CMA Accelerated program Test 2

CMA Canada

CMA Accelerated Program

Examination # 2

SAMPLE

Duration - 4 hours This examination has a total of 15 pages and consists of 6 questions. Ensure that you

have a complete examination paper before starting to answer the questions. Name: Member # :

Examination # 2

CMA Accelerated Program Page 2

Question 1 - Multiple Choice (18 marks) (42 minutes) Please enter the answers directly on the Scantron Form in pencil. The following information needs to be entered on the form: name and member number (in the student number field). Note that each question is worth 1.5 marks. 1. The IASB Framework outlines two underlying assumptions of financial statements.

These are: Assumption 1 Assumption 2 a) Accrual basis of accounting Going concern assumption b) Cash basis of accounting Insolvency assumption c) Historical cost accounting Limited life concept d) Fair value basis of measurement Perpetual life concept 2. Conn Corp. owns an office building and normally charges tenants $30 per square

foot per year for office space. Because the occupancy rate is low, Conn agreed to lease 10,000 square feet to Hanson Co. at $12 per square foot for the first year of a three-year operating lease. Rent for remaining years will be at the $30 rate. Hanson moved into the building on January 1, 20x2, and paid the first year's rent in advance. What amount of rental revenue should Conn report from Hanson in its income statement for the year ended September 30, 20x2?

a) $ 90,000 b) $120,000 c) $180,000 d) $240,000 3. Zenk Co. wrote off obsolete inventory of $100,000 during 20x5. What was the

effect of this write-off on Zenk's ratio analysis? a) Decrease in current ratio but not in quick ratio b) Decrease in quick ratio but not in current ratio c) Increase in current ratio but not in quick ratio d) Increase in quick ratio but not in current ratio 4. Heath Co.'s current ratio is 4:1. Which of the following transactions would

normally increase its current ratio? a) Purchasing inventory on account b) Selling inventory on account c) Collecting an account receivable d) Purchasing machinery for cash

Examination # 2


5. On December 31, 20x8, Investment Incorporated had a portfolio of Fair Value

through OCI investments as follows: Original Market Quantity Description Cost Value 60 shares Heck Resources Incorporated $ 2,760 $ 2,475 90 shares Tell Canada Limited 1,890 2,070 $12,000 Bone Limited, 8% bonds 12,120 11,880 $ 16,770 $ 16,425 At what amount should the investments be reported on the balance sheet at

December 31, 20x8? a) $16,245 b) $16,425 c) $16,770 d) $16,950 6. On January 1, 20x8, G Company sold property to J Company. There was no

established exchange price for the property, and J gave G a $100,000 non-interest bearing note payable in five equal annual installments of $20,000, with the first payment due December 31, 20x8. The prevailing rate of interest for a note of this type is 12%. What should be the balance of the Notes Payable account on the books of J at December 31, 20x8, after adjusting entries are made?

a) $ 100,000 b) $ 80,000 c) $ 72,100 d) $ 60,747 7. Ute Co. had the following capital structure during 20x8 and 20x9: Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding $ 250,000 Common stock, $5 par, 200,000 shares issued and outstanding 1,000,000 Ute reported net income of $500,000 for the year ended December 31, 20x9. Ute

paid no preferred dividends during 20x8 and paid $16,000 in preferred dividends during 20x9. In its December 31, 20x9 income statement, what amount should Ute report as basic earnings per share?

a) $2.42 b) $2.45 c) $2.48 d) $2.50

Examination # 2


8. On January 2, 20x1, Cole Co. signed an eight-year noncancelable lease for a new

machine, requiring $15,000 annual payments at the beginning of each year. The machine has a useful life of 12 years, with no salvage value. Title passes to Cole at the lease expiration date. Cole uses straight-line depreciation for all of its plant assets. Aggregate lease payments have a present value on January 2, 20x1, of $108,000, based on an appropriate rate of interest. For 20x1, Cole should record depreciation expense for the leased machine at

a) $0 b) $9,000 c) $13,500 d) $15,000 Use the following to answer questions 9 - 10: Sophia Company's December 31 year-end financial statements contained the following errors: Dec. 31, 20x8 Dec. 31, 20x9 Ending inventory $1,500 understated $2,200 overstated Amortization expense $400 understated An insurance premium of $3,600 was prepaid in 20x8 covering the years 20x8, 20x9, and 20x10. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 20x9, fully amortized machinery was sold for $1,900 cash, but the sale was not recorded until 20x10. There were no other errors during 20x9 or 20x10 and no corrections have been made for any of the errors. Ignore income tax considerations. 9. What is the total net effect of the errors on Sophias 20x9 net income? a) Net income understated by $2,900. b) Net income overstated by $1,500. c) Net income overstated by $2,600. d) Net income overstated by $3,000. 10. What is the total effect of the errors on the balance of Sophia's retained earnings at

December 31, 20x9? a) Retained earnings understated by $2,000. b) Retained earnings understated by $900. c) Retained earnings understated by $500. d) Retained earnings overstated by $700.

Examination # 2


11. On January 2, 20x6, Koerner Co. issued 10-year convertible bonds at 105. During

20x8, these bonds were converted into common shares having an aggregate value equal to the total face amount of the bonds. At conversion, the market price of Koerner's common shares was 50 percent above its average carrying value. On January 2, 20x6, the cash proceeds from the issuance of the convertible bonds should be reported as

a) contributed surplus for the entire proceeds. b) contributed surplus for the portion of the proceeds attributable to the

conversion feature and as a liability for the balance. c) a liability for the face amount of the bonds and contributed surplus for the

premium over the face amount. d) a liability for the entire proceeds. 12. Below is the earnings history of McCain-Palin Inc.:

Tax Rate

2004 $ 500,000 38% 2005 900,000 38% 2006 300,000 40% 2007 800,000 40% 2008 (2,200,000) 42% 2009 600,000 44%

McCain-Palin have consulted you on the use of the loss and the recovery of taxes. What should McCain-Palin report on their Statement of Financial Position for the year ending 2008 assuming the entity elects to apply the loss to prior years and believes it is probable that sufficient taxable income will be generated in the future to absorb any loss carryforward. Tax rates were enacted in each year shown.

Income Taxes

Receivable Deferred Tax Asset

a) $858,000 $0 b) $924,000 $84,000 c) $968,000 $84,000 d) $782,000 $84,000

Examination # 2


Question 2 - Short Answers (20 marks) (48 minutes) a. In preparing its cash flow statement for the year ended December 31, 20x9, Reve

Co. collected the following data: Gain on sale of equipment $ (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from the issue of bonds 75,000 In its December 31, 20x9 statement of cash flows, i. What amount should Reve report as net cash used in investing activities? ii. What amount should Reve report as net cash provided by financing activities? (4 marks) b. Barbart Retail Sales Co. sells merchandise inventory at a gross profit of 30% of the

sales price. On June 4, 20x0, a flood destroyed the entire inventory. From the accounting records, it was determined that beginning inventory was $187,000 and purchases during the year before the flood totaled $613,000. Sales for the year before the flood were $895,000. What would be the value of the inventory destroyed? (3 marks)

c. Peters Corp.'s capital structure was as follows: December 31 20x8 20x9 Outstanding shares of stock: Common 110,000 110,000 Convertible preferred 10,000 10,000 During 20x9, Peters paid dividends of $3.00 per share on its preferred stock. The

preferred shares are convertible into 20,000 shares of common stock. Net income for 20x9 was $850,000. Assume that the income tax rate is 30%. What is the diluted earnings per share for 20x9? (3 marks)

Examination # 2


d. On December 31, 20x9, Day Co. leased a new machine from Parr with the

following pertinent information: Lease term 6 years Annual rental payable at beginning of each year $50,000 Useful life of machine 8 years Purchase option at end of lease term $5,000 Market value at end of lease term $20,000 Market value at end of useful life $6,000 Implicit interest rate in lease 12% The cost of the machine on Parr's accounting records is $375,500. What interest

expense will day report on the lease obligation for 20x10? (3 marks) e. On January 1, 20x2, A Ltd. purchased a vehicle for $20,000 cash. A Ltd.'s fiscal

year end is December 31. At the time of acquisition, the vehicle was expected to last five years and had an estimated residual value of $1,400. A Ltd. uses the straight-line method to depreciate its vehicles. On January 1, 20x3, A Ltd. changed the total estimated useful life of the vehicle from 5 years to 4 years and the estimated residual value from $1,400 to $2,300. What depreciation expense would A Ltd. report in 20x3? (3 marks)

f. The following information relates to L Company, a publicly accountable company.

for the year ended December 31, 20x7: Plan assets Jan 1, 20x7 $890,000 Defined Benefit Obligation Jan 1, 20x7 750,000 Current service cost 140,000 Contribution to pension plan on December 31, 20x7 40,000 Yield on high quality corporate bonds 6% Actual return on plan assets $60,000 What is the impact of the above on the Statement of Comprehensive income for the

year ended December 31, 20x7? (3 marks)

Examination # 2


g. ABC Inc. has acquired a 30% interest in XYZ Limited for $800,000. At the time of

the acquisition, the following adjustments to fair value were noted: Inventory $50,000 higher than carrying

value

FIFO, sold the following year

Property, plant and equipment

$200,000 higher than carrying value

10 years remaining life

Patent $100,000 higher than carrying value

10 years remaining life

Bonds Payable $150,000 lower than carrying value

6 years to maturity

At the time of the acquisition, Goodwill was measured at $50,000. In the first year

after the acquisition XYZ had income of $250,000 and paid an $80,000 dividend. How much would ABC record as Earnings from an Associate in that year? (4 marks)

Examination # 2


Question 3 (12 marks) (29 minutes) Bosco Ltd. is an incorporated radio manufacturer. The following represents its income statement for the year ended December 31, 20x4: Revenues: Sales $ 10,000,000 Interest income 2,000,000 Other 400 000 $ 12,400,000 Expenses: Cost of goods sold $7,000,000 Depreciation 1,000,000 Advertising and promotion 1,600,000 Miscellaneous 1,400,000 11,000,000 Income before taxes 1,400,000 Income tax provision 560,000 Net income $ 840,000 Other information: 1. Undepreciated capital cost balances at the beginning of the year are as follows:

Class 8 (20% CCA rate) $2,500,000 Class 10 (30% CCA rate) $1,900,000 Class 43 (30% CCA rate) $150,000

Additions and proceeds on disposal were as follows: Class 8 Class 10 Class 43 Additions $300,000 $250,000 - Proceeds on disposal* 40,000 130,000 $250,000 Original cost of asset sold 200,000 100,000 500,000

* only one asset was disposed of in each class. At December 31, 20x4, there were no assets left in Class 43.

The net accounting gain on disposal of depreciable assets amounted to $30,000 and is included in other revenues.

2. The miscellaneous expenses include $90,000 for meals at business meetings.

Other revenues include equity income of $50,000.

3. The company provides a two year warranty on its products. The company estimates the warranty expense at 2% of sales. The warranty liability at January 1, 20x4 was $67,000 and at December 31, 20x4 was $104,000. The warranty expense is included in miscellaneous expenses.

Examination # 2


4. The following information is available for the company's pension plan:

Pension Obligation, Jan 1, 20x4 $1,200,000 Pension Plan Assets, Jan 1, 20x4 800,000 Current service cost, 20x4 250,000 Payments to pension plan trustee, 20x4 200,000 Interest rate 8%

Required - Calculate the taxable income as at December 31, 20x4, for Bosco Ltd.

Examination # 2


Question 4 (14 marks) (34 minutes) Snowden Corp. has the following differences between the carrying value and tax basis of its assets and liabilities at the end of 20x3, its first year of operations: Book Value Tax Basis Machinery and equipment $800,000 $850,000 Estimated liability for warranties 400,000 0 Management believes the warranty liability will be fully settled by the end of 20x4. The machinery and equipment was purchased for $1,000,000 and is being amortized over 4 years with expected residual value of 200,000. The CCA rate is 30%. The tax rate enacted on June 30th of each year as follows:

20x3 34% 20x4 30% 20x5 30%

The company has net income before taxes of $1,000,000 in 20x3, $1,200,000 in 20x4 and $1,350,000 in 20x5. Required: Calculate the provision for income taxes for the years 20x3 through 20x5 as well as the balance sheet presentation of all deferred income tax amounts.

Examination # 2


Question 5 (14 marks) (34 minutes) On December 31, 20x1, Pasco Company purchased 70% of the outstanding common shares of Sasco Company for $2 million in cash. On that date, the shareholders equity of Sasco totalled $1.5 million and consisted of $1 million in common shares and $0.5 million in retained earnings. For the year ending December 31, 20x5, the income statements for Pasco and Sasco were as follows: Pasco Sasco Revenues $ 8,500,000 $ 5,100,000 Cost of goods sold 5,800,000 3,500,000 Amortization expense 800,000 630,000 Other expenses 1,050,000 570,000 Income tax expense 340,000 160,000 Profit $ 510,000 $ 240,000 As at December 31, 20x5, the condensed balance sheets for the two companies were as follows: Pasco Sasco Current Assets $3,000,000 $2,000,000 Long-term assets 6,000,000 3,500,000 $ 9,000,000 $ 5,500,000 Liabilities $ 5,000,000 $ 3,800,000 Common shares 2,100,000 1,000,000 Retained earnings 1,900,000 700,000 $ 9,000,000 $ 5,500,000 Additional information 1. On December 31, 20x1, Sasco owned a building with a fair value that was

$200,000 greater than its carrying value. The building had an estimated remaining useful life of 14 years and was being amortized on a straight-line basis.

2. Each year, goodwill is evaluated to determine if there has been a permanent impairment. Goodwill impairment was $71,429 in 20x3, $57,143 in 20x5, and zero in all other years since the date of acquisition.

3. During 20x5, Pasco declared and paid dividends of $400,000, and Sasco declared and paid dividends of $150,000.

Required - a. Calculate profit attributable to the equity holders of Pasco for the year ended

December 31, 20x5 b. Prepare a consolidated balance sheet as at December 31, 20x5. Show the details

of all your calculations. c. Now assume that Pasco uses the equity method to account for its investment in

Sasco. Calculate the balance in the investment account at December 31, 20x5 on Pascos nonconsolidated balance sheet. Show your supporting calculations.

Examination # 2


Question 6 (7 marks) (17 minutes) The Harry Corporation ordered inventory from a US supplier on October 15, 20x5. The inventory costing $US 200,000 was received on November 15, 20x5. The US supplier required payment by February 15, 20x6. The Harry Corporation has a December 31 year end. The following rates are provided:

Spot October 15, 20x5 $1US = $1.22 November 15, 20x5 $1US = $1.18 December 31, 20x5 $1US = $1.13 February 15, 20x6 $1US = $1.00 Forward October 15, 20x5 (120 days) $1US = $1.05 November 15, 20x5 (90 days) $1US = $0.98 December 31, 20x5 (45 days) $1US = $0.95

Required Prepare all journal entries with regards to this transaction assuming that a forward contract is taken out on November 15, 20x5 in the amount of $US 200,000.

Examination # 2


Question 7 (15 marks) (36 minutes) On December 31, 20x8, Kelly Corporation paid Euro 13 million for 100% of the outstanding shares of Krugor Corporation of Germany. Krugors comparative balance sheets and 20x9 income statement are as follows:

Balance Sheets December 31

20x9 20x8 Current monetary assets EURO 10,780,000 EURO 9,600,000 Inventory 1,800,000 2,400,000 Plant assets 6,600,000 7,200,000 EURO 19,180,000 EURO 19,200,000 Current liabilities EURO 1,900,000 EURO 2,400,000 Bonds payable, due Dec 31, 20x13 4,800,000 4,800,000 Common stock 5,000,000 5,000,000 Retained earnings 7,480,000 7,000,000 EURO 19,180,000 EURO 19,200,000

Income Statement For the year ended December 31, 20x9

Sales EURO 6,000,000 Cost of goods sold -4,440,000 Depreciation -600,000 Other expenses -360,000 Net income EURO 600,000 Other Information 1. Exchange rates Dec 31, 20x8 EURO 1 = C$0.52 Sep 30, 20x9 EURO 1 = C$0.62 Dec 31, 20x9 EURO 1 = C$0.65 Average for 20x9 EURO 1 = C$0.58 2. Krugor company declared and paid dividends totaling EURO 120,000 on

September 30, 20x9. 3. The inventories on hand on December 31, 20x8 were purchased when the exchange

rate was EURO 1 = $0.50. 4. The plant assets were purchased when the exchange rate was EURO 1 = $0.40. The

common stock was issued when the exchange rate was EURO 1 = $0.45.

Examination # 2


5. The inventories on hand on December 31, 20x9 were purchased when the exchange

rate was EURO 1 = C$0.63 Required (a) Assuming that Krugors functional currency is the Canadian Dollar, prepare a

translated statement of income for the year ended 20x9. (b) Assuming that Krugors functional currency is the Euro, prepare a translated

balance sheet as at December 31, 20x9. Show calculations for all amounts (i.e. do not 'plug' any number).

Examination # 2


Examination 2 SOLUTION Question 1 1. a 2. c [($12 x 10,000 x 1 year) + ($30 x 10,000 x 2 years)] x 9/36 = $180,000 3. a Inventory is not included in the calculation of the quick ratio. 4. b 5. b 6. d N = 4, I = 12, PMT = 20,000, Solve for PV = 60,747 7. b ($500,000 - 10,000) 200,000 = $2.45 8. b $108,000 12 years = $9,000 9. d $1,500 (o) + $2,200 (o) + $1,200 (o) $1,900 (u) = $3,000 (o)

The opening inventory is understated by $1,500, then COGS is understated by $1,500 and income is overstated by $1,500. If ending inventory is O/S by $2,000, then COGS is U/S and income is O/S. Net overstatement of $1,500 + 2,200 = 3,700 for inventory. The insurance error causes income to be O/S by 1,200 and the gain on the on machinery causes income to be U/S by $1,900. Net effect = 3,700 O/S + 1,200 O/S + 1,900 U/S = 3,000 O/S

10. c $400 (o) + $2,200 (o) $1,200 (u) $1,900 (u) = $500 (u). 11. b 12. d (900,000*.38) + (300,000*.40) + (800,000*.4) = $782,000

200,000 * .42 = $84,000

Examination # 2


Question 2 a. i. Proceeds from sale of equipment $10,000 Purchase of A.S., Inc. bonds (180,000) ($170,000) ii. Dividends paid (38,000) Proceeds from the issue of bonds 75,000 $37,000 b. Cost of goods sold = $895,000 x 70% = 626,500 Ending inventory = $613,000 Purchases + 187,000 Op Inv - 626,500 COGS

= $173,500 c. Basic EPS = (850,000 - 30,000) 110,000 = 7.45 Impact of preferred share conversion: $30,000 20,000 = 1.50 Diluted EPS: 850,000 130,000 = $6.54 d. [BGN] N=6, I = 12, PMT = 50,000, FV = 5,000 Solve for PV = $232,772 Interest expense in 20x10 = ($232,772 - 50,000) x 12% = $21,933 e. 20x2 depreciation = ($20,000 - $1,400)/5 = $3,720

20x3 depreciation = ($20,000 - $2,300 - $3,720)/3 = $4,660 f. In profit and loss Service cost $140,000 Net interest benefit ($890,000 750,000) x 6% (8,400) In other comprehensive income Remeasurement on plan assets: ($890,000 x 6%) 60,000 6,600 $138,200

Examination # 2


g. XYZ Income $250,000 Amortization of PPD Inventory (50,000) PPE: $200,000 / 10 years (20,000) Patent: $100,000 / 10 years (10,000) Bonds: $150,000 / 6 years (25,000) 145,000

x 30% $43,500

Examination # 2


Question 3 Net income before taxes $1,400,000 Add: Depreciation $1,000,000 Warranty expense (10,000,000 x 2%) 200,000 Pension expense (Note 1) 282,000 Non deductible portion of entertainment expenses:

$90,000 x 1/2

45,000

Taxable capital gain: $30,000 x 1/2 15,000 1,542,000

Less: CCA (Note 2) 1,018,500 Warranty costs incurred (Note 3) 163,000 Gain on disposal of fixed assets 30,000 Pension payments to trustee 200,000 Equity income 50,000 -1,461,500 Taxable income $1,480,500 Note 1 - Pension expense Current service cost $250,000 Interest on pension obligation: $1,200,000 x 8% 96,000 Interest on plan assets: $800,000 x 8% -64,000 $282,000 Note 2 - CCA Class 8 Class 10 Class 43 UCC - beginning $2,500,000 $1,900,000 $150,000 Additions 300,000 250,000 Lesser of cost or proceeds -40,000 -100,000 -250,000

CCA/Recapture 526,000 592,500 -100,000 Note 3 - Warranty Costs Incurred: $67,000 Opening Warranty Liability + 200,000 Warranty Expense - 104,000 Ending Warranty Liability = $163,000

Examination # 2


Question 4 Calculation of Current Portion of Income Tax Expense - 20x3 20x4 20x5 Net income before taxes $1,000,000 $1,200,000 $1,350,000 Timing differences - Depreciation 200,000 200,000 200,000 CCA -150,000 -255,000 -178,500 Warranty expense 400,000 Warranty costs incurred -400,000 Taxable income $1,450,000 $745,000 $1,371,500 x 34% x 30% x 30% $493,000 $223,500 $411,450 DIT Account - end 20x3 NBV/UCC Difference: (800,000 - 850,000) x 34% $ 17,000 Dr. Warranty liability: 400,000 x 34% 136,000 Dr. DIT account, end 20x3 = DIT portion of income tax expense (credit)

$153,000

DIT Account - end 20x4 NBV/UCC Difference NBV: $800,000 - 200,000 $600,000 UCC: 850,000 - 255,000 595,000 5,000 DIT Account, end 20x4 x 30% 1,500 Cr. Less DIT Account - end 20x3 153,000 Dr DIT portion of income tax expense (debit) 154,500 DIT Account - end 20x5 NBV/UCC Difference NBV: $600,000 - 200,000 400,000 UCC: 595,000 - 178,500 416,500 16,500 x 30% 4,950 Dr. Less DIT Account - end 20x4 1,500 Cr. DIT portion of income tax expense (credit) 6,450

Examination # 2


Partial Income Statements 20x3 20x4 20x5 Net income before taxes $1,000,000 $1,200,000 $1,350,000 Provision for income taxes Current 493,000 223,500 411,450 Deferred -153,000 154,500 -6,450 340,000 378,000 405,000 Net Income $660,000 $822,000 $945,000 Partial Balance Sheets Non Current Assets Deferred Income Taxes $153,000 $4,950 Long-term liabilities Deferred Income Taxes $1,500

Examination # 2


Question 5 a. Purchase price imputed at 100%: $2,000,000 / 0.70 $2,857,143 Net assets acquired 1,500,000 Acquisition differential 1,357,143 Allocation Building 200,000 Goodwill $1,157,143 Acquisition Differential Amortization Schedule - Balance Amortization Balance Dec 31, x1 x2 x4 x5 Dec 31, x5 Building $200,000 $(42,858) $(14,286) $142,856 Goodwill 1,157,143 (71,429) (57,143) 1,028,571 $1,357,143 $(114,287) $(71,429) $1,171,427 Pasco Profit $510,000 Less dividends: $150,000 x 70% (105,000) Sascos net income $240,000 Amortization of acquisition differential (71,429) 168,571 x 70% 118,000 Profit attributable to the equity holders of Pasco $523,000 b. Current assets ($3,000,000 + 2,000,000) $5,000,000 Long-term assets ($6,000,000 + 3,500,000

2,000,000 Investment in Sasco + 1,171,427 PPD - Building & Goodwill)

8,671,427 Liabilities ($5,000,000 + 3,800,000) (8,800,000) Common stock (2,100,000) Retained earnings (schedule) (1,909,999) Noncontrolling Interest (1,700,000 + 1,171,427) x 30% (861,428) Connsolidated Retained Earnings Dec 31, 20x5: Pasco R/E, Dec 31, 20x5 $1,900,000 Sasco R/E, Dec 31, 20x5 $700,000 Sasco R/E at acquisition 500,000 Post acquisition increase 200,000 Amort PPD ($114,287 + 71,429) (185,716) 14,284 x 70% 9,999 $1,909,999

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c. Initial investment $2,000,000 Sasco R/E, Dec 31, 20x5 $700,000 Sasco R/E at acquisition 500,000 Post acquisition increase 200,000 Amort PPD ($114,287 + 71,429) (185,716) 14,284 x 70% 9,999 $2,009,999 Alternatively - Sascos Net Assets $1,700,000 Unamortized PPD 1,171,427 2,871,427 x 70% $2,009,999

Examination # 2


Question 6 Nov 15, 20x5 Inventory $236,000 Accounts Payable $236,000 $US200,000 x $1.18 Dec 31, 20x5 Accounts Payable 10,000 FX Gains/Losses 10,000 Adjust A/P to $US200,000 x $1.13

= $226,000

FX Gains/Losses 6,000 Forward Contract 6,000 Forward Contract Market Value, Nov 15 $US200,000 x $0.98 $196,000 dr. Forward Contract Market Value, Dec 31 $US200,000 x $0.95 190,000 dr. FX Loss $6,000 Feb 15, 20x6 Accounts Payable 226,000 Forward Contract 6,000 FX Gains/Losses 36,000 Cash 196,000

Examination # 2


Question 7 Part (a) Translation Gain on Net Monetary Assets EURO Rate $CAN Net monetary assets - Jan 1, 20x9 2,400,000 .52 1,248,000 Sales 6,000,000 .58 3,480,000 Purchases (3,840,000) .58 (2,227,200) Other expenses (360,000) .58 (208,800) Dividends (120,000) .62 (74,400) Net monetary assets - Dec 31, 20x9 4,080,000 2,217,600 4,080,000 .65 2,652,000 Translation Gain $ 434,400

Translated Income Statement Dec 31, 20x9 EURO Rate $CAN Sales 6,000,000 .58 3,480,000 Cost of sales (Schedule) (4,440,000) - (2,341,200) Depreciation expense (600,000) .52 (312,000) Other expenses (360,000) .58 (208,800) Translation gain 434,400 Net income 600,000 1,052,400

Cost of Sales EURO Rate $CAN Inventory, Jan 1, 20x9 2,400,000 .52 1,248,000 Purchases 3,840,000 .58 2,227,200 Inventory , Dec 31, 20x9 (1,800,000) .63 (1,134,000) 4,440,000 $2,341,200

Examination # 2


Part (b) Cumulative Translation Adjustment - December 31, 20x9 EURO Rate $CAN Net assets - beginning 12,000,000 0.52 6,240,000 Net income 600,000 0.58 348,000 Dividends (120,000) 0.62 (74,400) Net assets - ending 12,480,000 6,513,600 Translated 12,480,000 0.65 8,112,000 1,598,400

Retained Earnings - December 31, 20x9 EURO Rate $CAN Retained earnings - beginning 7,000,000 0.52 3,640,000 Net income 600,000 0.58 348,000 Dividends (120,000) 0.62 (74,400) Retained earnings - ending 7,480,000 3,913,600

Translated Balance Sheet - December 31, 20x9 EURO Rate $CAN Net assets 12,480,000 0.65 8,112,000 Common stock (5,000,000) 0.52 (2,600,000) Retained earnings (7,480,000 - (3,913,600) Cumulative translation adjustment (1,598,400)

CMA Accelerated program Test 2

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