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RSM220H1 Study Guide - Final Guide: Earnings Before Interest And Taxes


Department
Rotman Commerce
Course Code
RSM220H1
Professor
Xin Baohua
Study Guide
Final

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UNIVERSITY OF TORONTO - ROTMAN SCHOOL OF MANAGEMENT
RSM220 Midterm (110 minutes) – Thursday, February 14, 2013
FIRST NAME _______________________________________
LAST NAME ________________________________________
STUDENT NUMBER:__________________________________
CIRCLE YOUR LECTURE SECTION:
L0101 T 8-10 WO 25 Dragan Stojanovic
L0201 T 10-12 WO 25 Dragan Stojanovic
L0301 T 3-5 WO 25 Dragan Stojanovic
L0401 W 2-4 WW 121 Baohua Xin
L0501 W 4-6 WO 30 Baohua Xin
L0601 R 2-4 WW 121 Scott Douglas
Aids allowed: Non-programmable calculator only.
Instructions:
1. Write legibly. Illegible answers will not be graded.
2. There are 5 questions on 15pages. Answer each question in the space provided. If you need additional space, use
the back of the page facing the question and clearly identify the question being answered.
3. Pencil or pen may be used. However, papers written in pencil or papers with white outs will not be re-marked.
4. Your invigilator will NOT clarify any questions for you during the test. You may make any assumptions you
believe are needed to answer a question. However, you only receive marks for the answer if the assumptions
you made are indeed needed for the question. Make sure you show all calculations for full marks.
Question Marks Marks Awarded
1 10
2 30
3 6
4 30
5 34
Total 110
RSM220-13W Winter – Midterm Page 1 of 16

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Following formulas are provided for your reference:
Present value of a lump sum:
( )
1
n
PMT
PV
r
=+
Present value of an annuity:
QUESTION 1 (10 marks)
REQUIRED: Please answer the following questions by choosing (circling) the best answer (2 marks each):
1. Ratios used to determine how effectively a company uses its assets include
a) book value per share.
b) inventory turnover.
c) payout ratio.
d) quick ratio.
2. Significant accounting policies may NOT be
a) selected on the basis of judgement.
b) selected from existing acceptable alternatives.
c) peculiar to a particular industry.
d) omitted from financial statement disclosure
3. On January 1, 2012, OrangeInc. purchased an equipment at $21,488. The asset is expected to generate cash
flows of $10,000 at the end of each year for two years (i.e. end of 2012, and end of 2013). OrangeInc. expects to
use the equipment evenly in the two years, and at the end of the second year, the capital asset will have a
residual value of $5,000. Assume that the risk-free interest rate is 10%. Under ideal conditions (accounting
theory), how would OrangeInc. report the equipment on the Balance Sheet at December 31, 2012 (rounding to the
nearest dollar)?
a) at $13,636.
b) at $13,244.
c) at $12,397.
d) at $9,091.
4. Which of the following is a limitation of the balance sheet?
a) It does not inform us the company’s ability to pay short term debt.
b) Judgements and estimates are used in deriving some of the numbers.
c) Cash balance is not reported.
d) None of the above.
5. An example of an item which is an element of working capital is
a) accrued interest on notes receivable.
b) long-term investments.
c) retained earnings.
RSM220-13W Winter – Midterm Page 2 of 16

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d) capital shares.
RSM220-13W Winter – Midterm Page 3 of 16
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