c) $50,000 of dividend income and $100,000 of unrealized holding gain.
d)
$0
e) $125,000 of investment income.
77.
A company installed an assembly line costing $50,000 in Year 6. In Year 10, the
company invested $100,000 to automate the line. The automation increased the market
value and productive capacity of the assembly line but did not affect its useful life.
Proper accounting for the cost of the automation should be to
a)
b)
c)
d)
e)
78.
report it as an expense in Year 10.
debit the accumulated amortization account by $100,000.
allocate it between the fixed asset and accumulated amortization accounts.
debit the fixed asset account by $100,000.
none of the above.
Galaxy Inc. purchased equipment that had an estimated salvage value of $15,000 at the
end of 8 years (20% of its original cost). After 4 years, the equipment was sold for
$25,000 resulting in a gain on sales of equipment being recognized on the income
statement. At the time of sale, the equipment had produced 700,000 of the anticipated
1,000,000 parts it was purchased to produce.
Based on this information, which method of amortization was Galaxy Inc. using for this
equipment?
a)
b)
c)
d)
e)
Page 30
Units of production (activity method).
Straight-line method.
Double-declining balance.
Composite method using a rate of 10%.
None of the above.
CMA Canada
79.
On January 1, Year 1, BDS Inc. issued $1,000,000 of 8% bonds due in five years, with
semi-annual interest payments on June 30 and December 31 each year. Because the
investors were only willing to accept an effective annual interest rate of 10%
(compounded semi-annually), the bonds sold for $922,783. Using the effective interest
method, what would BDS Inc. record as interest expense for the period January 1 to
June 30, Year 1?
a)
b)
c)
d)
e)
80.
$46,139
$40,000
$36,911
$50,000
$47,772
TKC Ltd. sells product A for $5,000 each, including a one-year warranty. It also offers a
2-year extended warranty for $400 that takes effect after the original one-year warranty
period. On the basis of past experience, the initial one-year warranty costs the company
an average of $80 per unit sold, and the extended warranty costs $300 per extended
warranty sold. During Year 10, the company sold 300 units of the product and 160
extended warranties. Actual warranty costs incurred in Years 10, 11, 12 and 13 for the
units of product A sold in Year 10 were as follows:
Year 10
Year 11
Year 12
Year 13
$12,000
$24,000
$24,000
$12,000
Assuming all sales and warranty expenses are incurred evenly over the year, what
amounts would be recorded on the December 31, Year 10 and Year 11 balance sheets
pertaining to these warranties?
a) Warranty liability
b) Unearned warranty revenue
Warranty liability
c) Unearned warranty revenue
d) Unearned warranty revenue
Warranty liability
e) Unearned warranty revenue
Warranty liability
CMA Canada
Year 10
$60,000
$64,000
$12,000
$64,000
$64,000
$60,000
$64,000
$24,000
Year 11
$36,000
$48,000
$32,000
$48,000
$36,000
$64,000
-
Page 31
ODP Inc.’s year-end shareholders’ equity at December 31, Year 6, consisted of the following:
Preferred shares, 6%, cumulative, convertible, 75,000 issued
Common shares, 600,000 issued
Retained earnings
$1,500,000
$3,000,000
$2,000,000
Each preferred share is convertible into four common shares. On January 1, Year 7, ODP Inc.
issued stock options that entitled the holder to purchase 90,000 common shares at $8 per
share. On August 31, Year 7, ODP Inc. issued 180,000 common shares for $1,800,000 cash.
The company’s reported net income after taxes for Year 7 was $380,000 (assume a 40% tax
rate). Prior to Year 5, dividends were paid annually; however, no preferred or common
dividends were declared or paid in Year 5, Year 6 or Year 7. No preferred shares were
converted and none of the stock options were exercised by the end of Year 7. The average
market price of ODP Inc.’s common shares during Year 7 was $10 per share.
81.
What is ODP Inc.’s basic earnings per share for Year 7 (rounded to the nearest cent)?
a)
b)
c)
d)
e)
82.
$0.17
$0.49
$0.37
$0.58
$0.44
(+) What is ODP Inc.’s book value per share at December 31, Year 7 (rounded to the
nearest cent)?
a) $10.00
b) $8.86
c) $9.21
d) $8.72
e) $9.84
83.
(+) Now assume that ODP Inc. had paid preferred dividends each year and a dividend of
$0.20 per common share was declared and paid on December 31, Year 7. What is ODP
Inc.’s fully-diluted earnings per share for Year 7 (rounded to the nearest cent)?
a)
b)
c)
d)
e)
Page 32
$0.40
$0.30
$0.57
$0.39
$0.44
CMA Canada
84.
Company O is in the 2nd year of a 4 year contract. Costs to complete the contract are
expected to escalate to such an extent that a loss on the contract is now anticipated.
When should the loss be recognized under the percentage-of-completion method and
under the completed-contract method?
a)
b)
c)
d)
e)
85.
Percentage of Completion
Over the remaining life of the contract
At the end of the contract
Immediately
Immediately
Completed Contract
Immediately
Immediately
On April 15, Year 5, SFC Inc. consigned 70 units of Product A to HGL Inc. Each unit cost
SFC Inc. $400 to produce and it cost $800 to ship the consigned units to HGL Inc. On
December 31, Year 5, HGL Inc. reported that it had sold 35 units for $700 each, and
remitted to SFC Inc. the proceeds of sales, less a 10% commission, administration costs
of $200, and delivery costs to customers amounting to a total of $500. What profit on the
consigned sales will SFC Inc. report for Year 5?
a) $6,550
b) $13,900
c) $21,350
d) $6,950
e) $10,100
86.
MM Co. sells equipment on an instalment basis and appropriately uses the instalment
sales method of accounting. The following data is available for instalment sales made in
Years 1 and 2:
Instalment sales
Cost of sales
Collections during the year - on Year 1 sales
- on Year 2 sales
Year 1
$500,000
$300,000
$150,000
Year 2
$800,000
$560,000
$150,000
$240,000
What amount of realized gross profit should be reported on MM Co.’s Year 2 income
statement?
a)
b)
c)
d)
e)
$240,000
$72,000
$132,000
$117,000
$156,000
CMA Canada
Page 33
Consider the following information regarding a 5-year, non-cancellable capital lease:
Lease term (January 1, Year 1, to December 31, Year 5)
Residual value at end of lease
Annual lease payment, due at the beginning of each year
Fair value of asset, January 1, Year 1
Economic life of asset
Present value of lease payments
Lessee’s incremental annual borrowing rate
Lessor’s implicit rate of return (known to lessee)
5 years
$7,000
$18,143
$80,000
5 years
$75,656
12%
10%
There is no bargain purchase option or renewal option at the end of the lease, and no executory
costs. Both the lessee and lessor use straight-line amortization for similar assets.
87.
What is the total amount of expenses pertaining to the lease that would be recorded in
the lessee’s financial statements in Year 1?
a)
b)
c)
d)
e)
88.
$15,131
$20,882
$18,143
$20,159
$22,697
Assume that the lessor had manufactured the asset at a cost of $65,000 and would
usually sell such an asset at a price equal to its fair market value of $80,000. Also
assume that the lease would not qualify as an operating lease for accounting purposes
for the lessor. By what amount would the lessor’s profits before taxes for Year 1 be
increased as a result of the lease?
a) $5,751
b) $15,000
c) $20,751
d) $6,543
e) $8,751
Page 34
CMA Canada
89.
(+) The following information relates to SEN Ltd.’s defined benefit pension plan for
Year 20:
Actual return on pension fund assets
Expected return on pension fund assets
Pension benefits paid to retirees
Amortization of unrecognized past service costs
Amortization of unrecognized net actuarial loss
Interest on accrued benefits (projected benefit obligation)
Service costs
$160,000
$184,000
$90,000
$120,000
$66,000
$290,000
$640,000
What was SEN Ltd.’s net pension expense for Year 20?
a)
$932,000
b) $1,022,000
c)
$956,000
d)
$800,000
e)
$866,000
90.
Which of the following would increase a company’s future income tax liability?
a) Amortization of capital assets for accounting purposes during the year is less than
the capital cost allowance claimed for tax purposes for the year.
b) The company uses LIFO for inventory valuation for accounting purposes and FIFO
for tax purposes. Prices of all inventoried items have steadily increased during the
past two years.
c) Accounts payable related to meals and entertainment expenses have decreased
over the past two years.
d) Instalment sales revenue is accrued for accounting purposes, but is not recognized
for tax purposes until the cash is collected. Accrued sales have steadily increased
over the past two years.
e) Both a) and d) above.
91.
According to generally accepted accounting principles, which of the following types of
accounting changes is reported in financial statements using the prospective approach?
a)
b)
c)
d)
e)
Change in accounting policy.
Change in accounting estimate.
Correction of an error that was made in a prior period.
Both a) and b) above.
All of a), b) and c) above.
CMA Canada
Page 35
92.
The owners of TSS Ltd. are contemplating selling the business. The cumulative earnings
for the past five years amounted to $850,000, including extraordinary gains of $50,000.
The fair value of TSS Ltd.’s net identifiable assets is $775,000. New owners of the
business would expect to realize the industry average rate of return on investment of
15%. Assuming TSS Ltd.’s expected earnings will continue into perpetuity, what amount
would a prospective buyer pay for goodwill?
a) $358,333
b) $75,000
c) $116,250
d) $43,750
e) $291,667
Selected data from RCL Inc.’s financial statements are presented below (in thousands):
Cash
Marketable securities
Accounts receivable (net)
Merchandise inventory
Tangible fixed assets (net)
Total assets
Current liabilities
Total liabilities
Common shares
Retained earnings
Net sales (100% on account)
Cost of goods sold
Operating expenses excluding amortization
Amortization
Interest expense
Income tax
Net income
Common dividends declared and paid
Page 36
December 31
Year 10
Year 9
$ 87
$ 111
40
50
180
190
432
366
640
800
1,379
1,517
455
517
695
837
500
500
184
180
$1,800
1,080
468
160
19
29
44
40
$1,900
1,045
412
200
26
87
130
60
CMA Canada
93.
What is the quick ratio for Year 10?
a)
b)
c)
d)
e)
94.
3.03
0.44
1.62
1.98
0.67
What is the merchandise inventory turnover in days (using 365 days in a year) for RCL
Inc. Corporation in Year 10?
a) 74 days
b) 135 days
c) 81 days
d) 124 days
e) 202 days
95.
What is the times interest earned for Year 10?
a) 4.8 times
b) 37.9 times
c) 2.3 times
d) 16.8 times
e) 3.3 times
96.
What is the total debt-to-equity ratio for Year 10?
a)
b)
c)
d)
e)
1.39
1.02
0.35
0.50
3.78
------------------------------97.
Which of the following is the LEAST DIFFICULT to determine for interim reporting?
a) Accounting estimates that are as accurate as those used in the preparation of annual
financial statements.
b) Income tax expense, where earnings fluctuate from one interim period to another.
c) Amortization expense, where the annual charge is based on month-end balances.
d) Inventory values, where a complete physical count and examination for
obsolescence has not occurred.
e) Management bonuses that are based on annual performance.
CMA Canada
Page 37
98.
According to generally accepted accounting principles, an industry segment must be
disclosed separately if the
a) industry segment is completely unrelated to the major revenue producing activity of
the organization.
b) industry segment is operating in a foreign country.
c) industry segment’s revenue is equal to ten percent of the total segment revenue of
the organization.
d) industry segment’s operating profit is identifiable.
e) industry segment results from vertical integration.
99.
Which of the following is NOT a valid reason for harmonizing global accounting
standards?
a)
b)
c)
d)
e)
Page 38
To increase comparability of financial statements.
To increase the ability to reflect an entity’s unique circumstances.
To increase the understandability of financial statements.
To reduce the number of alternative accounting treatments.
To increase a stock exchange’s ability to attract international business.
CMA Canada
FRC Ltd. is a foreign company and is a subsidiary of a Canadian company. At the end of the
first fiscal year (December 31), the following balances appeared on FRC Ltd.’s financial
statements denominated in the host country’s foreign currency (FC):
Accounts receivable (A/R)
Inventory (FIFO basis)
Capital assets
Bonds payable
Sales
Purchases
85,000 FC
55,000 FC
500,000 FC
250,000 FC
960,000 FC
625,000 FC
45,000 FC
Other Information:
1) Accounts receivable (A/R) relates to sales that occurred evenly over the 4th quarter.
2) The goods in inventory at year end were purchased evenly over the 4th quarter.
3) Capital assets were purchased and bonds were issued on January 1.
4) Sales, purchases and expenses occurred evenly throughout the year.
5) Exchange rates were as follows:
January 1
December 31
Average for the year
Average for the 4th quarter
100.
(+) If FRC Ltd. is financially and operationally dependent on its Canadian parent, the
amounts that should appear on the translated year-end financial statements of FRC Ltd.
(in Canadian dollars) are
a)
b)
c)
d)
e)
101.
1 FC = $ CDN
0.85
0.70
0.82
0.73
inventory $40,150, capital assets $425,000, sales $787,200.
(+) If FRC Ltd. is financially and operationally independent of its Canadian parent, the
amounts that should appear on the current year’s translated financial statements of FRC
Ltd. (in Canadian dollars) are
a)
b)
c)
d)
e)
A/R $59,500, cost of goods sold $472,350, amortization expense $38,250.
CMA Canada
Page 39
102.
The CC Association is a not-for-profit organization that provides counselling services to
children. It is a small community organization with annual revenues of $200,000. Which
of the following accounting practices followed by CC Association is NOT in accordance
with generally accepted accounting principles?
a) Transfers between funds are reported in the statement of changes in net assets, but
not in the statement of operations.
b) Pledges and bequests are recorded as receivables in the statement of financial
position when they are made and are written off only after they have been proven to
be uncollectible.
c) Restricted contributions to the general fund are accounted for in accordance with the
deferral method.
d) Furniture and equipment are expensed when acquired; this policy is disclosed in the
notes.
e) Services donated by professional child counsellors are not recorded in the statement
of operations; this policy and the estimated fair value of these services are disclosed
in the notes.
103.
The XYZ Society (XYZ) has been growing and now has annual net revenues in excess
of $800,000. During the past year, XYZ moved to larger offices and one of its members
donated some of his own business office furniture which had a market value of $3,000
and a book value of $5,000. To expand the useful life of the furniture, XYZ had it
refurbished at a cost of $1,000. According to generally accepted accounting principles,
how should XYZ report the furniture on its financial statements?
a) It should be recorded as a capital asset on the statement of financial position at a
value of $1,000.
b) It should be recorded as a capital asset on the statement of financial position at a
value of $4,000.
c) Because the furniture was donated, it should not be recorded as an asset and the
$1,000 refurbishment cost should be expensed.
d) It should be recorded as a capital asset on the statement of financial position at a
value of $6,000.
e) It should be recorded as a capital asset on the statement of financial position at a
value of $3,000 and the $1,000 refurbishment cost should be expensed.
104.
CLC is a not-for-profit organization that helps children improve their literacy and uses
fund accounting to report its activities. Mr. Donovan donated $250,000 to CLC to be
used to finance a specific event to promote children’s literacy. In which of the following
funds would CLC record the donation?
a)
b)
c)
d)
e)
Page 40
General fund.
Special (reserve) fund.
Capital fund.
Fiduciary fund.
Endowment fund.
CMA Canada
105.
Which of the following best describes the purpose of encumbrance accounting?
a) Keep track of restricted resources.
b) Highlight variances from the planned use of unrestricted funds.
c) Prevent the issuing of purchase orders when there are no uncommitted budgeted
amounts.
d) Match revenues with related expenses.
e) Convey information through the financial statements about the restrictions placed on
the organization’s resources.
106.
Which of the following describes a difference between accounting for not-for-profit
organizations (NPOs) and governments?
a) NPOs should comply with the accounting recommendations specified for NPOs in
the CICA Handbook, whereas governments should comply with those issued by the
Public Sector Accounting Board.
b) NPOs use fund accounting, whereas governments use program accounting.
c) NPOs may have funds that are restricted for specific purposes, but governments do
not have specific restricted funds.
d) NPOs may use different accounting policies for different funds, but governments
must use the same accounting policies.
e) None of the above.
Taxation
107.
In order for a taxpayer to exchange shares in Corporation A for shares in Corporation B
for tax deferral purposes, which of the following conditions must apply?
a) The transferred shares of the taxpayer must be capital property.
b) Immediately prior to the exchange, the taxpayer and Corporation B must be dealing
with each other at arm’s length.
c) Immediately after the exchange, the taxpayer must control Corporation B.
e) All of a), b) and c) above.
CMA Canada
Page 41
108.
(+) The following is a condensed income statement for a Canadian-controlled private
corporation for the year ended December 31, Year 7 (in ’000s):
Sales
Cost of goods sold
Salaries and wages
Amortization
Advertising and promotion
Miscellaneous
Income before income taxes
Income taxes
Net income
$9,500
$4,200
500
800
700
1,000
7,200
2,300
920
$ 1,380
Other information:
1. The cost of goods sold includes inventory valued using the LIFO method. The value
of inventory using the LIFO and FIFO methods are as follows (in ’000s):
Opening inventory
Ending inventory
LIFO
$125
$145
FIFO
$140
$155
2. The company claims the maximum allowable capital cost allowance (CCA) each
year. No capital assets were purchased or disposed of during Year 7. Undepreciated
capital cost balances at the beginning of the year (in ‘000s):
Class 8 (20% CCA rate)
Class 10 (30% CCA rate)
$1,950
$1,300
3. The miscellaneous expenses include the following (in ‘000s):
Interest on income taxes paid after due date
Interest with respect to the acquisition of 80% of the
shares of another Canadian corporation
Contribution to a registered federal political party
$50
$15
$10
What is the taxable income for the company for Year 7 (in ’000s)?
a)
b)
c)
d)
e)
Page 42
$2,375
$2,385
$2,325
$2,390
$2,370
CMA Canada
109.
Ted Graves is planning to invest in preferred shares of taxable Canadian corporations.
These shares pay a dividend of $10,000 annually. The amount of federal income tax that
Ted will pay on this income in 2005 (assuming he is in the top federal tax bracket of
29%, surtaxes are ignored) is
a)
b)
c)
d)
e)
110.
A profitable company buys a depreciable class 8 asset (i.e. 20% CCA rate) for $500,000
at the beginning of Year 1. The company uses straight-line amortization for capital
assets. This asset has an expected useful life of 8 years and has an estimated residual
value of $50,000 at the end of 8 years. At the beginning of Year 3, the company sold this
asset, which was the last asset in this class held by the company, for $370,000. What is
the effect of this sale on the company’s Year 3 taxable income?
a)
b)
c)
d)
e)
111.
$2,900.
$967.
$1,958.
$1,208.
$3,625.
$46,000 recapture
$17,500 terminal loss
$50,000 recapture
$80,000 terminal loss
$10,000 recapture
During Year 3, Donna Wilson changed jobs and moved from the east coast of Canada to
the west coast. Donna began her new position, which pays $60,000 per year, on May 1.
She incurred the following expenses related to the move:
Mortgage penalty on selling house in east coast
Legal and real estate fees to sell house in east coast
Expenses to transport household belongings
Legal and land transfer costs re new house in west coast
Home decorating to sell ($2,000) and buy ($2,000)
$2,000
$12,000
$14,000
$7,000
$4,000
Donna’s new employer provided her with a moving allowance of $20,000. Donna’s
income in Year 3 included $18,000 employment income from her previous employer and
$40,000 employment income from her new employer. What is the maximum amount that
Donna can deduct from her income in Year 3 for moving expenses?
a)
b)
c)
d)
e)
$15,000
$13,000
$19,000
$17,000
$0
CMA Canada
Page 43
112.
Which of the following statements about the small business deduction is FALSE?
a) A corporation must be a Canadian-controlled private corporation throughout the year
to qualify for the small business deduction.
b) The small business deduction is a deduction used in determining income for tax
purposes.
c) Foreign income not taxed in Canada is removed from the base on which the small
business deduction is calculated.
d) The benefits of the small business deduction are also available for large Canadiancontrolled private corporations that have taxable capital employed in Canada of up to
$15 million.
e) The business limit must be allocated among associated companies for the purpose
of determining the small business deduction for each company.
113.
Which of the following is taxable at 6% under the goods and services tax (GST) [or
taxable at 14% under the harmonized sales tax (HST)]?
a)
b)
c)
d)
e)
114.
Prescription drugs.
Bank service charges.
Rent on residential apartments.
Fees for consulting services.
Exported goods and services.
Control of SWM Ltd., a Canadian-controlled private corporation, has been acquired by a
non-related person who will operate the company in the same business as before. On
the date that control was acquired, SWM Ltd. had net capital losses and non-capital
losses for tax purposes available to carry forward. The non-capital losses included
losses from carrying on a business, property losses, and allowable business investment
losses. Which of the following will SWM Ltd. be allowed to carry forward to apply to
future business income or future capital gains?
a) The net capital losses.
b) All of the non-capital losses.
c) Only the non-capital losses from carrying on a business and the allowable business
investment losses.
d) Only the non-capital losses from carrying on a business.
e) Both a) and b) above.
End of Examination
Page 44
CMA Canada
Solution to 2007 Sample Entrance Examination
Answer Summary:
1
e
26
a
51
e
76
a
101
d
2
c
27
d
52
e
77
d
102
b
3
c
28
a
53
e
78
c
103
b
4
a
29
c
54
c
79
a
104
b
5
c
30
a
55
b
80
b
105
c
6
c
31
a
56
d
81
e
106
a
7
a
32
d
57
c
82
b
107
d
8
b
33
e
58
d
83
d
108
a
9
d
34
c
59
b
84
e
109
c
10
e
35
b
60
e
85
d
110
e
11
c
36
b
61
d
86
c
111
a
12
a
37
c
62
d
87
b
112
b
13
d
38
e
63
d
88
c
113
d
14
e
39
e
64
e
89
a
114
d
15
c
40
d
65
c
90
e
16
b
41
b
66
a
91
b
17
d
42
b
67
b
92
e
18
a
43
e
68
c
93
e
19
e
44
d
69
e
94
b
20
d
45
d
70
e
95
a
21
c
46
b
71
b
96
b
22
a
47
c
72
a
97
c
23
e
48
a
73
e
98
c
24
a
49
c
74
b
99
b
25
d
50
b
75
d
100 a
CMA Canada
Page 45
Management Accounting
1.
Answer: e.
Although management accounting and financial accounting rely on the same underlying
financial data, they have different goals. Management accounting measures and reports
financial and non-financial information to individuals inside the organization to help them
make decisions to fulfill the goals of the organization. Management accounting
information helps interested parties, such as senior executives, middle managers, and
workers make good decisions about the organization’s financial, physical and human
resources as well as its products, services, processes, suppliers and customers.
Financial accounting measures and records business transactions and provides financial
statements that are based on GAAP mainly to individuals outside the organization.
Users of management accounting are more interested in the relevance of the information
than the precision of the information.
Choice a) – Users of management accounting information are more interested in the
timeliness of the information, whereas users of financial accounting
information are more interested in the precision, objectivity, and verifiability
of the information.
Choice b) – Although an organization’s management (users of management accounting
information) recognizes that government regulations must be adhered to in
making operational decisions, regulators and auditors (users of financial
accounting information) focus on whether the organization has adhered to
government regulations.
Choice c) – Financial accounting information communicates to stakeholders the
consequences of past decisions and process improvements made by
management. Management accounting information communicates
information to employees to help them make good decisions.
Choice d) – Users of financial accounting information, such as shareholders and
potential investors, compare the income and assets of various companies to
assess the relative returns and risks associated with investment
opportunities pertaining to the organization.
2.
Answer: c.
Line managers are directly responsible for the achievement of the objectives of the
organization. For example, a plant manager who is responsible for making investments
in new equipment is considered to be a line manager. Staff management, however,
exists to provide advice and assistance to line managers. Therefore, choice c) pertains
to staff management and choices a) and b) pertain to line management.
3.
Answer: c.
The management accountant should ensure that the potential risks associated with a
proposal be considered as well as the potential rewards. It would not be ethical to show
only the most favourable potential outcomes of a proposal. To do so, even at the request
of the division manager, compromises the management accountant’s competence,
objectivity and integrity.
Choice a) – Delaying an expensive advertising campaign does not represent an ethically
questionable action and could be a reasonable option in the circumstances.
Even if the advertising expenditure was not delayed, it could be argued that
Page 46
CMA Canada
the matching principle would support expensing the advertising costs in the
next fiscal year, if the impact on sales is likely to be felt only in the next
fiscal year.
Choice b) – Supporting a supplier that has practices that are detrimental to the
ecological environment by accepting their bid would be unethical, even if the
bid is the least expensive and of the highest quality.
Choice d) – This represents a correct response to a suspicion of a co-worker committing
an unethical act.
Choice e) – Increasing performance incentives is a legitimate option for management to
consider in the situation and does not represent an ethically questionable
action.
4.
Answer: a.
Direct materials used ($30,000 + $82,000 - $37,000)
Direct labour used
Factory overhead applied ($60,000/$15 x $10)
Total manufacturing costs incurred
Work in process inventory – March 1
Work in process inventory – March 31
Cost of goods manufactured
Finished goods inventory – March 1
$ 75,000
60,000
40,000
175,000
12,000
(18,000)
169,000
72,000
Cost of goods available for sale
$241,000
Choice b) – Cost of goods manufactured of $169,000
Choice c) – Cost of goods sold: $241,000 - $93,000 = $148,000
Choice d) – This equals the total manufacturing costs plus the opening work in process:
$175,000 + $12,000 = $187,000
Choice e) – Total manufacturing costs of $175,000
5.
Answer: c.
Variable cost per unit = $5 + $4 + (.75 x $4) = $12
Total contribution margin = ($17 - $12) x 5,000 = $25,000
Gross margin = $25,000 - $16,500 = $8,500
Choice a) – Incorrect calculation of variable overhead and ignores fixed overhead:
($17 - $5 - $4 - $0.75) x 5,000 = $36,250
Choice b) – Ignores variable overhead: ($17 - $5 - $4) x 5,000 - $16,500 = $23,500
Choice d) – Incorrect calculation of variable overhead:
($17 - $5 - $4 - $0.75) x 5,000 - $16,500 = $19,750
Choice e) – Contribution margin of $25,000
CMA Canada
Page 47
6.
Answer: c.
There are 4,000 + 21,000 = 25,000 units to account for:
Accounted
For
Material A
Completed & sold
19,000
19,000
Normal spoilage (19,000 x 5%)
950
950
Abnormal spoilage (2,500 - 950)
1,550
1,550
Ending WIP (60% complete)
3,500
3,500
25,000
25,000
Choice a) – Uses the first-in, first out (FIFO) method:
Accounted
For
Material A
Completed & sold:
From beginning WIP
4,000
0
Started & completed
15,000
15,000
950
950
Abnormal spoilage (2,500 - 950)
1,550
1,550
3,500
3,500
25,000
21,000
Material B Conversion
19,000
19,000
0
950
0
1,550
0
2,100
19,000
23,600
Material B Conversion
4,000
15,000
0
0
0
19,000
1,000
15,000
950
1,550
2,100
20,600
Choice b) – Material A = FIFO equivalent units (21,000); Material B = 19,000 good units
completed and sold - 4,000 beginning inventory = 15,000; Conversion
= 1,000 + 15,000 + 2,100 = 18,100 (ignores spoilage)
Choice d) – Material A = weighted average equivalent units (25,000); Material B
= 21,000 units started; Conversion = 19,000 + 2,100 = 21,100 (weighted
average without spoilage)
Choice e) – Uses 19,000 units completed and sold as equivalent units for everything
7.
Answer: a.
Completed & sold:
From beginning WIP
Started & completed
Abnormal spoilage (2,500 950)
Equivalent units
Costs added during Year 10
Cost per equivalent unit
Page 48
Accounted
For
Material A
Material B
Conversion
4,000
15,000
950
1,550
0
15,000
950
1,550
4,000
15,000
0
0
1,000
15,000
950
1,550
3,500
25,000
3,500
21,000
0
19,000
2,100
20,600
$5,573,800
$2,415,000
$161,500
$2,997,300
$269.00
$115.00
$8.50
$145.50
CMA Canada
Beginning work in process
Material B to complete beginning WIP (4,000 x $8.50)
Conversion to complete beginning WIP (1,000 x $145.50)
Units started and completed (15,000 x $269.00)
Normal spoilage [950 x ($115.00 + $145.50)]
$ 884,700
34,000
145,500
4,035,000
247,475
$5,346,675
Choice b) – Ignores costs of normal spoilage: 19,000 x $268.50 = $5,101,500
Choice c) – Uses the weighted-average method:
Accounted
For
Material A
Completed & sold
19,000
19,000
Normal spoilage
950
950
Abnormal spoilage
1,550
1,550
Ending WIP
3,500
3,500
Equivalent units
25,000
25,000
Material B
19,000
0
0
0
19,000
Conversion
19,000
950
1,550
2,100
23,600
Total costs during Year 10
$161,500
$3,422,000
Cost per equivalent unit
$2,875,000
$268.50
$115.00
$8.50
$145.00
Costs of good units completed and sold = 19,000 x $268.50 = $5,101,500.
Normal spoilage = 950 x ($115 + $145) = $247,000
Total cost of units completed and sold = $5,101,500 + $247,000 = $5,348,500.
Choice d) – Uses units to account for as denominator:
Cost per equivalent units = $6,458,500/25,000 = $258.34
Cost of units completed and sold = (19,000 x $258.34) + [950 x ($258.34 $8.50)] = $4,908,460 + $237,348 = $5,145,808.
Choice e) – Uses units to account for as denominator and ignores normal spoilage:
Cost per equivalent units = $6,458,500/25,000 = $258.34
Cost of units completed and sold = 19,000 x $258.34 = $4,908,460.
8.
Answer: b.
Sales price per litre before refining
Output at split-off (litres)
Sales value at split-off
A
B
$20
$25
2,500
1,600
$50,000 $40,000
C
$10
3,000
$30,000
Total
7,100
$120,000
Joint costs to allocate = $25,000 + $35,000 = $60,000
Joint costs allocated to Chemical B = $60,000 x ($40,000/$120,000) = $20,000
Choice a) uses cost of refining (i.e. $28,000 + $10,000 + $12,000 = $50,000):
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Choice c) uses estimated net realizable value method:
A
B
Sales price per litre after refining
$35
$40
Output after refining (litres)
2,300
1,500
Final sales value
$80,500 $60,000
Less: Costs of refining (separable costs) $28,000 $10,000
Net realizable value
$52,500 $50,000
C
$18
2,700
$48,600
$12,000
$36,600
Total
6,500
$189,100
$50,000
$139,100
= $21,600 (rounded)
Choice d) uses the physical measures method:
$60,000 x (1,600/7,100) = $13,521 = $13,500 (rounded)
Choice e) uses final sales value:
= $19,000 (rounded)
9.
Answer: d.
The joint process costs are irrelevant to the decision.
Revenue from sales of refined Chemical A = 2,300 litres x $35 =
Revenue from sales of unrefined Chemical A = 2,500 litres x $20 =
Incremental revenue
Cost of refining 2,500 litres of Chemical A
Cost of disposing by-product = 200 litres x $5 =
Increase in profits
$80,500
50,000
30,500
(28,000)
(1,000)
$ 1,500
Choice a) incorrectly calculates incremental revenue:
Incremental revenue = ($35 - $20) x 2,300 litres of output = $34,500
Incremental profits = $34,500 - $28,000 - $1,000 = $5,500 increase.
Choice b) uses $5 per litre of input as cost of disposal of by-product:
Incremental revenue of $30,500 minus $28,000 cost of refining minus $12,500 cost of
disposal of by-product (i.e. $5 x 2,500 litres) = $(10,000).
Choice c) neglects the cost of refining:
Incremental revenue of $30,500 minus $1,000 cost of disposing by-product = $29,500.
Choices e) deducts joint costs:
Joint costs allocated to Product C using the physical measures method
= $60,000 x (2,500/7,100) = $21,127.
Correct incremental profit less joint costs = $1,500 - $21,127 = $(19,627)
= $(19,600) rounded
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CMA Canada
10.
Answer: e.
Department 1 overhead applied = $180,000/40,000 MH x 36,000 MH = $162,000
Department 2 overhead applied = $360,000/90,000 DLH x 94,000 DLH = $376,000
Actual - Applied = ($179,000 - $162,000) + ($368,000 - $376,000)
= $17,000 underapplied + $8,000 overapplied = $9,000 underapplied
Choice a) – Uses budgeted overhead instead of actual overhead:
Budgeted - Applied = ($180,000 - $162,000) + ($360,000 - $376,000)
= $18,000 underapplied + $16,000 overapplied
= $2,000 underapplied
Alternative calculation for choice a):
Department 1: (40,000 - 36,000) x ($180,000/40,000) = $18,000
underapplied; Department 2:(90,000 - 94,000) x ($360,000/90,000)
= $16,000 overapplied; Total for the year = $18,000 - $16,000
Choice b) – Uses the difference between actual and budget: ($179,000 - $180,000) +
($368,000 - $360,000) = $1,000 overapplied + $8,000 underapplied
Choice c) – Uses actual overhead to determine budgeted rate: [$179,000 ($179,000/40,000 x 36,000)] + [$368,000 - ($368,000/90,000 x 94,000)]
Choice d) – Uses DLH for Department 1 and MH for Department 2: [$179,000 ($180,000/60,000 x 55,000)] + [$368,000 - ($360,000/60,000 x 62,000)]
11.
Answer: c.
Normal costing uses actual direct costs and allocates indirect costs based on the
budgeted indirect-cost rate times the actual quantity of the cost-allocation base.
Department 1 budgeted overhead rate = $180,000/40,000 MH = $4.50 per MH
Department 2 budgeted overhead rate = $360,000/90,000 DLH = $4.00/DLH
Job 669 overhead = ($4.50 x 5,000 MH) + ($4.00 x 3,000 DLH) = $22,500 + $12,000
= $34,500
Choice a) – Bases Department 1 overhead rate on DLH: ($180,000/60,000 DLH x
1,000 DLH) + $12,000 = $3,000 + $12,000 = $15,000
Choice b) – Bases Department 1 overhead rate on DLH and Department 2 rate on MH:
($180,000/60,000 DLH x 1,000 DLH) + ($360,000/60,000 MH x 2,500 MH)
= $3,000 + $15,000 = $18,000
Choice d) – Bases Department 2 overhead rate on MH: $22,500 +
($360,000/60,000 MH x 2,500 MH) = $22,500 + $15,000 = $37,500
Choice e) – Uses actual costs to determine overhead rates: [($179,000/40,000 MH) x
5,000 MH] + [($368,000/94,000 DLH) x 3,000 DLH] = $22,375 + $11,745
= $34,120
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12.
Answer: a.
Direct variable costs = $9 + $12 + $15 + $6 = $42
Profit/loss = 70,000 x ($72 - $42) - $1,800,000 - $600,000 = $2,100,000 - $2,400,000
= $300,000 loss
Choice b) – Uses budgeted income per unit: 70,000 x $6 = $420,000 profit
Choice c) – Uses standard absorption costing: 70,000 x [$72 - ($9 + $12 + $15 +$18)] (70,000 x $6) - $600,000 = $240,000 profit
Choice d) – Uses contribution margin only: 70,000 x $30 = $2,100,000 profit
Choice e) – Ignores inventory: (70,000 x $72) - (100,000 x $54) - (70,000 x $6) $600,000 = $1,380,000 loss
13.
Answer: d.
100,000 units sold - 70,000 units produced = 30,000 units in inventory
Inventory under absorption costing includes a portion of fixed manufacturing costs,
whereas no fixed manufacturing costs are inventoried under direct costing. Therefore,
income would be 30,000 x $18 = $540,000 higher under absorption costing than under
direct costing.
Choice a) – Correct amount, wrong direction
Choice b) – Assumes the absorption costing method included fixed selling and general
costs in inventory: 30,000 x ($18 + $6) = $720,000
Choice c) – Assumes the direct costing does not include any factory overhead in
inventory: 30,000 x ($15 + $18) = $990,000
Choice e) – Same as b), except in the opposite direction
14.
Answer: e.
ABC highlights how different products and services use different amounts of resources
of each activity area. These differences help explain to product designers why one
product costs less than another, which could result in designing products that minimize
such things as non-value added activities. Therefore, statement e) is true.
Choice a) – ABC is useful in costing services as well as products. Therefore, this
statement is false.
Choice b) – The cost drivers for indirect costs under ABC are usually different from
those that drive direct costs. Therefore, this statement is false.
Choice c) – This statement describes the two-step service department cost allocation
method. ABC develops the idea of cost drivers that directly link the activities
performed to the products manufactured. Therefore, this statement is false.
Choice d) – One of the drawbacks of ABC is that it is relatively difficult to implement.
Therefore, this statement is false.
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CMA Canada
15.
Answer: c.
Direct materials
Machine set up (3 x $180/60)
Materials handling ($15 x 35)
Milling ($50 x 6)
Assembly ($30 x 4)
Manufacturing cost per unit
$ 140
9
525
300
120
$1,094
Price to achieve gross margin of 35% = $1,094/.65 = $1,683 (rounded).
Choice a) – Gross margin percentage is applied incorrectly: $1,094 x 1.35 = $1,477
(rounded)
Choice b) – Direct materials costs are not included in manufacturing costs: ($9 + $525 +
$300 + $120)/.65 = $954/.65 = $1,468 (rounded)
Choice d) – Cost of $1,094, i.e. markup is not applied
Choice e) – Gross margin percentage is applied incorrectly: $1,094/.35 = $3,126
(rounded)
16.
Answer: b.
Hybrid costing blends characteristics from both job-costing and process-costing
systems. In hybrid costing, the products manufactured have features of custom-ordered
and mass-production manufacturing. Because Downward Ltd. mass produces the
components and then manufactures customized products using these components, a
hybrid costing system would be most appropriate.
Choice a) – A Kaizen costing system incorporates continuous improvement during the
budget period. Budgeted costs are steadily reduced during the period,
thereby requiring the company to seek out cost-reduction opportunities
continuously.
Choice c) – Product life cycle costing tracks and accumulates the actual costs
attributable to each product from start to finish, including initial R&D to final
customer servicing & support in the marketplace.
Choice d) – Backflush costing is appropriate where the amounts of work in process are
small, such as with just-in-time production. Because inventories are
minimized in such a system, the need to track costs at the various stages of
production is not required.
Choice e) – In a target costing system, the estimated long-run cost per unit of a product
is set at an amount that, when the product is sold at the target price,
enables the company to achieve the target operating income per unit.
17.
Answer: d.
Service department costs are allocated directly to the production departments under the
direct allocation method as follows:
Quality control: $350,000 × (21,000/28,000) =
Maintenance:
$200,000 × (18,000/30,000) =
Total service department costs allocated to Machining department
$262,500
120,000
$382,500
Choice a) – Includes machining department costs: $382,500 + $400,000 = $782,500
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Choice b) – Uses incorrect denominators (total hours): [$350,000 x (21,000/35,000)] +
[$200,000 x (18,000/40,000)] = $300,000
Choice c) – Represent the allocated maintenance costs of $120,000 only
Choice e) – Represents the allocated quality control costs of $262,500 only
18.
Answer: a.
The step-down allocation method allows for partial recognition of services rendered by
service departments to other service departments. This is done by allocating one service
department’s costs to another before allocating the second service department’s costs to
the production departments. The allocation of Quality Control department costs to the
Machining department is calculated as follows:
[$350,000 + ($200,000/40,000 × 10,000)]/28,000 × 21,000 = $300,000
Choice c) – Uses the wrong allocation rate: [($200,000 x 7,000/35,000) +
$350,000]/30,000 x 18,000 = $234,000
Choice e) – Reciprocal method: Quality Control cost (QC) = $350,000 + (10,000/40,000)
x [$200,000 + (7,000/35,000) x QC] = $400,000 + .05QC = $400,000/.95
= $421,053
Allocation to Machining = (21,000/60,000) x $421,053 = $252,632
Choice d) – Ignores costs of maintenance and uses wrong denominator:
$350,000/35,000 x 21,000 = $210,000
Choice e) – Direct method: $350,000 x (21,000/28,000) = $262,500
19.
Answer: e.
Selling price
Direct labour ($15.00 x .2)
Material A ($0.80 x 2)
Material B
Variable selling & admin. ($12,500/25,000)
Contribution margin
$13.50
$3.00
1.60
2.40
0.50
7.50
$ 6.00
Choice a) – Does not include variable selling and admin. costs: $13.50 - ($3.00 + $1.60
+ $2.40) = $6.50
Choice b) – Gross margin: $13.50 - $6.50 - ($50,000/25,000) = $4.50
Choice c) – Uses only one gram of material A instead of 2 grams: $13.50 - ($3.00 +
$0.80 + $2.40 + $0.50) = $6.80
Choice d) – Deducts fixed factory overhead: $13.50 - $7.50 - ($50,000/25,000) = $4.00
20.
Answer: d.
Let x be the number of units to produce and sell.
[($24 - $16)x - $48,000] × .6 = $14,400
($24 - $16)x = ($14,400 ÷ .6) + $48,000
$8x = $72,000
x = 9,000
Choice a) –
Choice b) –
Choice c) –
Choice d) –
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Ignores the tax effect: ($14,400 + $48,000)/$8 = 7,800
Divides by the tax rate: [($14,400/0.4) + $48,000]/$8 = 10,500
Ignores the selling price per unit: $72,000/$16 = 4,500
Ignores the variable cost per unit: $72,000/$24 = 3,000
CMA Canada
21.
Answer: c.
Contribution margin per unit of regular production:
Price
$1,800
Variable costs:
Direct materials
$240
Laser machine (5 x $20)
100
Image machine (2 x $25)
50
Variable overhead
280
670
$1,130
At maximum capacity, 1,000 units of product can be produced (i.e. 5,000/5 = 1,000;
2,000/2 = 1,000)
Available capacity = 15% x 1,000 = 150 units.
Therefore, WCL must forgo 360 - 150 = 210 units of regular sales in order to accept the
offer.
Opportunity cost = $1,130 x 210 = $237,300.
Choice a) –
Choice b) –
Choice d) –
Choice e) –
22.
Uses revenue only: $1,800 x 210 units = $378,000
Uses full cost: ($1,130 - $250) x 210 = $184,800
Uses incremental revenue and 360 units: ($1,800 - $1,650) x 360 = $54,000
Uses all 360 units: $1,130 x 360 = $406,800
Answer: a.
Contribution margin per unit from Company L = $1,650 - $670 = $980.
Total contribution margin from Company L ($980 x 360)
Less cost of leased machinery to increase capacity
Total increase in income from Company L’s offer
$352,800
120,000
$232,800
Choice b) – Uses full cost: ($1,650 - $670 - $250) x 360 - $120,000 = $142,800
Choice c) – Incorrect calculation: $120,000 increased fixed cost + [($1,800 - $1,650) x
360 = $54,000] incremental revenue for 360 units = $174,000 decrease in
income.
Choice d) – Deducts incremental revenue for 360 units: $232,800 - $54,000 = $178,800
Choice e) – Treats all costs as fixed: ($1,650 x 360) - $120,000 = $474,000
23.
Answer: e.
Using the high-low method:
Variable cost per unit = ($680,000 - $600,000)/(100,000 - 80,000) = $4
Contribution margin per unit = $10 - $4 = $6
Choice a) – Uses direct materials and direct labour only: $10.00 - $2.50 = $7.50
Choice b) – Equals the variable cost of $4
Choice c) – Incorrect calculation of variable costs: VC = $2.50 + [($350,000/80,000) ($380,000/100,000)] = $3.075; CM = $10.00 - $3.075 = $6.925
Choice d) – Uses unit cost at 100,000 units, excluding amortization: VC = ($150,000 +
$100,000 + $380,000)/100,000 = $6.30; CM = $10.00 - $6.30 = $3.70
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Page 55
24.
Answer: a.
CCA tax shield =
Choice b) –
Choice c) –
Choice d) –
Choice e) –
25.
Neglects the half year rule.
Uses book value of $180,000 for proceeds from old machine.
Uses UCC of old machine of $195,500 for proceeds from old machine.
Uses tax rate of .4 instead of the CCA rate of .3 in the denominator.
Answer: d.
Incremental annual cash outflow = ($680,000 - $50,000) - ($670,000 - $70,000)
= $30,000 savings
Present value of incremental annual cash flows = $30,000 x .60 x 2.487 = $44,766
= $44,800 (rounded).
Choice a) –
Choice b) –
Choice c) –
Choice e) –
26.
($210,000 − $120,000) x .3 x .4 ⎛ 2 + .1 ⎞
⎜⎜
⎟⎟ = $25,773
.1 + .3
⎝ 2(1 + .1) ⎠
Applies tax incorrectly: $30,000 x .4 x 2.487 = $29,844 = $29,800 (rounded)
Neglects taxes: $30,000 x 2.487 = $74,610 = $74,600 (rounded)
Neglects time value of money: $30,000 x 3 = $90,000
Includes amortization: ($680,000 - $670,000) x .6 x 2.487 = $14,922
= $15,000 (rounded)
Answer: a.
RST Ltd. has sufficient capacity to fill the order; therefore, there are no opportunity costs.
Desired contribution margin = $28,000/8,000 units = $3.50/unit.
Variable costs = $8.00 + $0.75 = $8.75.
Therefore, the sales price should be $8.75 + $3.50 = $12.25 per unit.
Choice b) – $20.00 is the regular sales price per unit
Choice c) – $20.00 regular price less $0.75 commission saved less $3.50 fixed selling
and administration = $15.75
Choice d) – ($28,000 + $6,000)/8,000 + ($8.00 + $3.00) manufacturing costs = $15.25
Choice e) – $20.00 regular price - $0.75 saved commission = $19.25
27.
Answer: d.
Total sales = $1,500,000 + $1,300,000 + $3,750,000 = $6,550,000
Total variable costs = $250(5,000) + $1,100(1,000) + $2,000(1,500) = $5,350,000
Weighted average contribution margin = ($6,550,000 - $5,350,000)/7,500 = $160
Breakeven volume = $500,000 fixed costs/$160 = 3,125 total units at last year’s sales
mix.
Big Screen volume = 3,125 x (1,500/7,500) = 625
Alternative calculations:
Contribution margin per unit of Portable = ($1,500,000/5,000) - $250 = $50.
Contribution margin per unit of Sound Around = ($1,300,000/1,000) - $1,100 = $200.
Contribution margin per unit of Big Screen = ($3,750,000/1,500) - $2,000 = $500.
Sales mix = 5 Portable to 1 Sound Around to 1.5 Big Screen.
Contribution margin for one “group” = (5 x $50) + $200 + $1.5 x $500) = $1,200.
Breakeven volume of Big Screen = $500,000 ÷ $1,200 x 1.5 = 625.
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CMA Canada
Choice a) – Incorrect treatment of sales mix: ($500,000 x 1,500/7,500)/$500 CM = 200.
Choice b) – Ignored other lines of televisions: $500,000/($3,750,000/1,500 - $2,000)
= 1,000
Choice c) – Wrong sales mix: $500,000/[($1,500,000/5,000 - $250) + ($1,300,000/1,000
- $1,100) + ($3,750,000/1,500 - $2,000)] = $500,000/750 = 667
Choice e) – Total breakeven volume: $500,000/$160 weighted average CM = 3,125
28.
Answer: a.
Portable: [(5,000 x .6) + (4,000 x .15) + (6,000 x .25)] x [($1,500,000/5,000) - $250]
= 5,100 x $50 = $255,000
Sound Around: [(1,200 x .6) + (1,500 x .15) + (1,000 x .25)] x [($1,300,000/1,000) $1,100] = 1,195 x $200 = $239,000
Big Screen: [(1,600 x .6) + (1,200 x .15) + (1,800 x .25)] x [($3,750,000/1,500) - $2,000]
= 1,590 x $500 = $795,000
Expected profit = $255,000 + $239,000 + $795,000 - $500,000 = $789,000
Choice b) – Profit for scenario 1 only: 5,000 x $50 + 1,200 x $200 + 1,600 x $500 $500,000 = $790,000
Choice c) – Profit for scenario 2 only: 4,000 x $50 + 1,500 x $200 + 1,200 x $500 $500,000 = $600,000
Choice d) – Profit for scenario 3 only: 6,000 x $50 + 1,000 x $200 + 1,800 x $500 $500,000 = $900,000
Choice e) – Average profit for all three scenarios = ($790,000 + $600,000 + $900,000)/3
= $763,334
29.
Answer: c.
The objective function describes the objective of maximizing total contribution margin.
The first constraint represents the Machine 1 capacity constraint, i.e. (0.6X + 0.4Y ≤ 500)
x 10 = 6X + 4Y ≤ 5,000. The second constraint represents the Machine 2 capacity
constraint, i.e. (1.2X ≤ 500) x 5 = 6X ≤ 2,500. The remaining constraints represent the
demand constraints and the non-negativity constraints.
30.
Answer: a.
Increased contribution margin = [(450 - 400) x $1,250] + [(800 - 650) x $1,000] = (50 x
$1,250) + (150 x $1,000) = $62,500 + $150,000 = $212,500
Machine 1 additional hours required: (50 x .6) + (150 x .4) = 30 + 60 = 90
Maximum cost per machine hour = $212,500/90 = $2,361
Choice b) – Uses units instead of hours: $212,500/(50 + 150) = $1,063
Choice c) – Uses selling price instead of contribution margin: [(50 x $2,000) + (150 x
$1,500)]/90 = $3,611
Choice d) – Incorrect calculation of additional machine hours: $212,500/[(50/.6) +
(150/.4)] = $464
Choice e) – Assumes that the Machine 1 constraint is not binding
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31.
Answer: a.
The estimated cash disbursements for inventories are calculated as follows:
Estimated purchases = COGS + Change in inventory
= ($3,000,000 × .75) - $140,000 = $2,110,000
Estimated cash disbursements = Purchases - Change in accounts payable
= $2,110,000 + $240,000 = $2,350,000
Choice b) – Purchases of $2,110,000
Choice c) – Wrong direction of changes in inventory and accounts payable: $2,250,000
- $240,000 + $140,000 = $2,150,000
Choice d) – Wrong direction of change in accounts payable: $2,110,000 - $240,000
= $1,870,000
Choice e) – Cost of good sold: $3,000,000 x .75 = $2,250,000
32.
Answer: d.
Desired ending inventory = 120,000 kilograms x 60% = 72,000 kilograms
Production requirement = 84,000 units x 2.5 = 210,000 kilograms
Budgeted purchases = 210,000 + 72,000 - 120,000 = 162,000 kilograms
Amount for purchases budget = 162,000 x $10 = $1,620,000
Choice a) – Ignores ending inventory: (210,000 - 120,000) x $10 = $900,000
Choice b) – Uses opening inventory price in the calculations: (210,000 x $10) + (72,000
x $10) - (120,000 x $9.90) = $1,632,000
Choice c) – Incorrectly calculates desired ending inventory: [210,000 + (120,000 x .4) 120,000] x $10 = $1,380,000
Choice e) – Incorrect treatment of beginning and ending inventories: [210,000 - 72,000
+ 120,000] x $10 = $2,580,000
33.
Answer: e.
Standard cost per unit = ($200,000 + $500,000 + $80,000 + $160,000)/100,000 units
= $940,000/100,000 = $9.40 per unit
Standard cost of goods sold = $9.40 x 90,000 units sold = $846,000.
Choice a) – Standard cost of units produced plus ending finished goods inventory: $9.40
x (92,000 + 3,000) = $893,000
Choice b) – Budgeted production costs for 100,000 units: $200,000 + $500,000 +
$80,000 + $160,000 = $940,000
Choice c) – Standard cost of goods sold plus ending finished goods inventory: $9.40 x
(90,000 + 3,000) = $874,200
Choice d) – Standard cost of actual units produced: $9.40 x 92,000 = $864,800
34.
Answer: c.
Flexible budget direct labour hours = (40,000/100,000) x 92,000 = 36,800
Standard direct labour rate = $500,000/40,000 = $12.50/DLH
Direct labour efficiency variance = (36,800 - 37,720) x $12.50 = $11,500 unfavourable.
Choice a) – Flexible budget variance: $500,000 - ($12.50 x 37,720)
= $28,500 favourable
Choice b) – Uses standard direct labour cost for units sold: ($12.50 x .4 x 90,000) -
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($12.50 x 37,720) = $21,500 unfavourable
Choice d) – Uses standard direct labour for units sold plus finished goods inventory:
($12.50 x .4 x 93,000) - ($12.50 x 37,720) = $6,500 unfavourable
Choice d) – Direct labour rate variance: ($12.50 x 37,720) - $471,500 = $0
35.
Answer: b.
Fixed factory overhead application rate = $160,000/40,000 DLH = $4.00/DLH*
Standard inputs allowed for actual outputs = (40,000/100,000) x 92,000 = 36,800 DLH
Fixed overhead volume variance = $4 x (36,800 - 42,000*) = $20,800 unfavorable
*The standard fixed overhead rate was based on 42,000 DLH annual practical capacity;
therefore, the budgeted annual fixed overhead cost to be allocated = $42,000 x $4
= $168,000.
Choice a) – Uses units sold instead of units produced: $4 x [(.4 x 90,000) - 42,000]
= $24,000 unfavorable
Choice c) – Flexible budget variance/spending variance: $160,000 - $162,000
= $2,000 unfavourable
Choice d) – Uses budgeted activity of 40,000 DLH: $4 x (36,800 - 40,000)
= $12,800 unfavourable
Choice e) – Uses budgeted activity instead of standard activity allowed for actual
outputs: $4 x (40,000 - 42,000) = $8,000 unfavourable
36.
Answer: b.
Sales volume variance = Budgeted contribution margin x (Actual sales volume Budgeted sales volume)
Regular
$80 x (7,200 - 4,500) =
$216,000 favourable
Majestic
$210 x (4,800 - 5,500) =
147,000 unfavourable
$ 69,000 favourable
Choice a) – Sales price variance: Actual sales volume x (Actual price - Budgeted price)
= [7,200 x ($325 - $300)] + [4,800 x ($700 - $800)] = $300,000 unfavourable
Choice c) – Total sales variance: $5,700,000 - $5,750,000 = $50,000 unfavourable
Choice d) – Uses actual contribution margin: [$87 x (7,200 - 4,500)] + [$117 x (4,800 5,500)] = $153,000 favourable
Choice e) – Sales mix variance: (Actual volume - Actual volume at budgeted mix) x
Budgeted contribution margin = [(7,200 - 5,400) x $80] + [(4,800 - 6,600) x
$210] = $234,000 unfavourable
37.
Answer: c.
Industry volume variance = (Actual market size - Budgeted market size) x Budgeted
market share x Budgeted average contribution margin
= (666,667 - 500,000) x [(4,500 + 5,500)/500,000] x [$1,515,000/(4,500 + 5,500)]
= $505,000 F
Choice a) – Sales quantity variance: [(5,400 - 4,500) x $80] + [(6,600 - 5,500) x $210]
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= $303,000 favourable
Choice b) – Market share variance: [(12,000/666,667) - (10,000/500,000)] x 666,667 x
($1,515,000/10,000) = $202,000 unfavourable
Choice d) – Uses actual market share: (666,667 - 500,000) x [(7,200 + 4,800)/666,667]
x [$1,515,000/(4,500 + 5,500)] = $454,500 favourable
Choice e) – Uses actual average contribution margin: (666,667 - 500,000) x [(4,500 +
5,500)/500,000] x [$1,188,000/(7,200 + 4,800)] = $330,000 favourable
38.
Answer: e.
The actual contribution margin per unit was higher for Regular beds (i.e. $87 actual
versus $80 budget) but was lower for Majestic beds (i.e. $117 actual versus $210
budget). Although more Regular beds were sold, which would have a positive impact on
profits, the significant decrease in the number of Majestic beds sold [the model with the
higher contribution margin – choice a)] and the decrease in the contribution margin per
Majestic bed resulted in a decrease in the actual versus budgeted average contribution
margin [i.e. $99 actual versus $151.50 budget – choice b)] and a decrease in income.
The actual average variable cost per bed of $376 was lower than the budgeted average
variable cost of $423.50, which should have contributed to increasing, not decreasing,
income. Therefore, choice c) is incorrect and choice e) is the correct answer.
39.
Answer: e.
Investment centre managers are concerned with maximizing segment profit as well as
efficient utilization of investment in assets.
Choice a) – An investment centre manager may be responsible for evaluating
alternative capital investments for the organizational segment for which
he/she is responsible, but would not be responsible for evaluating all the
capital investments the organization must make.
Choice b) – This is the responsibility of revenue, profit and investment centre managers.
Choice c) – This is the responsibility of profit and investment centre managers.
Choice d) – This is the responsibility of a revenue centre managers.
40.
Answer: d.
A performance measurement system should relate to the goals of the organization
(choice a), be reasonably objective and easily quantifiable (choice c), and should be
applied consistently and regularly. It should also be designed to balance managers’
attention on both short- and long-term concerns. Otherwise, managers may make
decisions that result in higher current year profit, for example, at the expense of
investments that would result in even greater profits in future years. Therefore, choice b)
is not appropriate and choice d) is correct.
41.
Answer: b.
ROI Division A = $65,000/$400,000 = 16.3%
ROI Division B = $140,000/$850,000 = 16.5%
RI Division A = $65,000 - ($400,000 x .15) = $5,000
RI Division B = $135,000 - ($850,000 x .15) = $7,500
Division B has a higher ROI and RI.
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42.
Answer: b.
In transfers between divisions located in different countries, the company should give
prime consideration to the overall profit of the firm while also respecting the laws of the
countries. Differential tax rates, tariffs, customs duties, and governments incentives are
some of the factors that would influence the decision for setting transfer prices that
would maximize overall company profits.
Choice a) – In order to respect the laws of the countries, the transfer price must often be
set at the fair market value of the product.
Choice c) – Minimizing custom duties is one of the factors that influence overall
company profits. Sometimes there is a trade-off between the cost of excise
duties and the cost of taxes in determining the overall effect of transfers on
company profits.
Choice d) – Overall company profits may be maximized by minimizing, rather than
maximizing, foreign subsidiary net income after taxes.
43.
Answer: e.
Division Y is evaluated as a profit centre; therefore, the maximum price it should be
willing to accept is one that would result in no change to its profits. Currently, Division Y
pays $127 per delivered component (i.e. $125 + $2 delivery = $127). Since there are no
delivery costs from Division X, Division Y should be willing to pay up to $127 per
component. Choice a) would result in decreased profits for Division Y and would
therefore not be acceptable. Choices b), c) and d) would all increase Division Y’s profits
and would therefore be acceptable to Division Y.
44.
Answer: d.
There is a risk of using a discount rate that is too low because quite often not-for-profit
organizations use an arbitrary rate.
Choices a), b), and c) are common problems faced by both profit and not-for-profit
organizations and therefore are incorrect. Choice d) is correct, therefore, choice e) is not
correct.
Corporate Finance
45.
Answer: d.
The treasurer is responsible for making and implementing financial decisions,
specifically those decisions that involve the acquisition, management and financing of a
firm’s resources. Such decisions include choices a), b), c), and e). The treasurer is not,
however, responsible for preparation of financial statements. This task normally falls to
the controller. Choice d) is therefore the correct answer.
46.
Answer: b.
The shareholders of large public companies are usually not directly involved with the
day-to-day operations of a company and, instead, employ managers to represent the
owners’ interests and make decisions on their behalf. Therefore, the vice-president of
finance is mainly concerned with maximizing the current market value of the company’s
existing shares. The market value of the company’s shares is a reflection of the present
value of future cash flows.
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Choice a) – Minimizing the risks taken by the company could result in profitable projects
being overlooked by management. This could result in sacrificing growth
potential, which could have a negative effect on share price.
Choice c) – Maximizing the size (i.e. asset value) of the company could lead to
decisions that could have a negative effect on share price and shareholder
wealth. For example, a company could pay an excessive amount for
another firm in an effort to increase the acquiring company’s size, but
because the amount paid was excessive, the value of its shares could go
down instead of up.
Choice d) – Maximizing accounting profit is not the same as maximizing cash flow. It is
cash flow that will ultimately determine the value of the company’s shares.
As well, accounting profit for the current year does not consider the future
profits of the company.
Choice e) – Maximizing current earnings per share is similar to choice d) current
earnings per share reflect the current accounting profit of the company, and
do not consider the future profits of the company or its cash flows.
47.
Answer: c.
The term primary markets refers to the original sale of securities by governments and
corporations. In a primary market transaction, the corporation is the seller and the
transaction raises money for the corporation. An initial public offering is one of the types
of primary market transactions.
Choice a) – Money markets are financial markets where short-term debt securities (not
long-term equity securities) are bought and sold.
Choice b) – Secondary markets are where securities are bought and sold after the
original sale.
Choice d) – A stock exchange is a type of secondary market.
Choice e) – An auction market is a type of secondary market.
48.
Answer: a.
The capital asset pricing model (which is an equation of the securities market line showing
the relationship between expected return and beta) is used to determine the required return
for Avery Inc.’s shares:
Rj = Rf + Bj (Rm - Rf), where Rf = risk-free rate of 5.5%, Bj = beta of 3, and (Rm - Rf) = risk
premium of 12%
Rj = 5.5% + 3 (12%) = 41.5%
Choice b) –
Choice c) –
Choice d) –
Choice e) –
49.
Rj = 5.5% + 12% = 17.5%
Rj = 3 x 12% = 36%
Rj = 5.5% + (12% - 5.5%) x 3 = 25%
Rj = 12% + (5.5% x 3) = 28.5%
Answer: c.
The lenders require an expected net cash inflow of 8% x $100,000 = $8,000 to provide a
yield of 8%. To determine the interest rate that should be charged, solve for i in the
following equation:
$8,000 = [$-100,000 x 2%] + [($100,000 x i) x 98%]
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$8,000 = $-2,000 + $98,000i
i = 10.2%
Or solve for i in the following equation:
$100,000(1.08) = [$100,000(1 + i)] x 98% + [$0 x 2%]
$108,000 = $98,000 + $98,000i
i = 10.2%
Therefore, the premium = 10.2% - 8% = 2.2%.
Choice a) –
Choice b) –
Choice c) –
Choice e) –
50.
8% x 2% = 0.16%.
The chance of default of 2%.
The expected yield of 8%.
8% + 2% = 10%.
Answer: b.
Value = Present value of the 5-year annuity + Present value of the perpetuity
= ($5,000,000 x 3.791) + ($8,000,000/.10 x .621)
= $18,955,000 + $49,680,000
= $68,635,000
Choice a) – Ignores present value and perpetuity: $5,000,000 x 5 = $25,000,000
Choice c) – Ignores present value of perpetuity: $5,000,000 x 3.791 = $18,955,000
Choice d) – Does not apply present value factor to perpetuity: $18,955,000 +
($8,000,000/.10) = $18,955,000 + $80,000,000 = $98,955,000
Choice e) – Includes present value of perpetuity only: $49,680,000
51.
Answer: e.
Price = Present value of face value of the bond + Present value of semi-annual interest
of 6% x $50,000/2 = $1,500 for 12 x 2 = 24 periods at 8%/2 = 4%.
Price = ($50,000 x .390) + ($1,500 x 15.247) = $42,370.50 ≈ $42,400.
Choice a) – Ignores the semi-annual compounding and uses 20 years (i.e. uses 20
periods at 8%): ($50,000 x 0.215) + ($3,000 x 9.818) = $40,204 ≈ $40,200.
Choice b) – Ignores the semi-annual compounding (i.e. uses 12 periods at 8%):
($50,000 x 0.397) + ($3,000 x 7.536) = $42,458 ≈ $42,500.
Choice c) – Reverses the coupon rate and the current yield: ($50,000 x 0.492) +
[($50,000 x 8%/2) x 16.936] = $58,472 ≈ $58,500.
Choice d) – Ignores the semi-annual compounding, uses 20 years and reverses the
coupon rate and the current yield: ($50,000 x 0.312) + ($4,000 x 11.47)
= $61,480 ≈ $61,500.
52.
Answer: e.
The liquidity preference theory explains much of an upward sloping yield curve (choice
c), as investors require a higher yield for longer-term investments (i.e. liquidity premium).
However, a yield curve can be downward sloping when investors expect short-term
interest rates to decrease (expect inflation to be falling), resulting in a reduction of the
inflation premium. This is referred to as the expectations theory (choice a). Therefore,
choice e) is the correct answer.
Choice b) is incorrect, because an increase in inflation premium would result in an
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upward slope, not a downward slope.
53.
Answer: e.
After-tax cost of debt = interest rate for new debt x (1 - tax rate) = .06 x .6 = 3.6%.
Cost of preferred shares = Dividend ÷ current market price of a preferred share = $8/$45
= 17.8%.
Choice a) – Applies tax rate to cost of preferred shares: $8/$45 x .6 = 10.7%
Choice b) – Uses interest rate for old debt: .09 x .6 = 5.4%;
applies tax rate to cost of preferred shares: $8/$45 x .6 = 10.7%
Choice c) – Uses par value of preferred shares: $8/$80 = 10%
Choice d) – Uses interest rate for old debt: .09 x .6 = 5.4%
54.
Answer: c.
Cost of common equity = (dividend for period 1 ÷ current market price per share) +
dividend growth rate = [($4 x 1.1)/$50] + .1 = $4.40/$50 + .1 = .0880 + .1 = 18.8%
Proportion of debt, preferred shares and equity = 40%, 10%, 50%, respectively.
Weighted average cost of capital = (40% x 3.9%) + (10% x 14.2%) + (50% x 18.8%)
= .0156 + .0142 + .094 = 12.4%
Choice a) – Does not add dividend growth rate in calculating cost of common equity:
.0156 + .0142 + (50% x $4.40/$50) = 7.4%
Choice b) – Applies tax to dividend in calculating cost of common equity:
.0156 + .0142 + {50% x [($4.40 x .6)/$50 +.1]} = 10.6%
Choice d) – Used last year’s dividend in calculating cost of common equity:
.0156 + .0142 + {50% x [($4/$50) + .1]} = 12.0%
Choice e) – Applies tax to the calculated cost of common equity:
.0156 + .0142 + (50% x .188 x .6) = 8.6%
55.
Answer: b.
The average collection period is the weighted average period within which the value of
receivables is collected. Acme’s average collection period is 39 days: (0.2 x 0) + (0.6 x
45) + (0.2 x 60) = 39 days.
Choice a) – 60 - 45 = 15 days
Choice c) – (45 + 60)/2 = 52.5 days
Choice d) – 60% pay on day 45 (assumes 20% each on day 0 and day 60 cancel each
other out)
Choice e) – (0 + 45 + 60)/3 = 35 days
56.
Answer: d.
A firm that cannot pay its bills as they become due is said to be technically insolvent.
The more net working capital, the more liquid the firm and the lower its risk of becoming
technically insolvent. Working capital management involves finding the level of working
capital (i.e. current assets and current liabilities) that achieves a balance between
profitability and risk of technical insolvency.
Choice a) – This pertains to long-term assets and liabilities.
Choice b) – This does not consider the assets component of working capital.
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Choice c) – Short-term debt is generally less expensive than long-term debt.
Choice e) – Maintaining a high proportion of liquid assets to total assets decreases both
profitability and risk of technical insolvency. This does not consider the
liabilities component of working capital.
57.
Answer: c.
The minimum value of a right is 1/2 x ($12 - $10) = $1.
Choice a) – Incorrectly multiplies by the number of rights: 2 x ($12 - $10) = $4.
Choice b) – Multiplies the cash required by the number of rights and divides by the
current value of the shares: ($10 x 2)/$12 = $1.67
Choice d) – This is correct if the market price of a share is less than the subscription
price of a share with two rights.
Choice e) – Ignores the number of rights: $12 - $10 = $2
58.
Answer: d.
Debentures are unsecured debt, having no specific assets pledged as collateral (choice
b). Instead, they are backed by the general credit of the issuing corporation (choice a).
Debenture holders have a claim on assets in the event of default that comes after that
held by secured debt holders, such as mortgage bond holders. Therefore, choice c) is
not correct and choice d) is the correct answer.
59.
Answer: b.
Operating leverage reflects the extent to which fixed assets and their associated fixed costs
are utilized in a firm. The degree of operating leverage may be defined as the percentage
change in operating income that occurs as a result of a percentage change in sales volume.
The following are two ways to calculate the degree of operating leverage (note, EBIT in the
following is an acronym for “earnings before interest and taxes” and is equal to $500,000 $200,000 - $120,000 = $180,000):
1) 1 + (Fixed costs ÷ EBIT) = 1 + ($120,000 ÷ $180,000) = 1.7
2) (Sales - Variable costs) ÷ EBIT = ($500,000 - $200,000) ÷ $180,000 = 1.7
Choice a) – EBIT ÷ Fixed costs = $180,000 ÷ $120,000 = 1.5
Choice c) – Sales ÷ EBIT = $500,000 ÷ $180,000 = 2.8
Choice d) – EBIT ÷ (EBIT - Interest) = $180,000 ÷ ($180,000 - $80,000) = 1.8 (financial
leverage)
Choice e) – Contribution margin ÷ Fixed costs = $300,000 ÷ $120,000 = 2.5
60.
Answer: e.
A stock dividend does not affect the total value of the firm’s equity [therefore, choices a)
and c) are not correct] or the total value of the shares in the hands of the shareholders
[therefore, choice d) is not correct]. It only increases the number of shares, which will
have the effect of decreasing (not increasing) the firm’s future earnings per share
[therefore, choice b) is not correct]. Consequently, the correct answer is choice e).
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61.
Answer: d.
A poison pill is a financial device designed to make the target firm’s stock less attractive
to the acquirer. It entails issuing special securities to existing shareholders that entitle
them to unusual rights and privileges (such as unusual voting rights, lucrative
redemption features or generous conversion options) if the issuing firm become the
target of a takeover bid. Choice d) is an example of such a financial device.
Choice a) –
Choice b) –
Choice c) –
Choice e)
62.
This is an example of a ‘supermajority amendment.’
This is an example of ‘greenmail.’
This is an example of ‘crown jewels.’
This is an example of ‘golden parachutes.’
Answer: d.
The maximum amount that GEF Inc. should be willing to pay for HIP Ltd. would be the
amount that provides GEF Inc. with exactly a 16% return on investment (or a net present
value of zero using a 16% discount rate). This amount is calculated as follows:
[$4,000,000 + ($1,000,000 x .6)]/.16 = $4,600,000/.16 = $28,750,000.
Choice a) – After-tax operating savings are subtracted instead of added: ($4,000,000 $600,000)/.16 = $21,250,000
Choice b) – Uses before-tax operating savings: ($4,000,000 + $1,000,000)/.16
= $31,250,000
Choice c) – Before-tax savings operating savings are subtracted instead of added:
($4,000,000 - $1,000,000)/.16 = $18,750,000
Choice e) – Ignores synergistic savings: $4,000,000/.16 = $25,000,000.
Financial Accounting
63.
Answer: d.
Creditors, such as banks and suppliers, evaluate the risk of lending money or granting
credit on the basis of available accounting information.
64.
Answer: e.
The overall objective of financial reporting is to communicate information that is useful to
investors, creditors and others in making their resource allocation decisions and/or
assessing management stewardship. Choices a) and c) are consistent with this
objective. Choice b), however, is not.
65.
Answer: c.
According to the matching principle, revenues and expenses should be matched with the
periods to which they apply. Expenses should follow the revenues that they are
expected to produce. For example, the cost of a large piece of equipment is expected to
result in revenues in the future; therefore, it should be capitalized and written off (i.e.
amortized) against future revenues.
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66.
Answer: a.
The Canada Revenue Agency (CRA) is responsible for federal income tax rules and
administration. Although the CRA influences accounting practice, they are not directly
involved in the development of accounting standards (for financial statements) as are the
other organizations listed.
67.
Answer: b.
At the end of an accounting period, entries are made to reduce all the temporary
accounts to zero, and transfer the net income (loss) to an equity accounting (retained
earnings for a corporation). These are called closing entries. Choice b) represents an
appropriate closing entry.
Choice a) – This is an adjusting entry to record accrued interest expense.
Choice c) – This is an adjusting entry to record income taxes payable for the year.
Choice d) – This is an adjusting entry to recognize prepaid rental revenue that has been
earned during the year.
Choice e) – An appropriate closing entry to close the dividends account to retained
earnings would be to the recording of a dividend payment. However, the
entry would debit retained earnings and credit dividends payable.
68.
Answer: c.
Net loss from operations
Add back amortization
Add back increase in accounts payable
Cash provided (used) from operations
$(60,000)
30,000
15,000
$(15,000)
Choice a) – Includes proceeds from issuing shares: $(15,000) + $100,000 = $85,000
Choice b) – Only adds back amortization: $(60,000) + $30,000 = $(30,000)
Choice d) – Treats all amounts as cash flows from operations: $(60,000) + $(40,000) +
$30,000 + $100,000 + $15,000 + $(50,000) = $(5,000)
Choice e) – Includes dividends paid but not increase in accounts payable: $(60,000) +
$30,000 + $(40,000) = $(70,000)
69.
Answer: e.
According to section 3030.10 of the CICA Handbook, the basis of valuation, or method
determining the cost of inventory, (e.g. FIFO, LIFO, average cost) is a required
disclosure (choice d). Section 3030.13 states that any change in the basis of inventory
valuation from the previous period and its effects are a required disclosure (choice c).
The composition of inventory (choice b) is desirable, but not required. Identification of
major suppliers (choice a) is not required. Therefore, choice e) is the correct answer.
70.
Answer: e.
Accountants have adopted a conservative policy in this area. Contingent gains should
not be recorded, but should be disclosed in the notes to the financial statements only
when the probabilities are high that a contingent gain will become a reality.
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71.
Answer: b.
Only the trade accounts receivable of $141,900 should be recorded as accounts
receivable. The van down payment should be recorded in Prepaids, the rent deposit
should be recorded in Deposits or Prepaids, and the consignment goods should be
recorded as Inventory at cost.
Choice a) – Net accounts receivable of $141,900 - $23,000 doubtful accounts
= $118,900.
Choice c) – Assumes goods on consignment are included in accounts receivable:
$141,900 + $13,000 = $142,400.
Choice d) – Assumes all items listed are included in accounts receivable: $141,900 $23,000 + $5,000 + $8,500 + $13,000 = $145,400.
Choice e) – Assumes the prepaid rent is included in accounts receivable: $141,900 +
$8,500 = $150,400.
72.
Answer: a.
The $2,300 cheque received and deposited in Year 5 (item 1) should be recorded in
Year 5. The $1,400 cheque issued on Dec. 31, Year 4, (item 2) should be recorded in
Year 4 (debit accounts payable, credit cash). The $2,500 NSF cheque returned Dec. 31,
Year 4, (item 3) should be reversed in Year 4 (debit accounts receivable, credit cash).
The $300 cheque received in Year 5 (item 4) should be recorded in Year 5. Therefore,
the Dec. 31, Year 4, cash balance should be $12,500 - $1,400 - $2,500 = $8,600.
Choice b) – All items are recorded: $12,500 + $2,300 - $1,400 - $2,500 + $300 =
$11,200.
Choice c) – Neglects to deduct item 3: $12,500 - $1,400 = $11,100.
Choice d) – Neglects to deduct item 2: $12,500 - $2,500 = $10,000.
Choice e) – Adds item 4: $12,500 - $1,400 - $2,500 + $300 = $8,900.
73.
Answer: e.
Opening balance
Purchase of inventory (increase inventory, decrease cash)
Deposit from customer (increase liabilities, increase cash)
Purchase of machinery (increase fixed assets, increase liabilities)
Retirement of bonds (decrease liabilities, decrease cash)
Closing balance (December 31)
$125,000
+ 15,000
- 30,000
$110,000
Choice a) – Considers only opening balance and cash: $125,000 - $20,000 + $15,000 $30,000 = $90,000
Choice b) – Considers each transaction as a single change in current assets: $125,000 $20,000 + $15,000 - $10,000 - $30,000 = $80,000
Choice c) – Switches the direction of the customer deposit and bonds payable:
$125,000 - $15,000 + $30,000 = $140,000
Choice d) – Includes machinery in current assets: $125,000 + $15,000 + $10 000 $30,000 = $120,000
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74.
Answer: b.
Year 2: 4,500 + 2,000 + 5,000 + 6,500 + 8,000 - 9,000 - 11,000 = 6,000 units;
6,000 x $8 = $48,000.
Year 3: 6,000 + 12,000 - 14,000 = 4,000 units; 4,000 x $11 = $44,000.
Choice a) – Does not restate Year 2 ending inventory (i.e. uses LIFO for Year 2): (2,500
x $9) + [(6,000 - 2,500) x $11] = $22,500 + $38,500 = $61,000
Choice c) – Uses unit cost from first purchase of Year 2 (i.e. $11) to cost Year 2 ending
inventory: 6,000 x $11 = $66,000
Choice d) – Uses LIFO to cost Year 2 and Year 3 ending inventory: Year 2 = (2,500 x
$9) + (3,500 x $11) = $61,000; Year 3 = (2,500 x $9) + (1,500 x $11)
= $39,000
Choice e) – Uses the unit cost from the first purchase of Year 1 (i.e. $9) to cost the
ending inventory for both years: Year 2 = 6,000 x $9 = $54,000; Year 3
= 4,000 x $9 = $36,000
75.
Answer: d.
According to generally accepted accounting principles (section 3055.04 of the CICA
Handbook), a joint venture is a relationship between the venturers that is governed by an
agreement that established joint control. Decisions essential to the accomplishment of a
joint venture require the consent of all the venturers.
76.
Answer: a.
Co. Q owns more than 20% of Co. R’s shares and it is a major customer of Co. R.
Therefore, Co. Q has significant influence over Co. R and should account for the
investment using the equity method. Co. Q’s share of Co. R’s income should be
recognized as investment income and the Co. Q’ share of the excess of fair value over
book value of the asset should be amortized over the life of the asset and charged
against investment income in Co. Q’s income statement. Note that the excess paid over
book value for the shares was $3 million - (25% x $11 million) = $250,000, which is the
same amount as Co. Q’s share of the excess fair value over book value for the asset
(i.e. $1,000,000 x 25% = $250,000). Dividends received should be recorded as a
reduction in the investment in Co. Q on the balance sheet. Therefore, Co Q should only
record investment income of ($500,000 x 25%) - [($250,000/25) = $125,000 - $10,000
= $115,000 on its income statement.
Choice b) – Assumes only dividends received are recorded as income: $200,000 x 25%
= $50,000.
Choice c) – Assumes dividend and unrealized holding gains are recorded as income:
$200,000 x 25% = $50,000 dividend income and $3.1 million - $3 million
= $100,000 unrealized holding gain.
Choice d) – Assume all activities are recorded through the investment account on the
balance sheet and nothing is recognized on the income statement.
Choice e) – Neglects to deduct amortization of excess of fair value over book value of
assets: Investment income = $500,000 x 25% = $125,000.
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77.
Answer: d.
Costs incurred to achieve future benefits should be capitalized and depreciated in
periods during which the benefits are achieved. One of three future benefit conditions
should be met:
1) Increased useful life.
2) Increased quantity of units produced from the asset.
3) Enhanced quality of the units produced.
In this case, both quantity and quality are increased, so the cost should be capitalized.
78.
Answer: c.
The original cost is $15,000/.2 = $75,000. The proceeds of $25,000 equal only 1/3 of the
original cost. A gain would result in this situation only if an accelerated method of
amortization were used, such as the double-declining balance method.
Proof:
Accumulated amortization using 25% declining balance = $51,270
Net book value = $75,000 - $51,270 = $23,730
Gain (loss) = $25,000 - $23,730 = $1,270.
Choice a) – Under the units of production method, although 70% of the anticipated
number of parts were produced, the accumulated amortization would not be
sufficient to result in a gain in this situation: accumulated amortization
= ($75,000 - $15,000) x (700,000/1,000,000) = $42,000; net book value
= $75,000 - $42,000 = $33,000; gain (loss) = $25,000 - $33,000 = $(8,000)
Choice b) – Under the straight-line method, less than half the cost would be amortized
by year 4; therefore, a loss would be incurred: net book value = ($75,000 $15,000) x 50% + $15,000 = $45,000; gain (loss) = $25,000 - $45,000
= $20,000
Choice d) – Under the composite method, the proceeds from disposition are added to
the asset group; therefore, no gain or loss is recognized.
79.
Answer: a.
The interest expense is based on the issue price ($922,783) and the effective interest
rate (10% per year) rather than the face value ($1,000,000) and the coupon rate (8% per
year). The interest expense for the first six months = $922,783 x 10% x ½ year
= $46,139.
Choice b) –
Choice c) –
Choice d) –
Choice e) –
Page 70
Uses face value and coupon rate: $1,000,000 x 8% x ½ year = $40,000
Uses coupon rate: $922,783 x 8% x ½ year = $36,911
Uses the face value: $1,000,000 x 10% x ½ year = $50,000
Uses interest paid plus amortization of discount on a straight-line basis:
($1,000,000 x 8% x ½ year) + [($1,000,000 - $922,783) ÷ 10]
= $40,000 + $7,722 = $47,722
CMA Canada
80.
Answer: b.
For the initial one-year warranty, the entire expected warranty cost is expensed in
Year 10 (matching principle) and a liability is recorded for warranty costs expected to be
paid out in future periods. For the extended warranty, the warranty revenue is amortized
over the extended warranty period, and costs under the warranty are expensed in the
period incurred. Therefore, in Year 10, a current warranty liability for the initial one-year
warranty of (300 x $80)/2 = $12,000 would be recorded. For the extended warranty, the
entire revenue collected of 160 x $400 = $64,000 would be recorded as unearned
revenue. On December 31, Year 11, all of the initial one-year warranty period would
have lapsed, and one-quarter of the two-year extended warranty period would have
lapsed. Therefore, there would be no warranty liability, and the unearned revenue
balance would be $64,000 x ¾ = $48,000.
Choice a) – Assumes warranty revenue is earned in Year 10 and records expected
extended warranty costs as a liability.
Choice c) – Assumes all sales made at beginning of Year 10.
Choice d) – Records expected extended warranty as a liability.
Choice e) – Assumes all sales made at end of Year 10.
81.
Answer: e.
Dividends on cumulative preferred shares are deducted in the numerator, whether
declared or not. However, only the dividends pertaining to the current year are used in
calculating earnings per share (EPS).
Basic EPS = (Net income - Preferred dividends) divided by Weighted average common
shares outstanding = [$380,000 - (6% x $1,500,000)]/[600,000 + (180,000 x 4/12)]
= $290,000/660,000 = $0.44
Choice a) – Deducts preferred dividends for Years 5, 6 and 7: [$380,000 - (3 x 6% x
$1,500,000)]/[600,000 + (180,000 x 4/12)] = $0.17
Choice b) – Neglects to deduct preferred dividends and uses year end number of
shares: $380,000/(600,000 + 180,000) = $0.49
Choice c) – Uses year end number of shares: $290,000/780,000 = $0.37
Choice d) – Neglect to deduct preferred dividends: $380,000/660,000 = $0.58
82.
Answer: b.
Book value per share = common shareholders’ equity ÷ number of common shares
outstanding.
Common shareholders’ equity = $3,000,000 + $2,000,000 + $1,800,000 + $380,000 - (3
x 6% x $1,500,000 preferred dividends in arrears) = $6,910,000
Number of common shares outstanding = 600,000 + 180,000 = 780,000
Book value per share = $6,910,000/780,000 = $8.86
Choice a) – Average market value for Year 7 of $10.00.
Choice c) – Does not deduct preferred dividends in arrears: ($3,000,000 + $2,000,000 +
$1,800,000 + $380,000)/780,000 = $9.21
Choice d) – Ignores net income and dividends in arrears: ($3,000,000 + $2,000,000 +
$1,800,000)/780,000 = $8.72
Choice e) – Includes preferred shares: = [$1,500,000 + $3,000,000 + $2,000,000 +
$1,800,000 + $380,000 - (3 x 6% x $1,500,000)]/(75,000 + 600,000 +
180,000) = $9.84
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83.
Answer: d.
The earnings per share must be calculated assuming the conversion of the convertible
securities at the beginning of the year, unless the convertible security is antidilutive (i.e.
upon conversion, the earnings per share would increase instead of decrease). If the
preferred shares were converted, the dividend of 6% x $1,500,000 = $90,000 would be
saved, but the number of common shares would be increased by 75,000 x 4 = 300,000
shares. Therefore, if the preferred shares are converted, the diluted EPS =
$380,000/(600,000 + 300,000 + 4/12 x 180,000) = $380,000/960,000 = $0.40. This is
less than the basic EPS of ($380,000 - $90,000)/660,000 = $0.44. Therefore, the
conversion of the preferred shares should be included in the calculation of diluted EPS.
Stock options are included in EPS calculations through the treasury stock method. This
method assumes that the proceeds from exercising the stock options would be used to
buy common shares for the treasury at the average market price for the year. If the
exercise price is lower than the average market price, the option is dilutive and should
be considered in the calculation of EPS. If the exercise price is higher than the average
market price, the option is antidilutive and should not be included in the calculation of
EPS. Since the exercise price of $8 per share is less than the $10 average price per
share, the options should be included in the calculation. Therefore, the fully-diluted EPS
= $380,000/[960,000 + 90,000 - ($8 x 90,000/$10)] = $380,000/978,000 = $0.39.
Choice a) – Assumes the stock options are antidilutive: $380,000/[600,000 + (180,000 x
4/12) + 300,000] = $380,000/960,000 = $0.40
Choice b) – Deducts preferred dividend from net income: ($380,000 - $90,000)/978,000
= $0.30
Choice c) – Adds preferred dividend to net income (i.e. assumes preferred dividend was
previously deducted in net income calculation): ($380,000 +
$180,000)/978,000 = $0.57.
Choice e) – Assumes neither the conversion of the preferred shares nor the exercising
of the options would apply: [$380,000 - (6% x $1,500,000)]/[600,000 +
(180,000 x 4/12)] = $290,000/600,000 = $0.44
84.
Answer: e.
If the cost estimates at the end of the current period indicate that a loss will result on
completion of the entire contract, the entire expected contract loss must be recognized in
the current period under both revenue recognition methods.
85.
Answer: d.
Proceeds from sale of 35 units = [($700 - $70 commission) x 35] - $200 administration
costs - $500 delivery costs = $21,350.
Cost of sales = ($400 x 35) + ($800 x 35/70) = $14,400.
Profit from consignment sales = $21,350 - $14,400 = $6,950.
Choice a) – Deducts full $800 shipping cost: $21,350 - [($400 x 35) + $800] = $6,550.
Choice b) – Assumes SFC Inc. records sales for all 70 units on consignment and
accrues the expected expenses associated with the unsold units: [($700 $70 - $400) x 70] - [($200 + $500) x 70/35] - $800 = $13,900.
Choice d) – Remittance amount of ($700 - $70) x 35 - $200 - $500 = $21,350.
Choice e) – Ignores the costs incurred by the consignee: ($700 - $400) x 35 - ($800 x
35/70) = $10,100.
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CMA Canada
86.
Answer: c.
Gross profit percentage on Year 1 sales = ($500,000 - $300,000)/$500,000 = 40%
Gross profit percentage on Year 2 sales = ($800,000 - $560,000)/$800,000 = 30%
Realized gross profit in Year 2 = ($150,000 x 40%) + ($240,000 x 30%) = $132,000
Choice a) – Gross profit on all Year 2 sales: $800,000 - $560,000 = $240,000
Choice b) – Includes only realized gross profit on Year 6 collections: $240,000 x 30%
= $72,000
Choice d) – Uses 30% gross profit percentage on all collections: ($150,000 + $240,000)
x 30% = $117,000
Choice e) – Uses 40% gross profit percentage on all collections: ($150,000 + $240,000)
x 40% = $156,000
87.
Answer: b.
Interest expense = ($75,656 - $18,143) x 10% = $5,751
Amortization expense = $75,656/5 = $15,131
Total expense in Year 1 = $20,882
Choice a) – Amortization expense of $15,131 only.
Choice c) – Lease payment of $18,143.
Choice d) – Uses lessee’s incremental borrowing rate of 12% to determine the amount
to capitalize: $18,143 + $18,143 x 3.037 = $73,243
Interest expense = ($73,243 - $18,143) x 10% = $5,510
Amortization expense = $73,243/5 = $14,649
Total expense in Year 1 = $5,510 + $14,649 = $20,159
Choice e) – Assumes lease payments are at end of year:
Total expense = ($75,656 x 10%) + $15,131 = $22,697
88.
Answer: c.
The lease would be classified as a sales-type lease:
Gross profit from sales of asset = $80,000 - $65,000 = $15,000
Interest revenue = ($75,656 - $18,143) x 10% = $5,751
Total increase in profits before taxes in Year 1= $15,000 + $5,751 = $20,751.
Choice a) – Treat as a direct financing lease – recognize interest revenue of $5,751
only.
Choice b) – Profit from sale of asset of $15,000 only.
Choice d) – Treat as an operating lease:
Rental revenue of $18,143 plus amortization of ($65,000 - $7,000)/5 years
= $6,543
Choice e) – Amortize profit from sale of asset over 5 years:
($80,000 - $65,000)/5 + $5,751 = $8,751
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89.
Answer: a.
Pension expense = service costs + interest on accrued benefits - expected return on
pension fund assets + amortization of past service costs + amortization of net actuarial
unrecognized loss = $640,000 + $290,000 - $184,000 + $120,000 + $66,000
= $932,000.
Choice b) – Includes pension benefits paid to retirees: $640,000 + $290,000 - $184,000
+ $120,000 + $66,000 + $90,000 = $1,022,000.
Choice c) – Includes actual return on pension fund assets instead of the expected
return: $640,000 + $290,000 - $160,000 + $120,000 + $66,000 = $956,000.
Choice d) – Deducts the amortization of unrecognized net actuarial gain (i.e. treats it like
a loss): $640,000 + $290,000 - $184,000 + $120,000 - $66,000 = $800,000.
Choice e) – Does not include amortization of unrecognized net actuarial loss: $640,000
+ $290,000 - $184,000 + $120,000 = $866,000.
90.
Answer: e.
When amortization for accounting purposes is less than the CCA claimed (i.e., taxable
income is less than accounting income), the change in the difference between the book
value of the assets and their UCC would result in a temporary difference and an
increase in the company’s future income tax liability (choice a).
Accounting for instalment sales on the accrual basis for financial reporting purposes and
on a cash basis for tax purposes results in a temporary difference. The originating
difference is reversed when the cash is collected for the instalment sales. Because
accrued sales this year are greater than last year, there would be an increase in the
future income tax liability (choice d). Therefore, choice e) is the correct answer.
Choice b) – The difference in inventory valuation would cause a temporary difference.
Because the prices of inventoriable items have steadily increased, the
difference in the book value of inventory for accounting purposes versus the
tax basis value of inventory would also steadily increase. However, since
accounting income would be less than the taxable income (i.e. accounting
cost of goods sold would be greater), the difference would be debited to the
future income tax asset.
Choice c) – Fifty percent of meals and entertainment expenses are not deductible for
tax purposes, resulting in a permanent difference that would not give rise to
future income taxes. Therefore, there are no future tax consequences to be
recognized.
91.
Answer: b.
According to section 1506 of the CICA Handbook, the effects of changes in estimates
(choice b) are handled using the prospective approach. These types of changes are
viewed as normal recurring corrections and adjustments and retroactive treatment is
prohibited. Both changes in accounting policy (choice a) and corrections of errors made
in prior periods (choice c) are to be handled using the retroactive approach.
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CMA Canada
92.
Answer: e.
Using the excess earnings approach:
Normal annual earnings based on industry ROI = $775,000 x 15% = $116,250
Future annual earnings (assumed to equal average earnings in the past five years)
= ($850,000 - $50,000 extraordinary item)/5 = $160,000
Goodwill = ($160,000 - $116,250)/15% = $291,667
Using the total earnings approach:
Fair value of company = $160,000/15% = $1,066,667
Goodwill = $1,066,667 - $775,000 = $291,667
Choice a) – Neglects to deduct extraordinary item: [(850,000/5) - $116,250]/15%
= $358,333
Choice b) – Assumes goodwill is the difference between cumulative past five years’
earnings and the fair value of net identifiable assets: $850,000 - $775,000
= $75,000
Choice c) – Assumes goodwill is 15% of the fair value of net identifiable assets:
$775,000 x 15% = $116,250
Choice d) – Assumes goodwill is the company’s excess earnings over the industry
average: $160,000 - $116,250 = $43,750
93.
Answer: e.
Quick ratio = (Cash + Marketable securities + Receivables)/Current liabilities
= ($87 + $40 + $180)/$455 = 0.67
Choice a) –
Choice b) –
Choice c) –
Choice d) –
94.
Answer: b.
Inventory turnover = 365 days/(cost of goods sold/average inventory)
= 365/{$1,080/[($432 + $366)/2]} = 365/($1,080/$399) = 135 days
Choice a) –
Choice c) –
Choice d) –
Choice e) –
95.
Uses total assets in numerator: $1,379/$455 = 3.03
Uses total liabilities in the denominator: $307/$695 = 0.44
Current ratio: ($87 + $40 + $180 + $432)/$455 = 1.62
Uses total assets and total liabilities: $1,379/$695 = 1.98
Uses sales and beginning inventory = 365/[$1,800/$366] = 74 days
Uses sales instead of COGS = 365/[$1,800/$399] = 81 days
Use beginning inventory = 365/[$1,080/$366] = 124 days
Use gross margin instead of COGS = 365/[($1,800 - $1,080)/$399]
= 202 days
Answer: a.
Times interest earned = Income before interest & taxes ÷ Interest
= ($44 + $29 + $19)/$19 = 4.8 times
Choice b) –
Choice c) –
Choice d) –
Choice e) –
CMA Canada
Uses gross margin: ($1,800 - $1,080)/$19 = 37.9 times.
Uses net income: $44/$19 = 2.3 times
Uses long term liabilities: $320/$19 = 16.8 times
Use net income before interest but after taxes: ($44 + $19)/19 = 3.3 times
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96.
Answer: b.
Total debt-to-equity ratio = Total liabilities/Total shareholders’ equity
= $695/($500 + $184) = $695/$684 = 1.02
Choice a) –
Choice c) –
Choice d) –
Choice e) –
Uses common shares only: $695/$500 = 1.39
Uses long-term debt: ($695 - $455)/$684 = 0.35
Uses total assets instead of equity: $695/$1,379 = 0.50
Uses retained earnings only: $695/$184 = 3.78
97.
Answer: c.
The amortization calculation should only be complicated where it is based on year end
amounts, which of course would not be known in the interim and would require estimates
of additions and disposals.
98.
Answer: c.
Choices a), b), d) and e) do not provide specifics identifying if the industry segment
would be material enough to warrant separate reporting. Choice c) meets one of the
tests required for segmented reporting.
99.
Answer: b.
Harmonization of accounting standards will reduce the number of available choices.
Therefore, companies may be forced to adopt accounting policies that do not reflect their
unique circumstances. Choices a), c), d) and e) are all valid reasons that support
harmonization of global accounting standards.
100.
Answer: a.
In this case, FRC Ltd. is an integrated foreign operation and its statements should be
translated using the temporal method. Under the temporal method, monetary assets and
liabilities (e.g. A/R) should be translated using the December 31 current rate of .70, nonmonetary assets should be translated using their historical rate (i.e. January 1 rate of .85
for capital assets and 4th quarter average rate of .73 for ending inventory – since this is
the first year, there were no beginning inventories) and sales should be translated at the
.82 historical rate (average rate for the year):
Inventory = 55,000 FC x .73 = $40,150
Capital assets = 500,000 FC x .85 = $425,000
Sales = 960,000 FC x .82 = $787,200.
Choice b) – Uses the current rate: Inventory = 55,000 FC x .70 = $38,500; Capital
assets = 500,000 FC x .70 = $350,000; Sales = 960,000 FC x .70
= $672,000
Choice c) – Uses the average rate for the year: Inventory = 55,000 FC x .82 = $45,100;
Capital assets = 500,000 FC x .82 = $410,000; Sales = 960,000 FC x .82
= $787,200
Choice d) – Uses the current rate for Capital assets and the 4th quarter average:
Inventory = 55,000 FC x .73 = $40,150; Capital assets = 500,000 FC x .70
= $350,000; Sales = 960,000 FC x .73 = 700,800
Choice e) – Uses the January 1st rate capital assets and the year end rate for inventory
and sales: Inventory = 55,000 FC x .70 = $38,500; Capital assets
= 500,000 FC x .85= $425,000; Sales = 960,000 FC x .70 = $672,000
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CMA Canada
101.
Answer: d.
In this case, FRC Ltd. is financially and operationally independent of its Canadian
parent; therefore, it is a self-sustaining foreign operation and its statements should be
translated using the current rate method. Under the current rate method, assets and
liabilities should be translated using the December 31 exchange rate of 0.70 and income
statement items should be translated using the 0.82 average rate for the year:
A/R = 85,000 FC x .70 = $59,500
Cost of goods sold = (625,000 FC - 55,000 FC) x .82 = 570,000 FC x .82 = $467,400.
Amortization expense = 45,000 FC x .82 = $36,900
Choice a) – Uses the temporal method: Accounts receivable = 85,000 FC x .70
= $59,500; Cost of goods sold = (625,000 FC x 0.82) - (55,000 FC x 0.73)
= $472,350; Amortization expense = 45,000 FC x .85 = $38,250.
Choice b) – Uses the average rate for the year: A/R = 85,000 FC x .82 = $69,700; Cost
of goods sold = (625,000 FC - 55,000 FC) x .82 = $467,400; Amortization
expense = 45,000 FC x .82 = $36,900
Choice c) – Uses the average rate for the 4th quarter: A/R = 85,000 FC x .73 = $62,050;
Cost of goods sold = (625,000 FC - 55,000 FC) x .73 = $416,100;
Amortization expense = 45,000 FC x .73 = $32,850
Choice e) – Uses current rate for all: A/R = 85,000 FC x .70 = $59,500; Cost of goods
sold = (625,000 FC - 55,000 FC) x .70 = $399,000; Amortization expense
= 45,000 FC x .70 = $31,500
102.
Answer: b.
Pledges and bequests that are uncollected would only be recognized if they meet the
following criteria: (a) the amount to be received can be reasonably estimated; and, (b)
ultimate collection is reasonably assured (CICA Handbook section 4420.03). In most
cases, bequests are subject to considerable uncertainty surrounding both the timing of
the receipt and the amount that will actually be received. As well, in many cases,
pledges would not meet the criteria for recognition. Therefore, they should not be
recognized until the pledged or bequeathed assets have been received.
Choice a) – According to section 4400.17 of the CICA Handbook, transfers between
funds do not result in increases or decreases in the economic resources of
the organization as a whole and therefore are reported in the statement of
changes in net assets rather than in the statement of operations.
Choice c) – Organizations may use either the deferral method or the restricted fund
method of accounting for contributions (section 4410.10 of the CICA
Handbook).
Choice d) – Because CC Association is a small organization (i.e. annual revenues are
less than $500,000), it can choose to expense rather than capitalize capital
assets such as furniture and equipment (section 4430.03 & .40).
Choice e) – According to section 4410.16 of the CICA Handbook, an organization may
choose to recognize contributions of materials and services, but there is no
indication of circumstances in which they must recognize such
contributions. Section 4410.23, however, stipulates that the policy followed
in accounting for contributed materials and services should be disclosed.
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103.
Answer: b.
Section 4430.06 of the CICA Handbook stipulates that a capital asset should be
recorded on the statement of financial position at cost and that, for a contributed capital
asset, cost is considered to be the fair value at the date of contribution. Therefore, the
furniture should be recorded as a capital asset at its fair value of $3,000. As well,
because the refurbishment of the furniture would extend the life of the asset, the cost of
$1,000 should also be capitalized. It should be noted that had the XYZ Society been
categorized as a small organization (i.e. less than $500,000 in annual net revenues), it
could choose not to capitalize the furniture.
104.
Answer: b.
Funds for special projects or events are put aside in a special or reserve fund.
Choice a) – Operating revenues and expenses are recorded in the general fund.
Choice c) – Resources intended for use for capital improvements or the acquisition of
new fixed assets are recorded in the capital fund.
Choice d) – Funds held in trust for third parties are recorded in a fiduciary fund.
Choice e) – Donated funds where the principal cannot be touched are held in an
endowment fund.
105.
Answer: c.
Encumbrance accounting together with a budgeting system help control spending.
Encumbrance accounting involves making entries into the accounting records to record
the issue of purchase orders. It can therefore be seen at the time of ordering goods and
services whether there are any unbudgeted amounts available to cover the purchase.
Choices a) and e) describe the purposes of fund accounting. Choice b) describes
variance analysis, which takes place after resources are spent. Choice d) describes a
purpose of the deferral method of accounting for contributions.
106.
Answer: a.
The domain of accounting standard setting for NPOs in Canada is in the hands of the
CICA Accounting Standards Board (AcSB), which has set out a specific section of
accounting recommendations for NPOs in the CICA handbook. In contrast, the CICA has
explicitly removed standard setting for governments from the AcSB and instead has
established the Public Sector Accounting Board (PSAB). The PSAB is responsible for
issuing accounting recommendations for governments.
Taxation
107.
Answer: d.
Subsection 85.1 permits a tax-free rollover to a shareholder of a corporation who
exchanges shares on one company for shares of another company if certain conditions
are met. Choices a) and b) are two of these conditions. Another condition is that,
immediately after the exchange, the taxpayer must not control Corporation B. Therefore,
choices c) and choice e) are incorrect and d) is the correct answer.
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CMA Canada
108.
Answer: a.
Net income
Income tax provision
Adjust ending inventory – from LIFO to FIFO
Adjust beginning inventory – from LIFO to FIFO
Interest re late payment of income taxes
Political contribution
CCA ($1,950 x .2 + $1,300 x .3)
Taxable income
$1,380
920
800
10
(15)
50
10
(780)
$2,375
Choice b) – Reverses the adjustments for inventory: $2,375 + $15 + $15 - $10 - $10
= $2,385
Choice c) – Neglects to adjust for interest on late payment of income taxes: $2,375 $50 = $2,325
Choice d) – Adds back interest re acquisition of shares: $2,375 + $15 = $2,390
Choice e) – Neglects adjustments for inventory and political donation: $2,375 - $10 +
$15 - $10 = $2,370
109.
Answer: c.
Dividend
Gross up (25%)
$10,000
2,500
Taxable dividend
$12,500
Federal tax (29% x $12,500)
Dividend tax credit ($2,500 x 2/3)
$3,625
1,667
Federal tax payable
$1,958
Choice a) – Fails to gross up dividend or to take the dividend tax credit:
$10,000 x 29% = $2,900
Choice b) – Fails to gross up dividend and calculates dividend tax credit incorrectly:
($10,000 x 29%) - (2/3 x $2,900) = $967
Choice d) – Incorrectly calculated dividend tax credit: $3,625 - (2/3 x $3,625) = $1,208
Choice e) – Neglects the dividend tax credit: $12,500 x 29% = $3,625
110.
Answer: e.
Capital cost allowance will be recaptured when the proceeds of disposition exceed
undepreciated capital cost (UCC) (i.e. when assets in a class have been overdepreciated relative to their disposal value):
UCC at the end of Year 1 = $500,000 - ($500,000 x 20% x 50%) = $450,000.
UCC at the end of Year 2 = $450,000 x 80% = $360,000.
Proceeds of $370,000 - UCC of $360,000 = $10,000 recapture.
Choice a) – Residual value is incorrectly deducted before calculating UCC:
$500,000 - $50,000 = $450,000
UCC at the end of Year 1 = $450,000 - ($450,000 x 20% x 50%) = $405,000
UCC at the end of Year 2 = $405,000 x 80% = $324,000
Proceeds of $370,000 - UCC of $324,000 = $46,000 recapture
Choice b) – Incorrectly uses straight-line amortization and ignores half-year rule:
$500,000 - $50,000 = $450,000
CMA Canada
Page 79
Accumulated amortization = $450,000/8 x 2 = $112,500
NBV at the end of Year 2 = $500,000 - $112,500 = $387,500
Proceeds of $370,000 - NBV of $387,500 = $17,500 terminal loss
Choice c) – Ignores the half-year rule:
UCC at the end of Year 1 = $500,000 - ($500,000 x 20%) = $400,000.
UCC at the end of Year 2 = $400,000 x 80% = $320,000.
Proceeds of $370,000 - UCC of $320,000 = $50,000 recapture
Choice d) – Ignores CCA: $500,000 - $50,000 = $450,000
Proceeds of $370,000 - $450,000 = $80,000 terminal loss
111.
Answer: a.
All of the expenses are deductible moving expenses, except for the $4,000 home
decorating costs, for a total of $35,000. From this, the allowance of $20,000 received
from the new employer is deducted for a net of $15,000. The income from the new job
for Year 3 is $40,000, which is sufficient to cover the maximum deduction of $15,000;
therefore, it can all be deducted from her Year 3 income.
Choice a) –
Choice c) –
Choice d) –
Choice e) –
Does not include the mortgage penalty of $2,000 as an allowable expense.
Includes decorating costs of $4,000.
Include decorating costs to sell of $2,000.
Assumes the allowable costs do not exceed the moving allowance.
112.
Answer: b.
Because the small business deduction is a credit against the tax otherwise payable, it
has nothing to do with the determination of income for tax purposes (choice b). The
small business deduction represents a credit against the tax otherwise payable on
income from an active business carried on in Canada, and is designed for only small
Canadian-controlled private corporations. However, a corporation does not have to be
“small” in order to qualify for the credit. The benefits of the small business deduction are
phased out for very large Canadian-controlled private corporations in accordance with a
prescribed formula (choice d). To be eligible, the company must have been a Canadiancontrolled private corporation throughout the year (choice a). In calculating the small
business deduction, income from foreign sources is removed from the base (choice c)
and the business limit is reduced by any portion allocated to associated corporations
(choice e).
113.
Answer: d.
Services, such as consulting services, are subject to the 6% GST (and/or the 14% HST).
Choice a) and e) are zero-rated supplies that are subject to a GST/HST of 0%. Choices
b) and c) are exempt supplies for which no GST/HST is payable.
Page 80
CMA Canada
114.
Answer: d.
On the date that control was acquired by the non-related person, legislation restricts the
utilization of prior losses as follows:
1. Net capital losses, allowable business investment losses and property losses expire
and are not carried forward beyond the deemed taxation year (i.e. the taxation year
ending on the date that control was acquired).
2. Accrued losses of various kinds are deemed to be realized and, thus, increase the
amount of non-capital losses, which are subject to time restrictions as to their
deductibility.
3. Non-capital business losses may be utilized only against income from the same
business (or a similar business).
CMA Canada
Page 81
Supplement of Formulae and Tables
Formulae
1.
CAPITAL STRUCTURE
a)
After-Tax Marginal Cost of Debt:
(1− T)I
kb = k(1− T) or
F
where k = interest rate
T = corporate tax rate
I = annual interest payment on debt
F = face value of debt
b)
Cost of Preferred Shares:
kp =
Dp
NPp
where
c)
Dp = stated annual dividend payment on shares
NPp = net proceeds on preferred share issue
Cost of Common Equity:
i)
Cost of Common Shares (Capitalization of Dividends with Constant
Growth Rate):
ke =
D1
+g
NPe
where
ii)
D1 = dividend expected for period 1
NPe = net proceeds on common share issue
g
= annual long-term dividend growth rate
Cost of Retained Earnings:
kre = re =
D1
+g
Pe
where Pe
re
iii)
= market price of a share
= expected return on common equity
Capital Asset Pricing Model:
(
Rj = Rf + β j Rm − Rf
where
Page 82
Rj
Rf
Rm
βj
)
= expected rate of return on security j
= risk-free rate
= expected return for the market portfolio
= beta coefficient for security j (measure of
systematic risk)
CMA Canada
d)
Weighted Average Cost of Capital:
⎛ E⎞
⎛ P⎞
⎛ B⎞
k = ⎜ ⎟ kb + ⎜ ⎟ kp + ⎜ ⎟ ke
⎝ V⎠
⎝ V⎠
⎝ V⎠
where
2.
B
P
E
V
= amount of debt outstanding
= amount of preferred shares outstanding
= amount of common equity outstanding
= B + P + E = total value of firm
PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS
a)
Present Value of Total Tax Shield from CCA for a New Asset
Present Value =
b)
Ctd ⎛ 2 + k ⎞ CdT ⎛ 1 + 0.5k ⎞
⎜
⎟=
⎜
⎟
(d + k ) ⎜⎝ 2 (1 + k ) ⎟⎠ (d + k ) ⎝ 1 + k ⎠
Present Value of Total Tax Shield from CCA for an Asset that is Not Newly
Acquired
⎛ dT ⎞
Present Value = UCC ⎜
⎟
⎝d +k ⎠
c)
Present Value of Total Tax Shield Lost From Salvage
Present Value =
Sn ⎛ dT ⎞
Sn
⎛ dT ⎞
⎟ or
⎟, depending on cash
n ⎜
n −1 ⎜
(1 + k ) ⎝ d + k ⎠ (1 + k ) ⎝ d + k ⎠
flow assumptions
Notation for above formulae:
C
= net initial investment
UCC = undepreciated capital cost of asset
Sn
= salvage value of asset realized at end of year n
T
= corporate tax rate
k
= discount rate or time value of money
d
= maximum rate of capital cost allowance
n
= total life of investment
CMA Canada
Page 83
Table 1
Present Value of One Dollar Due at the End of n Years
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 84
1%
0.990
.980
.971
.961
.951
.942
.933
.923
.914
.905
.896
.887
.879
.870
.861
.853
.844
.836
.828
.820
.811
.803
.795
.788
.780
2%
0.980
.961
.942
.924
.906
.888
.871
.853
.837
.820
.804
.788
.773
.758
.743
.728
.714
.700
.686
.673
.660
.647
.634
.622
.610
3%
0.971
.943
.915
.888
.863
.837
.813
.789
.766
.744
.722
.701
.681
.661
.642
.623
.605
.587
.570
.554
.538
.522
.507
.492
.478
4%
0.962
.925
.889
.855
.822
.790
.760
.731
.703
.676
.650
.625
.601
.577
.555
.534
.513
.494
.475
.456
.439
.422
.406
.390
.375
1
(1+ i) n
5%
0.952
.907
.864
.823
.784
.746
.711
.677
.645
.614
.585
.557
.530
.505
.481
.458
.436
.416
.396
.377
.359
.342
.326
.310
.295
6%
0.943
.890
.840
.792
.747
.705
.665
.627
.592
.558
.527
.497
.469
.442
.417
.394
.371
.350
.331
.312
.294
.278
.262
.247
.233
7%
0.935
.873
.816
.763
.713
.666
.623
.582
.544
.508
.475
.444
.415
.388
.362
.339
.317
.296
.277
.258
.242
.226
.211
.197
.184
8%
0.926
.857
.794
.735
.681
.630
.583
.540
.500
.463
.429
.397
.368
.340
.315
.292
.270
.250
.232
.215
.199
.184
.170
.158
.146
9%
10%
0.917 0.909
.842
.826
.772
.751
.708
.683
.650
.621
.596
.564
.547
.513
.502
.467
.460
.424
.422
.386
.388
.350
.356
.319
.326
.290
.299
.263
.275
.239
.252
.218
.231
.198
.212
.180
.194
.164
.178
.149
.164
.135
.150
.123
.138
.112
.126
.102
.116
.092
CMA Canada
Table 1 (cont’d)
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
11%
0.901
.812
.731
.659
.593
.535
.482
.434
.391
.352
.317
.286
.258
.232
.209
.188
.170
.153
.138
.124
.112
.101
.091
.082
.074
CMA Canada
12%
0.893
.797
.712
.636
.567
.507
.452
.404
.361
.322
.287
.257
.229
.205
.183
.163
.146
.130
.116
.104
.093
.083
.074
.066
.059
13%
0.885
.783
.693
.613
.543
.480
.425
.376
.333
.295
.261
.231
.204
.181
.160
.142
.125
.111
.098
.087
.077
.068
.060
.053
.047
14%
0.877
.769
.675
.592
.519
.456
.400
.351
.308
.270
.237
.208
.182
.160
.140
.123
.108
.095
.083
.073
.064
.056
.049
.043
.038
1
(1+ i) n
15%
0.870
.756
.658
.572
.497
.432
.376
.327
.284
.247
.215
.187
.163
.141
.123
.107
.093
.081
.070
.061
.053
.046
.040
.035
.030
16%
0.862
.743
.641
.552
.476
.410
.354
.305
.263
.227
.195
.168
.145
.125
.108
.093
.080
.069
.060
.051
.044
.038
.033
.028
.024
17%
0.855
.731
.624
.534
.456
.390
.333
.285
.243
.208
.178
.152
.130
.111
.095
.081
.069
.059
.051
.043
.037
.032
.027
.023
.020
18%
0.847
.718
.609
.516
.437
.370
.314
.266
.225
.191
.162
.137
.116
.099
.084
.071
.060
.051
.043
.037
.031
.026
.022
.019
.016
19%
0.840
.706
.593
.499
.419
.352
.296
.249
.209
.176
.148
.124
.104
.088
.074
.062
.052
.044
.037
.031
.026
.022
.018
.015
.013
20%
0.833
.694
.579
.482
.402
.335
.279
.233
.194
.162
.135
.112
.093
.078
.065
.054
.045
.038
.031
.026
.022
.018
.015
.013
.010
Page 85
Table 1 (cont’d)
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 86
21%
0.826
.683
.564
.467
.386
.319
.263
.218
.180
.149
.123
.102
.084
.069
.057
.047
.039
.032
.027
.022
.018
.015
.012
.010
.009
22%
0.820
.672
.551
.451
.370
.303
.249
.204
.167
.137
.112
.092
.075
.062
.051
.042
.034
.028
.023
.019
.015
.013
.010
.008
.007
23%
0.813
.661
.537
.437
.355
.289
.235
.191
.155
.126
.103
.083
.068
.055
.045
.036
.030
.024
.020
.016
.013
.011
.009
.007
.006
24%
0.806
.650
.524
.423
.341
.275
.222
.179
.144
.116
.094
.076
.061
.049
.040
.032
.026
.021
.017
.014
.011
.009
.007
.006
.005
1
(1+ i) n
25%
0.800
.640
.512
.410
.328
.262
.210
.168
.134
.107
.086
.069
.055
.044
.035
.028
.023
.018
.014
.012
.009
.007
.006
.005
.004
26%
0.794
.630
.500
.397
.315
.250
.198
.157
.125
.099
.079
.062
.050
.039
.031
.025
.020
.016
.012
.010
.008
.006
.005
.004
.003
27%
0.787
.620
.488
.384
.303
.238
.188
.148
.116
.092
.072
.057
.045
.035
.028
.022
.017
.014
.011
.008
.007
.005
.004
.003
.003
28%
0.781
.610
.477
.373
.291
.227
.178
.139
.108
.085
.066
.052
.040
.032
.025
.019
.015
.012
.009
.007
.006
.004
.003
.003
.002
29%
0.775
.601
.466
.361
.280
.217
.168
.130
.101
.078
.061
.047
.037
.028
.022
.017
.013
.010
.008
.006
.005
.004
.003
.002
.002
30%
0.769
.592
.455
.350
.269
.207
.159
.123
.094
.073
.056
.043
.033
.025
.020
.015
.012
.009
.007
.005
.004
.003
.002
.002
.001
CMA Canada
Table 1 (cont’d)
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
31%
0.763
.583
.445
.340
.259
.198
.151
.115
.088
.067
.051
.039
.030
.023
.017
.013
.010
.008
.006
.005
.003
.003
.002
.002
.001
CMA Canada
32%
0.758
.574
.435
.329
.250
.189
.143
.108
.082
.062
.047
.036
.027
.021
.016
.012
.009
.007
.005
.004
.003
.002
.002
.001
.001
33%
0.752
.565
.425
.320
.240
.181
.136
.102
.077
.058
.043
.033
.025
.018
.014
.010
.008
.006
.004
.003
.003
.002
.001
.001
.001
34%
0.746
.557
.416
.310
.231
.173
.129
.096
.072
.054
.040
.030
.022
.017
.012
.009
.007
.005
.004
.003
.002
.002
.001
.001
.001
1
(1+ i) n
35%
0.741
.549
.406
.301
.223
.165
.122
.091
.067
.050
.037
.027
.020
.015
.011
.008
.006
.005
.003
.002
.002
.001
.001
.001
.001
36%
0.735
.541
.398
.292
.215
.158
.116
.085
.063
.046
.034
.025
.018
.014
.010
.007
.005
.004
.003
.002
.002
.001
.001
.001
.001
37%
0.730
.533
.389
.284
.207
.151
.110
.081
.059
.043
.031
.023
.017
.012
.009
.006
.005
.003
.003
.002
.001
.001
.001
.001
.001
38%
0.725
.525
.381
.276
.200
.145
.105
.076
.055
.040
.029
.021
.015
.011
.008
.006
.004
.003
.002
.002
.001
.001
.001
.001
.001
39%
0.719
.518
.372
.268
.193
.139
.100
.072
.052
.037
.027
.019
.014
.010
.007
.005
.004
.003
.002
.001
.001
.001
.001
.001
.001
40%
0.714
.510
.364
.260
.186
.133
.095
.068
.048
.035
.025
.018
.013
.009
.006
.005
.003
.002
.002
.001
.001
.001
.001
.001
.001
Page 87
Table 2
Present Value of One Dollar Per Year — n Years at i%
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 88
1%
0.990
1.970
2.941
3.902
4.854
5.796
6.728
7.652
8.566
9.471
10.368
11.255
12.134
13.004
13.865
14.718
15.562
16.398
17.226
18.046
18.857
19.661
20.456
21.244
22.023
2%
0.980
1.942
2.884
3.808
4.713
5.601
6.472
7.325
8.162
8.983
9.787
10.575
11.348
12.106
12.849
13.578
14.292
14.992
15.678
16.351
17.011
17.658
18.292
18.914
19.523
3%
0.971
1.914
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.753
14.324
14.877
15.415
15.937
16.444
16.936
17.413
4%
0.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590
14.029
14.451
14.857
15.247
15.622
5%
0.952
1.859
2.723
3.547
4.330
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462
12.821
13.163
13.489
13.799
14.094
6%
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470
11.764
12.042
12.303
12.550
12.783
7%
0.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.745
9.108
9.447
9.763
10.059
10.336
10.594
10.836
11.061
11.272
11.469
11.654
8%
0.926
1.783
2.577
3.312
3.993
4.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.224
8.560
8.851
9.122
9.372
9.604
9.818
10.017
10.201
10.371
10.529
10.675
9%
0.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129
9.292
9.442
9.580
9.707
9.823
10%
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
8.649
8.772
8.883
8.985
9.077
CMA Canada
Table 2 (cont’d)
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
11%
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
7.963
8.075
8.176
8.266
8.348
8.422
CMA Canada
12%
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
5.938
6.194
6.424
6.628
6.811
6.974
7.120
7.250
7.366
7.469
7.562
7.645
7.718
7.784
7.843
13%
0.885
1.668
2.361
2.975
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.303
6.462
6.604
6.729
6.840
6.938
7.025
7.102
7.170
7.230
7.283
7.330
14%
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623
6.687
6.743
6.792
6.835
6.873
15%
0.870
1.626
2.283
2.855
3.352
3.785
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.725
5.847
5.954
6.047
6.128
6.198
6.259
6.313
6.359
6.399
6.434
6.464
16%
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.576
5.669
5.749
5.818
5.878
5.929
5.973
6.011
6.044
6.073
6.097
17%
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.585
5.628
5.665
5.696
5.723
5.747
5.766
18%
0.848
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353
5.384
5.410
5.432
5.451
5.467
19%
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.487
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101
5.127
5.149
5.167
5.182
5.195
20%
0.833
1.528
2.107
2.589
2.991
3.326
3.605
3.837
4.031
4.193
4.327
4.439
4.533
4.611
4.676
4.730
4.775
4.812
4.844
4.870
4.891
4.909
4.925
4.937
4.948
Page 89
Table 2 (cont’d)
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 90
21%
0.826
1.510
2.074
2.540
2.926
3.245
3.508
3.726
3.905
4.054
4.177
4.279
4.362
4.432
4.489
4.536
4.576
4.608
4.635
4.657
4.675
4.690
4.703
4.713
4.721
22%
0.820
1.492
2.042
2.494
2.864
3.167
3.416
3.619
3.786
3.923
4.035
4.127
4.203
4.265
4.315
4.357
4.391
4.419
4.442
4.460
4.476
4.488
4.499
4.507
4.514
23%
0.813
1.474
2.011
2.448
2.804
3.092
3.327
3.518
3.673
3.799
3.902
3.985
4.053
4.108
4.153
4.189
4.219
4.243
4.263
4.279
4.292
4.302
4.311
4.318
4.323
24%
0.807
1.457
1.981
2.404
2.745
3.021
3.242
3.421
3.566
3.682
3.776
3.851
3.912
3.962
4.001
4.033
4.059
4.080
4.097
4.110
4.121
4.130
4.137
4.143
4.147
25%
0.800
1.440
1.952
2.362
2.689
2.951
3.161
3.329
3.463
3.571
3.656
3.725
3.780
3.824
3.859
3.887
3.910
3.928
3.942
3.954
3.963
3.971
3.976
3.981
3.985
26%
0.794
1.424
1.923
2.320
2.635
2.885
3.083
3.241
3.366
3.465
3.543
3.606
3.656
3.695
3.726
3.751
3.771
3.786
3.799
3.808
3.816
3.822
3.827
3.831
3.834
27%
0.787
1.407
1.896
2.280
2.583
2.821
3.009
3.156
3.273
3.364
3.437
3.493
3.538
3.573
3.601
3.623
3.640
3.654
3.664
3.673
3.679
3.684
3.689
3.692
3.694
28%
0.781
1.392
1.868
2.241
2.532
2.759
2.937
3.076
3.184
3.269
3.335
3.387
3.427
3.459
3.483
3.503
3.518
3.529
3.539
3.546
3.551
3.556
3.559
3.562
3.564
29%
0.775
1.376
1.842
2.203
2.483
2.700
2.868
2.999
3.100
3.178
3.239
3.286
3.322
3.351
3.373
3.390
3.403
3.413
3.421
3.427
3.432
3.436
3.438
3.441
3.442
30%
0.769
1.361
1.816
2.166
2.436
2.643
2.802
2.925
3.019
3.092
3.147
3.190
3.223
3.249
3.268
3.283
3.295
3.304
3.311
3.316
3.320
3.323
3.325
3.327
3.329
CMA Canada
Table 2 (cont’d)
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
31%
0.763
1.346
1.791
2.131
2.390
2.588
2.739
2.854
2.942
3.009
3.060
3.100
3.129
3.152
3.170
3.183
3.193
3.201
3.207
3.211
3.215
3.217
3.219
3.221
3.222
CMA Canada
32%
0.758
1.332
1.766
2.096
2.345
2.534
2.678
2.786
2.868
2.930
2.978
3.013
3.040
3.061
3.076
3.088
3.097
3.104
3.109
3.113
3.116
3.118
3.120
3.121
3.122
33%
0.752
1.317
1.742
2.062
2.302
2.483
2.619
2.721
2.798
2.855
2.899
2.931
2.956
2.974
2.988
2.999
3.007
3.012
3.017
3.020
3.023
3.025
3.026
3.027
3.028
34%
0.746
1.303
1.719
2.029
2.260
2.433
2.562
2.658
2.730
2.784
2.824
2.853
2.876
2.892
2.905
2.914
2.921
2.926
2.930
2.933
2.935
2.937
2.938
2.939
2.939
35%
0.741
1.289
1.696
1.997
2.220
2.385
2.508
2.598
2.665
2.715
2.752
2.779
2.799
2.814
2.826
2.834
2.840
2.844
2.848
2.850
2.852
2.853
2.854
2.855
2.856
36%
0.735
1.276
1.674
1.966
2.181
2.339
2.455
2.540
2.603
2.650
2.683
2.708
2.727
2.740
2.750
2.758
2.763
2.767
2.770
2.772
2.773
2.775
2.775
2.776
2.777
37%
0.730
1.263
1.652
1.936
2.143
2.294
2.404
2.485
2.544
2.587
2.618
2.641
2.658
2.670
2.679
2.685
2.690
2.693
2.696
2.698
2.699
2.700
2.701
2.701
2.702
38%
0.725
1.250
1.630
1.906
2.106
2.251
2.356
2.432
2.487
2.527
2.556
2.576
2.592
2.603
2.611
2.616
2.621
2.624
2.626
2.627
2.629
2.629
2.630
2.630
2.631
39%
0.719
1.237
1.609
1.877
2.070
2.209
2.308
2.380
2.432
2.469
2.496
2.515
2.529
2.539
2.546
2.551
2.555
2.557
2.559
2.561
2.562
2.562
2.563
2.563
2.563
40%
0.714
1.225
1.589
1.849
2.035
2.168
2.263
2.331
2.379
2.414
2.438
2.456
2.469
2.478
2.484
2.489
2.492
2.494
2.496
2.497
2.498
2.499
2.499
2.499
2.499
Page 91

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