Marking Guide for Accounting 311 Fall 2001 Mid-Term #1

PRELIMINARY MARKING GUIDE:

ACCOUNTING 311 FALL 2004 A1 FINAL EXAM

NOT ALL POSSIBLE ANSWERS ARE SHOWN BELOW, NOR ARE THE MANY JUDGMENTS TO BE MADE IN EVALUATING ANSWERS. NO FRACTIONAL MARKS ARE TO BE AWARDED.

Marks

Question 1 (9 marks)

For each point, 1 mark for the basic idea and 2 marks for specifics. Some possible points drawn from textbook p.p. 439-440 (only three are to be marked):

1.Segregate duties – the employee and I would have to separate the record keeping and physical movement of inventory

2.Insurance – protect the value of the inventory in case of disaster

3.Perpetual inventory control – some sort of record of inventory items that will track quantities that should be on hand

4.Manage the company properly – have good records, set a good example for the employee, keep on top of things

5.Pay the employee fairly and motivate them to do a good job so that they are not tempted to take advantage of my absences

6.Physically protect inventory items to prevent/reduce pilferage 9

Question 2 (14 marks)

Question 3 (5 marks)

(1)no difference between the two – 2 marks for saying “none”, 0 for anything else

(2)share price halves – the market realizes that there has been no fundamental change in the firm, there’s just twice as many shares/ or market reacts (up or down) as they perceive some information being conveyed by the stock split

-1 mark for stating the reaction (up/down/none)

-2 marks for describing why that is the expected reaction (give 1 here if the explanation is not clear)

Question 4 (15 marks)

a.No effect (all or nothing) 2

b.No effect (all or nothing) 2

c.$12,000 x (1 - .40) = $7,200 increase

1 1 1 (1- for any calculation error) 3

d.$240,000 - $11,000 = $229,000 decrease

1 1 1 (-1 for any calculation error) 3

e.$62,000 x (1 - .40) = $37,200 decrease 2 marks for calc (-1 if W/O), 1 for direction

1 1 1 (-1 for any calculation error) 3

f.No effect (all or nothing) 2

15

Question 5 (14 marks)

(a)Net income goes down ($138,000-$85,000) x (1 - .40) = $31,800 3

(b)RE at end of year goes down ($2,210,000-$1,780,000) x (1 - .40) + answer (a)

= $258,000 + $31,800 = $289,800 4

(c)Cash flow from operations is not affected 2

(d)Working capital at the end of the year is not affected 2

(e)Could answer:

Share price would go down because the increased liability/costs reduce income

OR Share price would not change – it would fall when the new law was passed either 3

14

Question 6 (12 marks)

a.i. FIFO COGS = 650 x $4.00 +50 x $4.00 + 150 x $4.50 + 50 x $5.00

= 2600 + 200 + 675 + 250 = $3725

Marks: 1 1 1 1 1 5

(Alternative approach: total available cost = 700x$4.00 + 150 X $4.50 +

550 x $5.00 = $6225. FIFO ending inventory = 500 x $5.00 = $2500.

COGS = $6225 - $2500 = $3725.)

ii. Avge after 1st purchase = (700 x $4.00 + 150 x $4.50) / (700+150) =$4.088

Avge after 2nd purchase = (200 x $4.088 + 550 x $5.00) / (200+550) =$4.757

Ending inventory cost = 500 x $4.757 = $2378.43

Marks: 2 for 1st avge, 2 for second, 1 for multiplying second by 500 units 5

b.See middle of textbook p. 589.

One absent expense is income tax 1

Reason: Income tax is a personal obligation of the proprietor (owner) not the business 2

Another absent expense is owner’s (proprietor’s) salary/wages 1

Reason: Payments to the proprietor are considered a distribution of income

Or Payments to owner/proprietor for salary/wages can’t be distinguished from

withdrawals of income by the owner/proprietor 2

16

Question 7 (20 marks)

1 mark for each correct answer. Assumptions read only if answer is incorrect.

CATACLRevNI

(a)downdownzerozerodown 5

(b)zerodownzerozerodown 5

(c)upupupno effectno effect 5

(d)upupupno effectno effect 5

20

Question 8 (16 marks)

For each part, 2 marks for the “for” and 2 for the “against.” Vague or unclear answers should get only 1 mark. Following are illustrative points, two for most items even though only one is required, but other valid points also could be made.

a.For:leasing is like buying

properly shows assets employed by business 2

Against:leasing is like renting

No legal ownership 2

b.For:Make sure information is correct, more useful if correct

could be sued if we release wrong information 2

Against:timely information is important

Financial statements are never correct, always estimates etc 2

c.For:Conservatism – if a loss has been incurred, recognize it now

Provides useful information about recent events 2

Against:No legal liability therefore may confuse investors/users

May indicate actual liability to other legal parties 2

d.c.For: Conservatism – if a loss has been incurred, recognize it now

Gets a relevant value for the amount of resources available in next year 2

Against:Recognizing potential losses but never gains hurts present investors

The market value decline is hypothetical and may be reversed 2

16

Question 9 (11 marks)

Asset #1:

CrCapital assets/PPE etc1,245,7001 mark

DrAccm Amort500,8001 mark

DrAccounts receivable900,0001 mark

CrGain on equipment damage155,1001 mark

Asset #2:

CrCapital assets/PPE etc386,5401 mark

DrAccm Amort386,5401 mark

Asset #3:

CrCapital assets/PPE etc360,0001 mark

DrLoss on equipment damage360,0001 mark

Inventory – Sleighs in progress

Cr Inventory/WIP168,0001 mark

DrAccounts receivable84,0001 mark

DrLoss on fire damage84,0001 mark

11 marks

Preliminary marking guide, Accounting 311 Fall 2004 A1 final exam, page 1