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Sample Exam ADMS 1500.pdf

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Administrative Studies
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ADMS 1500
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Last name (surname): ____________________ First name: ____________________ Student ID#: ___________________________ Sign-In Number (to be filled when you sign in only): _____________ York University - Atkinson Faculty School of Administrative Studies AK/ADMS 1500 3.0 An Introduction to Accounting: The Analysis and Use of Financial Information Sample Exam, Fall, 2011 Instructions 1. Practice under examination conditions prior to the Review Class 2. For each question circle a b c d or e as appropriate. 3. Simple calculators without text memory are permitted. Part A – Multiple Choice (70 / 100 marks – two hours) 1. Financial statements are required to be produced by ____________. a) Tax law b) The Canada Business Corporations Act and its provincial equivalents c) The accounting equation d) Generally accepted accounting principles e) None of the above 2. The ratio of operating income to total assets is ____________. a) A profitability ratio b) Always 2:1 or more c) A cash flow concept d) Part of the income statement e) None of the above 3. Investors  buy  shares  in  Quietus  Ltd.  for  $5  million.    On  Day  One  of  the  company’s   operations, $3 million is spent on assets and $4 million is borrowed from the Bank. By the end of the first month they have also bought $10 million of goods for resale on credit and made sales of $25 million on credit. The remaining inventory had a cost of $3 million. Ignore all other transactions and expenses. The operating profit for the month was ____________. a) $25 million b) $20 million c) $18 million (25-(10-3)) d) $15 million e) None of the above 4. Tom & Dick go into business together as partnership, selling computer software through the internet. On January 1, they each put in $6,000 as capital, and this goes into the Tom & Dick account at their local bank. They buy computer equipment for $10,000 (paid in cash)  and  set  up  for  business  in  Dick’s  dad’s  basement.    The  cost  of  the  computer   equipment will be amortized over the next three years, with a disposal value of $1,000. Dick’s  dad  has  agreed to let them operate out of his basement if they pay him a rent of 10% of their annual profit, or $1,200 per year, whichever is greater. At the end of the first month of business they have made no sales and incurred no expenses, other than the amortization  of  the  computer  equipment  and  the  rent  (which  is  owed  to  Dick’s  dad).     During  February  they  make  sales  of  $5,000,  all  of  which  is  paid  for  by  customers’  credit   cards. By the end of February they are still waiting to receive the cash. In addition to another  month’s  rent  and  amortization,  they  have  bought  the  software  that  was  sold  to   customers at a cost of $2,000, which they paid by cheque. The cash at bank at the end of February is ____________. a) $2,000 b) $1,900 c) $1,400 d) nil (2*$6000-$10,000-2,000=0) e) None of the above 5. The accounting concept most relevant to reporting sales revenue is ______________. a) Matching b) Historic cost c) Recognition d) Periodicity e) None of the above 6. The financial statement that measures the change in wealth over a period of time is called the _______________. a) Balance sheet b) Income statement c) Cash flow statement d) Statement of retained earnings e) None of the above 7. A project with a positive net present value is _______________. a) Economically feasible b) One with a short payback period c) One with a return on investment of 15% or more d) It has a high level of risk e) None of the above 8. Pearl’s  Pizza  has  cash  of  $5,000,  inventory  of  $100,000,  and  accounts  receivable  of   $45,000. Current liabilities are $50,000 and long-term  liabilities  are  $25,000.    Pearl’s   Pizza’s  quick  ratio  is  __________. a) 3:1 b) 2:1 c) 1.25 d) 1:1 (5+45=50:50) e) None of the above 9. Pearl’s  Pizza  is  financed  from  $75,000  of  debt  and  $175,000  of  equity.    Its  debt-to-assets ratio is __________. a) 50.0% b) 42.9% c) 30.0% (75K / (75K+175K=250K)) d) 25.0% e) None of the above 10. Profilo Co. has the following assets and liabilities: Assets: cash, $100; accounts receivable, $150; Inventory, $240; land, $200; plant, net of accumulated depreciation: 300. Liabilities: short-term bank loan, 60; accounts payable, $160; long-term mortgage loan, $160. Its debt- to-equity ratio is __________. a) 75.0% b) 62.3% (60+160+160=380); (100+150+240+200+300=990); 990-380=610); 380/610 =62.3% c) 50.0% d) 38.4% e) None of the above 11. Orion Co. is financed by $200,000 of debt carrying 6% interest, $100,000 of 8% preference shares, and $500,000 of equity. Operating profit was $100,000, and Orion Co. pays tax on profits (after interest) at the rate of 40%. How much did the preference shareholders get in dividends? a) $12,000 b) $ 8,000 (100K*8%) c) $ 8,000, plus the same dividend as the common shareholders d) 60% e) None of the above 12. The cash flow statement __________. a) Is  stated  “at  a  point  in  time” b) Is a voluntary additional report c) Is a required report d) Measures  the  company’s  efficiency e) None of the above 13. Digman Co. had retained earnings of $400,000 and $50,000 in cash on January 1st. It made a net income of $300,000 in the year. Amortization expense was $250,000. Digman Co. issued additional common shares for $500,000 and borrowed $600,000 from the Bank of Toyland. Cash from financing activities was __________. a) $1,100,000 (.5M + .6M) b) $ 900,000 c) $ 600,000 d) $ 500,000 e) None of the above 14. Mississauga Mining Co. made a net income of $25 million in 2010, after the deduction of amortization expense of $8 million, interest of $5 million and taxes of $10 million. During 2007, it sold mining equipment for $2 million and bought a new computer system for $3 million. During 2007, it issued new shares for $15 million and used the proceeds to repay loans  of  $10  million;;  the  remainder  went  into  the  bank’s  current  account.  The  cash  from   operations was __________ ($ million). a) $17 m b) $25 m c) $27 m d) $33 m ($25+$8) e) None of the above 15. Mississauga Mining Co. made a net income of $25 million in 2010, after the deduction of amortization expense of $8 million, interest of $5 million and taxes of $10 million. During 2007, it sold mining equipment for $2 million and bought a new computer system for $3 million. During 2007, it issued new shares for $15 million and used the proceeds to repay loans  of  $10  million;;  the  remainder  went  into  the  bank’s  current  account.    The  cash   received from the sale of the shares would be shown in __________. a) The statement of retained earnings b) The statement of cash flows c) The balance sheet d) (a) & (b), but not (c) e) (a), (b) & (c) 16. Production and sales volumes are linked through __________. a) Changes in inventories of finished goods b) Changes in inventories of raw materials c) Changes in competitors actions d) Changes in the weather e) None of the above 17. Bankruptcy is the result of __________. a) Running out of raw material supplies b) Running out of cash c) Poor sales forecasting d) Budgetary irregularities e) None of the above 18. Ms. Greengrass is preparing the budget for the H.R. Department, of which she is manager. She  has  taken  last  years’  budget  and  critically  examined  each  item  to  see  if  this  year’s   activities should be reflected in the same amount, a higher, or a lower figure. She is using __________. a) Zero-based budgeting b) Kaizan budgeting c) Benchmarking d) Incremental budgeting e) Random budgeting 19. Sales  for  the  year  at  Monica’s Mantles are forecast to be 22,000 mantles at an average selling price of $125 each. Opening inventory is expected to be 500 mantles. Monica wants to have 1,400 mantles in inventory at the end of the year. Mantle purchases for the year should be __________. a) 23,400 b) 22,900 (22K + 1.4K -.5K) c) 22,500 d) 22,000 e) 21,500 20. Sales  at  Monica’s  Mantles  last  year  were  $2,400,000.    Assume  that  the  sales  occurred   evenly throughout the year. Assume also that customers owed $200,000 at the start of the year, and that all customers took one month to pay. There were no bad debts or late payers. Cash collection from customers in the year was __________. a) $2,000,000 b) $2,200,000 c) $2,400,000 d) $2,500,000 e) None of the above 21. Beaches Coffee Shop is a coffee bar in the Beaches area of Toronto. Sales volume for the last four years has been as follows: 2004: 50,000 units 2005: 55,000 units 2006: 60,500 units 2007: 66,550 units The year-on-year growth rate has been __________. a) 5% b) 7.5% c) 8% d) 10% e) None of the above 22. Jemima's Outfits has a store in Dixie Outlet Mall. Jemima's Outfits specializes in high- class ladies fashions and sells complete outfits for a uniform price of $75 each. The sales budget for 2011 was to sell 6,000 outfits. Assume that 50% of the sales were made for cash, and 50% were made on credit terms. Of the credit customers, 70% pay by the end of the month following the sale, 28% pay by the end of the next month following, and 2% turn into bad debts. The bad debt expense for the year 2007 would be __________. a) $6,000 b) $7,500 c) $8,500 d) $9,000 e) None of the above (6K*$75=$450Kx50%=$225K*2%=$4.5K) 23. The balanced scorecard is __________. a) One of the four financial statements required to be published b) A useful way of linking strategy and control c) Limited to financial outcomes d) Purely qualitative e) None of the above 24. Comparing actual results with planned results and taking appropriate action are the functions of __________. a) Budgeting b) The budget committee c) The balanced scorecard d) Budgetary control e) None of the above 25. Jemima's Outfits has a store in Dixie Outlet Mall. It specializes in high-class ladies fashions and sells complete outfits for a uniform price of $75 each. The outfits are budgeted to cost $50 each. The sales budget for 2010 was to sell 6,000 outfits. If the outfits actually cost $48 each to buy, there would be __________. a) A favorable sales variance b) An unfavorable sales variance c) A favorable cost variance d) An unfavorable cost variance e) None of the above 26. Monica’s  Mantles  planned  to  spend  $100,000  designing  new  mantles  to  keep  ahead  of   fashion trends. The company actually spent $75,000. This is __________. a) A good thing, as the company under spent its budget b) A good thing, as keeping ahead of fashion trends is not important c) A bad thing, as it will reduce the operating profit d) A bad thing, as it means the company is not moving towards achieving its strategic objective e) None of the above 27. Monica’s  Mantles  has  a  strategic objective of offering high quality mantles to discerning customers who are prepared to pay a premium price. The financial section of the balanced scorecard  includes  “%  reduction  in  cost  of  sales  per  unit”.    This  is  __________. a) A good thing, as reduced cost of sales increases gross margin % and is in line with strategic objectives b) A bad thing, as reduced cost of sales may increase gross margin %, but it is not in line with strategic objectives c) A good thing, as it enables price reductions and sales volume increases d) A bad thing, as profitability will decline e) None of the above 28. The difference between actual results and planned results is called __________. a) Management by objectives b) A variance c) A disaster d) The master budget e) None of the above 29. Which of the following is an example of a variable cost? a) Supervisory salaries b) Rent c) Insurance d) Raw materials used e) None of the above 30. Which of the following is an example of a fixed cost? a) Supervisory salaries b) Direct labor c) Raw materials used d) Commission on sales e) None of the above 31. The "make or buy" type of decision is about _______________. a) Activity-based management b) Break-even analysis c) Outsourcing vs. internal production d) Human resource management e) None of the above 32. B Company has a machine shop that can process 25,000 units of product per month, but it is only processing 17,500 units per month. The rent of the premises is a ______________. a) Fixed cost b) Sunk cost c) Cost that is marginal to a production decision d) (a) & (b), but not (c) e) (a), (b) & (c) 33. Sarnia Safety Co. makes fire extinguishers. The standard cost of its most popular model, XL5, is as follows: Body $6.00 Filling $3.00 Packing $1.00 Labour $5.00 Overhead $7.50 Total $22.50 You are told that overhead is allocated to products on the basis of 150% of direct labour cost, and that overhead is one-third variable and two-thirds fixed. The XL5 is sold to distributors for $30, and the distributors sell them to end users for various prices between $40 and $50. Wal-Mart  has  been  considering  carrying  Sarnia  Safety’s  XL5  extinguisher  in   its stores. The volume of sales would be significant, so Sarnia Safety is prepared to offer an unusually low price to Wal-Mart. If Sarnia Safety decides that it would be content with a contribution margin of $5 per extinguisher, the price it should quote to Wal-Mart is _______________. a) $30.00 b) $27.50 c) $22.50 ($22.50 –[$7.50*2/3]+$5) d) $17.50 e) None of the above 34. Computer Peripherals makes scanners and printers. Its income statement for last year was as follows: Scanners Printers Total Units sold 5,000 10,000 15,000 Selling price per unit $ 120 $ 75 Sales revenue $600,000 $750,000 $1,350,000 Direct materials $200,000 $150,000 Direct labour 40,000 50,000 Production overhead 200,000 250,000 Administrative & selling overhead 50,000 100,000 Total $490,000 $550,000 $1,040,000 Product profitability $110,000 $200,000 $ 310,000 You are told that the materials and labour costs are variable expenses, and production overhead and the selling & administrative overhead are all fixed expense. Production overhead has been allocated to products on the basis of $5 of production overhead for each $1 of labour cost. Administrative & selling expense is allocated to products in proportion to sales units. The variable cost per unit for scanners is _______________. a) $120 b) $88 c) $58 d) $48 ($200K/5K units=$40K) + ($40K/5K units=$8K) e) None of the above 35. Computer Peripherals makes scanners and printers. Its income statement for last year was as follows: Scanners Printers Total Units sold 5,000 10,000 15,000 Selling price per unit $ 120 $ 75 Sales revenue $600,000 $750,000 $1,350,000 Direct materials $200,000 $150,000 Direct labour 40,000 50,000 Production overhead 200
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