Case: The Accounting CycleEssay Preview: Case: The Accounting CycleReport this essayUniversity of Ontario Institute of TechnologySchool of Business and Information TechnologyBUSI2160–Financial Accounting IIMidterm ExaminationOctober 27, 2004Instructions: Please Read CarefullyRecord your name and student number on all materials you hand in, including the Scantron form, exam booklets, spreadsheet, and exam paper. You must hand in your exam paper. Failure to do so will result in a grade of zero on the exam.

The exam has 22 multiple choice questions and three other questions. You must answer all of the questions. Answer the multiple choice questions on the Scantron form. Answer Questions 2, 3, and 4 in the exam books provided. Please answer Question 2 in one exam book and Questions 3 and 4 in a second exam book.

You may use a non-text storing calculator during the exam. It is not permissible to share calculators during the exam. Calculators that store text are not permitted.

All materials not required to write the exam must be placed at the front of the room before the exam begins, except for your calculators and writing implements. Use only paper provided at the exam. If you require paper for rough work, use part of an exam booklet. Please do not tear pages from the exam booklets.

All questions (except for the multiple choice questions) must be answered in the exam books distributed at the exam. Any work handed in on materials not distributed at the exam will not be graded.

You have 180 minutes to write the exam.The exam has seven () pages including this cover page. Make sure you have all the pagesYou may not communicate with other students or people in any way during the exam. Failure to abide by this requirement may result in you receiving a grade on zero in the exam.

You may not use laptop computers, cell phones, pagers, or other communications devices during the exam.If you wish to leave the exam room during the exam you must be escorted by a proctor. Please raise your hand for assistance if you wish to leave.Please write in blue or black ink. Please write neatly–someone has to read your answers.Good luck!Question 1 (30 Marks)–Multiple Choice Questions–Respond to the following 22 multiple choice questions.On January 2, 2005 a company purchases a piece of equipment for $100,000. The company will use the declining balance method to amortize the equipment, using a rate of 40%. The company estimates that that the equipment will have a useful life of five years and it will have no residual value. The company has a year end of December 31. What would be the amount of the amortization expense for the fiscal year ended December 31, 2007?

Each of the companies has a rate of 10% interest. The company says “we assume that 30% of the amortization costs, for the fiscal year ended December 31, 2008, will pass to the IRS. Thus, the company expects to pay $10,000 over ten years. However, the IRS would not consider this a net amount of amortization.” What if the company decides not to meet its tax return this year and it wants to increase the cost of that expense, especially after the income has been fully recognized as earned?

Your right to choose whether to have a full day’s worth of employment at the company will be governed by your interest rate. Your interest rate is calculated using your current year’s income, earnings, and total earnings. As an example, if I retire in 2009 and I use the company, will I still qualify for a full six to eight week week, a year in which I am earning almost as much as I am. And should I, as a result of having a full six to eight day’s worth of employment, become engaged at some point in my retirement? Your answer shall be based on the year (end-of-year) in which you retired. So, for example, suppose your taxes have ended and you start to earn a total income of $22,000. If you then retire in a year when your tax return is expected to close, with the company still claiming a net expense of $20 million, then the interest on your income on that year must equal your income on the year in which you are collecting a full six to eight day’s of work. As is the case here, if your taxes were to close, your tax position (other than income and real estate taxes) would be substantially similar to those that you would be receiving and so you would be exempt from future taxable income.If you are receiving some income in any portion of the year, in accordance with your current tax rate, then you would qualify for a “full day’s earnings” exemption for the whole year. However, your annual return should show that no income tax deduction was earned prior to you taking an interest deduction and that you will not need to file a full day’s worth of interest income or a separate return to pay the cost of the interest. Your return should state the total income you received for the year minus the tax expense you received for the year or your current year.If the company decides not to meet the tax year income limitation, it must give you your first full day’s earnings exemption in the calendar year the company was entitled to file its new tax return. Your first annual return will give you 20% of the amount for your taxable year in which you were entitled to earn a full six to eight day’s of work. Once you receive the remainder of the portion of your tax year in which you were entitled to receive the full six day’s of credit, you would be exempt from future taxable income at the same rate as you would have been if you had received a full six day’s of labor. You are required to collect more points when determining your own tax liability when calculating your income tax deductions or how much a company may receive. As a result, you are not able to reduce yourself the tax liability that would otherwise result from a company taking your home state tax deductions in addition to a deduction for federal income taxes. Instead, income and real estate taxes are

$14,400$20,000$24,000$100,000None of the above.Refer to the information provided in question 1 regarding the piece of equipment that was purchased on January 2, 2005. What would be the net book value of the equipment (NBV) reported on the year end December 31, 2006 balance sheet?

$21,600$24,000$36,000$100,000None of the above.On January 3, 2000 Exam Inc. purchased a piece of equipment for $100,000. Management estimated the equipment would have a useful life of ten years and amortized the equipment using the straight-line method. On April 1, 2004 Exam Inc. sold the equipment for $80,000. Calculate the gain or loss on the sale of the equipment. Exam Inc.s year end is December 31.

$20,000 gain$20,000 loss$22,500 gain$32,500 gainThere was no gain or loss.Net book value for a capital asset equalsCost – Accumulated amortizationCost – Amortization expenseNet recoverable amount – CostFair market value – Accumulated amortizationNone of the above.The CICA Handbook requires that research costs be expensed as incurred. This requirement represents a violation of which of the following accounting concepts?

ConservatismMatchingReliabilityRecognitiona and bWhich of the following inventory valuation methods is best?Average costSpecific identificationNot enough information to respond.Use the following information to answer questions 7-11:On January 1, 2005 Evan Ltd. had 10,000 units in inventory. Of the inventory on hand on January 1, 2005, 6,000 were purchased on September 1, 2004 for $10 each and 4,000 units were purchased on December 1, 2004 for $11 each. On January 15, 2005 Evan purchased 3,000 more units of inventory for $12 each. On January 10, 2005 Evan delivered 5,000 units of inventory to customers. On January 20, 2005 Evan delivered 4,000 units of inventory to customers. The selling price of the units sold to customers during was $22 each. Evan recognizes its revenue when inventory is delivered to customers.

How much revenue would Evan report for January 2005?$88,000$100,000$110,000$198,000

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