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Quiz 1 section M - solution.pdf

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Kevin Petit- Frere

ADM 1340M INTRODUCTORY FINANCIAL ACCOUNTING Quiz No. 1 (Winter 2014) NAME: _________________________ STUDENT #: ____________________ Instructions: 1. This quiz is 30 minutes in length. 2. This is a close-book, close-notes exam. 3. A calculator is allowed. 4. Please write or print neatly. Statement of Academic Integrity The School of Management does not condone academic fraud, an act by a student that may result in a false academic evaluation of that student or of another student. Without limiting the generality of this definition, academic fraud occurs when a student commits any of the following offences: plagiarism or cheating of any kind, use of books, notes, mathematical tables, dictionaries or other study aid unless an explicit written note to the contrary appears on the exam, to have in his/her possession cameras, radios (radios with head sets), tape recorders, pagers, cell phones, or any other communication device which has not been previously authorized in writing. Statement to be signed by the student: I have read the text on academic integrity and I pledge not to have committed or attempted to commit academic fraud in this examination. Signed:______________________________________ Note: an examination copy or booklet without that signed statement will not be graded and will receive a final exam grade of zero. Exercise 1. (45 marks) The following items are taken from the financial statements of Columbia Ltd. for the year ended December 31, 2012: Income tax expense $ 1,000 Accounts payable 19,500 Accounts receivable 4,000 Accumulated depreciation – equipment 4,800 Bonds payable 18,000 Cash 22,000 Common shares (2,500 shares issued) 25,000 Cost of goods sold 12,000 Depreciation expense 4,800 Dividends 300 Equipment 48,000 Goodwill 7,500 Interest expense 3,500 Retained earnings, beginning 16,000 Salaries expense 8,200 Sales revenue 32,500 Supplies 4,500 Market price per common share $4.50 Instructions (a) Prepare a classified statement of financial position for Columbia for 2012. (b) Calculate the following ratios: 1. Current ratio. 2. Debt to total assets. 3. Earnings per share. 4. Price-earnings ratio. COLUMBIA LTD. Statement of Financial Position December 31, 2012 Assets Current assets Cash $22,000 Accounts receivable 4,000 Supplies 4,500 Total current assets 30,500 Property, plant, and equipment Equipment $48,000 Less: Accumulated depreciation—equipment 4,800 43,200 Goodwill 7,500 Total assets $81,200 Liabilities and Shareholders' Equity Current liabilities Accounts payable $19,500 Non-current liabilities Bonds payable 18,000 Total liabilities 37,500 Shareholders' equity Common shares $25,000 Retained earnings 18,700* 43,700 Total liabilities and shareholders' equity $81,200 *Retained earnings = $18,700 ($16,000 + $3,000 – $300) (b) 1. Current ratio: $30,500 ÷ $19,500 = 1.6:1 2. Debt to total assets: $37,500 ÷ $81,200 = 46.2% 3. Earnings per share: $3,000 ÷ 2,500 = $1.20 4. Price-earnings ratio: $4.50 ÷ $1.20 = 3.8 times Exercise 2. (55 marks) Plo
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