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Quiz #1 (2014 Winter).docx

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Jason Lee

UNIVERSITY OFALBERTA SCHOOL OF BUSINESS DEPARTMENT OFACCOUNTING & OIS ACCOUNTING 415 – Quiz #1 Instructor: Jason Lee January 29, 2014 Student Name: I.D. Number: Section Number: Section B3 MW 15:00 ̶ 16:20 Section B4 MW 16:30 ̶ 17:50 *********************************************************************************** THIS QUIZ CONSISTS OF 2 QUESTIONS ON PAGES 2 TO 5. *********************************************************************************** INSTRUCTIONS: 1. This is a closed-book quiz – only pens/pencils and calculators are permitted. 2. Be sure to state any assumptions that you find necessary and show all calculations. 3. Answer each question in the space provided. 4. You have 35 minutes to complete the quiz. 5. The present value formulas are provided on the next page. 1 Present Value Formulas Lump Sum: Annual C1mpounding Semi-annua1 Compounding n 2n (1+i) 1+() ( ) 2 Periodic Payments: 1 1− 1 n 1 1− 1 2n i{ (1+i)} ( ) 1+ i 2 { }( )2 where i = annual interest rate n = number of years until maturity MARKALLOCATION: Maximum marks Marks awarded Question 1 20 Question 2 15 TOTAL 35 2 Question 1 (20 marks) Gibbins Company manufactures and sells snow blowers. On January 1, 2014, the company sold 3,000 units for $1,200 per unit. The company provides a 2-year parts-and-labor warranty on each unit sold. The estimated cost of each warranty is $150 whereas a comparable 2-year warranty can be purchased from a third party for $200. Gibbins Company expects that 70% of warranty claims will be made in the first year and the remaining 30% in the second year. In 2014, Gibbins Company incurred actual warranty costs of $322,000 for the units sold on January 1, 2014: $210,000 for parts and $112,000 for labor. In 2015, the company incurred additional actual warranty costs for these units of $120,000: $80
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