2009_EE_en

7/31/2019 2009_EE_en

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The Societies of Management Accountants of Alberta, Manitoba, New Brunswick, Newfoundland,Northwest Territories and Nunavut, Nova Scotia, Ontario, Prince Edward Island, Saskatchewan, and the Yukon,

Certified Management Accountants Society of British Columbia, Ordre des comptables en management accrédités du Québec

2009 Sample

Entrance Examination

(Time Allowed: 4 hours)

Notes:

i) All answers must be indicated on the scannable multiple-choice answer sheet.Work done on the question paper and examination foolscap will NOT be marked.

ii) Included in the examination envelope is a supplement consisting of formulae andtables. It is a standard supplement that may be useful for answering questions onthis paper.

iii) Examination materials must NOT BE REMOVED from the examinationwriting centre. All examination materials (i.e. answer sheet, used and unusedfoolscap sheets, envelope, supplement and question paper) must be submittedto the presiding officer before you leave the examination room.

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TABLE OF CONTENTS

Examination:

Instructions ......................................................................................... 1Strategic Management ........................................................................ 3

Risk Management and Governance ................................................... 5

Performance Management ................................................................. 8

Performance Measurement .............................................................. 17

Financial Management ..................................................................... 23

Financial Reporting ........................................................................... 29

Solution:

Summary .......................................................................................... 40

Solutions ........................................................................................... 41

Supplement of Formulae ......................................................................... 69

* This supplement is provided to all candidates with the examination.

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2009 Sample Entrance Examination

CMA Canada 1

INSTRUCTIONS:

Use the multiple-choice answer sheet provided to record your answers to the questions.Be sure to enter your four-digit envelope number on the multiple-choice answer sheet.Select the BEST answer for each of the following 110 questions and record your

answer on the multiple-choice answer sheet by blackening the appropriate answerspace (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONEANSWER for each question.

Sample Question:

189. (-) Market research and public relations costs are

a) engineered variable costs.b) discretionary variable costs.c) committed fixed costs.

d) discretionary fixed costs.e) engineered fixed costs.

Assuming you select choice d) for your answer, you should blacken the “d” space online 189 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:

189 a b c d e

Question Weighting:

Your performance will be based on the total weighted value of the questions answeredcorrectly. Note that all questions are assigned the same weight, except for thosespecified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a lowerweight). In the above example, there is a minus sign at the beginning of the question,signifying that the question has a lower weighted value than the average question.

Singular Versus Plural Phrasing:

For simplicity of wording, all questions are phrased as though there is a single correctanswer, even when there are multiple correct answers. For example, the correct answerto a question that is worded, “Which of the following is...,” may be the choice that refersto two or more of the other choices, e.g. “Both a) and b) above.”

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Calculator Policy and Supplement

The following models of calculators are authorized for use on the Entrance Examinationeffective January 2008:

Texas Instruments TI BA II Plus (including the Professional model)

Hewlett Packard HP 10bII (or HP 10Bii)

Sharp EL-738C (or EL-738)

The supplement accompanying the Entrance Examination contains present valuetables.

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Strategic Management

1. If economies of scale are an industry’s primary entry barrier, a new entrant’s major risk isits inability to

a) get buyers to switch to its products.b) access superior sources of raw materials for its products.c) match the pace of innovation of its established rivals.d) produce in sufficient volume to match the cost advantages of established industry

competitors.e) ensure quality of its finished products.

2. Which of the following internal resources of a competitor is the most difficult to imitate?

a) Brand name.b) State-of-the-art manufacturing facilities.

c) Marketing intelligence.d) Technological know-how.e) Capital.

3. (-) The main purpose of a company’s mission statement is to provide a context anddirection for

a) legislative lobby groups.b) product/market/technology areas.c) inside claimants of the company.d) outside claimants of the company.e) strategy formulation.

4. Speed of product development in uncertain, competitive environments characterizestoday’s competitive landscape. Which of the following organizational structures best helps a company accelerate the product development process in order to address rapidtechnological change?

a) Multidivisionalb) Matrixc) Functionald) Strategic Business Unit (SBU)e) Geographic

5. (-) The process of measuring products, services and practices against the industryleaders and striving to match their performance is called

a) Continuous improvement.b) Best practices strategy.c) The focus strategy, one of Porter’s competitive strategies.d) Total quality management.e) Benchmarking.

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6. (-) When demand temporarily increases, the operations manager has severalalternatives. Which of the following strategies is the LEAST DESIRABLE option fordealing with an increase in demand?

a) Adjust the work force.b) Plan for late deliveries to customers.

c) Schedule overtime.d) Modify vacation schedules.e) Build finished goods inventory to meet anticipated demand.

7. (-) Which of the following classes of products requires little effort on the part of thecustomer in searching out the product, requires little need to compare alternatives interms of price, quality or style, and involves low psychological and financial risk?

a) Unsoughtb) Tangiblec) Convenienced) Shopping

e) Specialty

8. (-) The levelling and initial decrease in sales growth of a product takes place in whichstage of the product life cycle?

a) The decline stageb) The introductory stagec) The maturity staged) The growth stagee) The product development stage

9. Which of the following statements would NOT form part of a mission statement?

a) Company XYZ is a globally recognized financial institution.b) ABC Memorial Hospital provides an appropriate mix of services to the

residents of ABC region and surrounding areas.c) BCD Company makes, distributes and sells the finest quality widgets.d) To build the largest and most complete antique radio community site on the

Internet.e) To provide a fair return to our investors while adhering to the highest

standards of integrity.

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Risk Management and Governance

10. The main purpose of an internal control system within an organization is to

a) provide timely and relevant information to the organization about its goals and

objectives.b) safeguard the assets within the organization.c) confirm the reliability and integrity of information within the organization.d) ensure efficient use of resources.e) ensure the behaviour of employees is consistent with organizational objectives and

strategies.

11. (-) The primary responsibility for preventing fraud in an organization lies with

a) management.b) the internal auditor.c) security personnel.

d) the audit committee of the board of directors.e) the external auditor.

12. Which of the following is LEAST LIKELY to be detected by an internal control system?

a) Fraudulent actions by a group of employeesb) Duplicate payments to suppliersc) Deviations from written proceduresd) Fraudulent actions by an individual employeee) Unauthorized disbursements

13. Which of the following is an example of a control procedure?

a) Analyzing variancesb) Imposing sales quotasc) Using standard costs in production reportingd) Both a) and b) abovee) All of a), b) and c) above

14. Effective internal control over the purchasing of raw materials should usually includewhich of the following procedures?

a) Obtaining third-party written quality and quantity reports prior to the payment for theraw materials.

b) Determining the need for the raw materials prior to preparing the purchase order.c) Systematic reporting of product changes which will affect raw materials.d) Both b) and c) above.e) All of a), b) and c) above.

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15. Which of the following steps in the process of developing controls to mitigate a specificrisk should be done first?

a) Assess the extent to which existing controls and processes can be modified toachieve the desired objective.

b) Determine the cost of implementing and maintaining various alternative controls.

c) Conduct a cost/benefit analysis of various alternative controls.d) Identify alternative controls that might be introduced to mitigate the risk.e) Define the risk to be mitigated and estimate the amount and likelihood of the

potential loss.

16. Internal control over cash receipts is weakened when an employee who receivescustomer mail receipts also

a) prepares initial cash receipts records.b) records credits to individual accounts receivable.c) prepares bank deposit slips for all mail receipts.d) maintains a petty cash fund.

e) none of the above.

17. Which of the following should be regarded as a sign that fraud may be occurring?

a) The corporate controller drives an expensive luxury automobile.b) An accounts receivable clerk never takes vacations.c) The staff turnover rate for part-time cashiers is very high.d) A petty cash fund is replenished on a frequent basis.e) None of the above.

18. Which of the following is an effective internal control measure that encourages receivingdepartment personnel to count and inspect all merchandise received?

a) Quantities ordered are excluded from the receiving department copy of the purchaseorder.

b) Vouchers are prepared by accounts payable department personnel only after theymatch item counts on the receiving report with the purchase order.

c) Receiving department personnel are expected to match and reconcile the receivingreport with the purchase order.

d) Internal auditors periodically examine, on a surprise basis, the receiving departmentcopies of receiving reports.

e) None of the above.

19. Internal control comprised of: the plan of organization, the procedures and records that

are concerned with the safeguarding of assets, and the

a) decision processes of management.b) reliability of financial records.c) authorization of transactions.d) achievement of administrative objectives.e) none of the above.

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20. When considering the effectiveness of a system of internal control, it should berecognized that inherent limitations do exist. Which of the following is an example of aninherent limitation in a system of internal control?

a) The effectiveness of procedures depends on the segregation of employee duties.b) Procedures are designed to assure the execution and recording of transactions in

accordance with management’s authorization.c) In the performance of most control procedures, there are possibilities of errors

arising from mistakes in judgement.d) Procedures for handling large numbers of transactions are processed by electronic

data processing equipment.e) None of the above.

21. A manufacturing plant has a quality control division. Its responsibility is to ensure that allproducts manufactured are within the company’s quality guidelines. This division is anexample of a

a) preventive control.

b) corrective control.c) steering control.d) post-action control.e) detective control.

22. Preventive controls are located throughout the entire EDP system. Which of thefollowing would NOT be considered a preventive control?

a) Prenumbered forms.b) Logical test.c) Limit test or limit check.d) Control register.

e) Completeness test or completeness check.

23. Some of the more important controls that relate to automated accounting informationsystems are validity checks, limit checks, field checks, and sign tests. These areclassified as

a) control total validation routines.b) hash totalling.c) data access validation routines.d) output controls.e) input validation routines.

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24. A Canadian oil drilling firm was operating in a foreign country. The government of theforeign country took ownership of the assets of the drilling firm and offered the Canadiancompany compensation in the form of cash and a continuing operating agreement.Which of the following best describes what happened?

a) Nationalization

b) Privatizationc) Expropriationd) Repatriatione) Confiscation

25. Which of the following describes the role of the board of directors in the strategicmanagement of a company?

a) To evaluate the calibre of the senior executives’ skills in formulating andimplementing the company’s strategies.

b) To formulate the overall company strategy and delegate strategy implementation tocorporate management.

c) To oversee the company’s strategic actions by critically appraising and ultimatelyapproving strategic action plans.

d) To determine the corporate vision upon which the company’s strategy is based, andto oversee management’s strategic action plans.

e) Both a) and c) above.

Performance Management

26. The following information summarizes total production costs and number of units of

product produced by Company B over the last 6 months:

Month Total Cost Units Produced1 $24,000 30,0002 $30,000 42,0003 $28,000 40,0004 $27,000 34,0005 $25,000 32,0006 $23,000 31,000

Using the high-low method, the estimated cost function for this product is

a) Y = 9,000 + 0.500 x number of units produced.b) Y = 7,500 + 0.585 x number of units produced.c) Y = 3,285 + 0.636 x number of units produced.d) Y = 493 + 0.726 x number of units produced.e) Y = 1,500 + 0.750 x number of units produced.

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27. Lampco has determined that, for its “Slender” model of lamp, the direct materials cost is$5 per unit and the direct labour cost is $4 per unit. Based on 20 monthly observations,the company ran a regression that projected the overhead associated with this model oflamp as follows:

Overhead = 16,500 + .75x, where x is the direct labour cost.

The selling price for the Slender lamp is $17 per unit. What is the expected gross marginfrom sales of the Slender lamp next month if sales volume is estimated to be 5,000units?

a) $36,250b) $23,500c) $8,500d) $19,750e) $25,000

28. (-) A factory manager’s salary is

a) an indirect labour cost.b) an administrative expense.c) a variable overhead cost.d) a direct labour cost.e) a period cost.

29. All variable costs of a particular service vary based on direct labour hours. The followingrelationship pertains to a year’s budgeted activity regarding this service:

Direct labour hours 300,000 400,000Total costs $129,000 $154,000

What are the budgeted fixed costs for the year?

a) $25,000b) $29,000c) $54,000d) $75,000e) $100,000

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30. The following information is available for the manufacturing operations of ABC Ltd. forthe month of March:

Direct materials purchased $82,000Direct labour payroll $60,000Direct labour rate per hour $7.50

Factory overhead rate per direct labour hour $10.00

Opening InventoryMarch 1

Ending InventoryMarch 31

Direct materials $38,000 $30,000Work in process $18,000 $12,000Finished goods $54,000 $72,000

Cost of goods manufactured for the month of March is

a) $248,000.b) $290,000.

c) $230,000.d) $236,000.e) $218,000.

31. The use of a plant-wide overhead rate will

a) result in appropriate inventory costs in a diverse job-order manufacturing situation ifinventory is significant.

b) result in appropriate inventory costs in a diverse job-order manufacturing situationregardless of inventory levels.

c) provide cost data useful for pricing decisions, regardless of inventory levels, in aprocess manufacturing situation where there is only one main product.

d) provide cost data useful for pricing decisions in a joint-cost manufacturing situation ifinventories are insignificant.

e) provide cost data useful for evaluating the performance of individual manufacturingoperations regardless of inventory levels.

The following information pertains to questions 32 and 33.

Ex Company, which produces a single product, began operations on January 1, Year 1.Material A is added at the start of the production process and packaging material B is added atthe end of the process. Conversion costs are incurred uniformly throughout the process.Inspection takes place when manufacturing is completed, but before packaging material B isadded. Spoiled units are discarded. Normal spoilage for this production process is 4% of goodoutput. Production data for the first quarter of Year 1 was as follows:

Units started 18,000 unitsGood units completed and transferred-out 15,000 unitsEnding work-in-process inventory 2,000 units

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Using a first-in, first-out (FIFO) process costing system, Ex Company incurred the followingcosts per equivalent unit during the first quarter:

Material A $11.00Material B $0.80Conversion costs $15.00

The cost of ending work-in-process inventory using FIFO process costing was $34,000.

32. (+) The loss from abnormal spoilage for the first quarter was

a) $16,080.b) $10,720.c) $10,400.d) $15,600.e) $26,800.

33. (+) In terms of conversion, what was the percentage of completion of the ending work-in-

process inventory?

a) 65.4% completeb) 34.7% completec) 54.5% completed) 40.0% completee) 63.4% complete


Omega Company manufactures three chemicals in a joint process. The manufacturing costs ofthe joint process include $25,000 of direct materials and $35,000 of conversion costs. All threechemicals can be sold in their unrefined form immediately after the split-off point or they can befurther refined before they are sold. During May, all three chemicals were further refined. Thefollowing is data regarding production for the month of May:

ChemicalA B C

Sales price per litre before refining $20 $25 $10Sales price per litre after refining $35 $40 $18Cost of refining $28,000 $10,000 $12,000Total output of chemical at split-off 2,500 litres 1,600 litres 3,000 litresTotal output of chemical after refining 2,300 litres 1,500 litres 2,700 litres

34. (+) Using the sales value at split-off method, the total joint costs allocated to Chemical Ain May (rounded to the nearest hundred dollars) is

a) $21,100.b) $25,000.c) $22,600.d) $25,500.e) $33,600.

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35. (+) Now assume that Omega Company uses the physical measures method, that therefining process for Chemical C also produces a hazardous by-product that must bedisposed of at a cost of $5 per litre, and that refining 1,000 litres of Chemical C results in100 litres of this by-product. For the month of May, what effect would refiningChemical C have on Omega Company’s profits as compared with its profits if

Chemical C was sold at split-off without being further refined (rounded to the nearesthundred dollars)?

a) $17,100 more profits by refiningb) $20,300 less profits by refiningc) $8,100 more profits by refiningd) $5,100 more profits by refininge) $8,400 less profits by refining


Markham Company uses a normal job order costing system. Overhead rates are applied on thebasis of machine hours in Department 1 and direct labour hours in Department 2. Budgeteddata for the two departments are as follows:

Department 1 Department 2Budgeted overhead $150,000 $300,000

Budgeted activity:Direct labour hours (DLH) 50,000 100,000Machine hours (MH) 30,000 50,000

Direct labour wage rate per hour $20 $30

The following data pertain to Job 94-669, which was completed during the year:

Direct materials $350,000Direct labour hours (DLH):- Department 1 1,000- Department 2 2,000Machine hours (MH):- Department 1 5,000- Department 2 2,000

36. The total factory overhead applied to Job 94-669 is

a) $9,000.

b) $15,000.c) $31,000.d) $37,000.e) $80,000.

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37. During the year, actual direct labour wage rates and factory overhead incurred inDepartments 1 and 2 were as budgeted. Also, 52,000 direct labour hours and 35,000machine hours were used in Department 1 for production, whereas 98,000 DLH and46,000 MH were used in Department 2. Overhead for Markham Company is

a) $19,000 underapplied.

b) $1,000 underapplied.c) $1,000 overapplied.d) $19,000 overapplied.e) $31,000 overapplied.

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38. Axe Co. has a job order cost system. The following debits (credits) appeared in thework-in-process account for the month of May:

May Description Amount

1 Balance $ 2,00031 Direct materials 12,00031 Direct labour 8,00031 Factory overhead 6,40031 To finished goods (24,000)

Axe applies overhead to production at a predetermined rate equal to 80% of directlabour cost. Job No. 9, the only job still in process at the end of May, has been chargedwith direct labour of $1,000. The amount of direct materials charged to Job No. 9 was

a) $12,000.b) $600.

c) $2,600.d) $4,400.e) $1,500.

39. Pelletier Ltd. is a manufacturer that uses a just-in-time production system. For job-costing purposes, the company uses a system that delays recording changes in thestatus of a product being produced until the good finished units are completed, i.e. itdoes not record work in process. This type of costing system is called

a) kaizen costing.b) hybrid costing.c) product life cycle costing.

d) backflush costing.e) normal costing.

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40. (+) Company F has two production departments, A and B, and two service departments, janitorial and personnel. Personnel costs are allocated based on number of employeesand janitorial costs are allocated based on size of the department in square metres.

Department No. of Employees Sq. Metres Direct CostsA 150 10,000 $ 750,000

B 200 20,000 600,000Janitorial 25 1,000 25,000Personnel 15 2,000 18,000Total 390 33,000 $1,393,000

Under the direct allocation method, what amount of janitorial costs would be allocated toDepartment A (round to the nearest dollar)?

a) $7,576b) $7,813c) $10,714d) $8,333

e) $8,733

41. (+) A business uses the step-down method to allocate service department costs to themanufacturing departments. Assume there are two service departments and twomanufacturing departments, as shown below:

ServiceDepartments

ManufacturingDepartments

PlantAdmin.

CustodialServices

Cutting Polishing

Costs $360,000 $90,000 $261,000 $689,000Labour hours 25,000 6,000 18,000 30,000

Space occupied (m2) 10,000 1,000 5,000 45,000

Plant administration costs are allocated based on labour hours, and custodial servicescosts are allocated based on space occupied. The total costs of the cutting and polishingdepartments (rounded to the closest ‘000), after allocating all the service departmentcosts, starting with the largest service provider are

a) cutting - $396,000, and polishing - $914,000.b) cutting - $405,000, and polishing - $995,000.c) cutting - $381,000, and polishing - $889,000.d) cutting - $394,000, and polishing - $1,006,000.e) cutting - $380,000, and polishing - $892,000.

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42. Marshland Manufacturers had set its static (master) budget sales at 25,000 units and itsbudgeted contribution margin at $30 per unit. Actual sales volume, however, was 28,000units and actual contribution margin was $28 per unit. There was no selling pricevariance. The sales volume variance was

a) $56,000 unfavourable.

b) $84,000 unfavourable.c) $84,000 favourable.d) $90,000 unfavourable.e) $90,000 favourable.

The following information pertains to questions 43 to 45.

Joie Inc. produces Product X. Each unit of the product requires 0.2 hour of direct labour,2 kilograms of material A, and 1 kilogram of material B. The company has a production capacityof 30,000 units of Product X per year, but its current production and sales are 25,000 units peryear. For the current year, costs and revenues are as follows:

Price per unit of Product X $13.50Direct labour cost per hour $15.00Material A cost per kilogram $0.80Material B cost per kilogram $2.40Fixed factory overhead $50,000Variable selling and administration costs $12,500All other fixed expenses $37,500

43. At the current level of production, the contribution margin per unit of Product X is

a) $6.50.b) $4.50.

c) $6.80.d) $4.00.e) $6.00.

44. At the current level of production, the gross margin per unit of Product X is

a) $6.00.b) $4.50.c) $4.83.d) $3.00.e) $4.00.

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45. Assume that variable production costs for next year will be $8.00 per unit of Product Xand that all other costs will be the same as for the current year. If the selling priceremains at $13.50 per unit, the breakeven volume for next year would be

a) 17,500.b) 10,000.

c) 18,182.d) 15,909.e) 10,294.

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46. (+) The following data pertain to the two products manufactured by Korn Corp.:

Product Y Product ZSelling price per unit $120 $500Variable cost per unit $70 $200

Fixed costs total $300,000 annually. The expected sales mix in units is 6 units ofproduct Y to 4 units of product Z. Given this sales mix, how many units of the twoproducts together must Korn Corp. sell to break even?

a) 857b) 2,459c) 1,714d) 2,000e) 1,103

47. PTM Ltd. is a Canadian manufacturer of hardware parts. A large company is open fortenders on a three-year contract for 150,000 units of part X per year. PTM Ltd. currently

supplies this model to another company for $6.50 per unit. The probabilities of PTM Ltd.being awarded the contract at various bid prices are estimated as follows:

Probability Bid Price Per Unit100% $5.0090% $5.5065% $6.0040% $6.5010% $7.00

PTM Ltd.’s standard cost for producing Part X is $4.80 per unit ($3.60 variable + $1.20fixed) at a standard activity of 375,000 units per year. The company’s production

capacity is 600,000 units per year. If PTM Ltd. is awarded the contract, fixed overheadcosts will increase by $12,000 per year.

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(+) Which bid price for the three-year contract would have the most favourable expectedoutcome on PTM Ltd.’s income?

a) $5.00b) $5.50c) $6.00

d) $6.50e) $7.00

48. Downward Inc. has budgeted sales for the second quarter of $400,000 for April,$525,000 for May and $600,000 for June. Normally, 20% are cash sales and 80% ofsales are on account. As well, 30% of the sales on account are normally collected duringthe month of sale, 50% in the following month, and 20% in the second month followingsale.

What is the expected cash collection for June?

a) $642,500

b) $522,500c) $264,000d) $538,000e) $418,000

49. (-) Which of the following is an objective of an accounting information system asopposed to other functional business information systems?

a) Customer relationship managementb) Process controlc) Inventory controld) Employee performance evaluation

e) Manufacturing resource planning

Performance Measurement

50. A well-designed performance measurement system will include measures that

a) are related to the goals of the organization.b) primarily focus attention on immediate short-term concerns.c) are reasonably objective and easily quantified.d) both a) and c) above.

e) all of a), b) and c) above.

51. (-) Which of the following statements regarding decentralization is usually FALSE?

a) It facilitates the evaluation of local managers by top management.b) It aids in the motivation of local managers.c) It leads to goal congruence between local managers and top management.d) It reduces problems to a manageable size and provides quicker response times.e) Both a) and b) above.

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52. Which of the following attributes tends to create centralized decision making in anorganization?

a) High riskb) Large size of organization

c) Complex businessd) Diverse product linese) All of the above

53. To determine the transfer price that will govern the sale of goods between divisions indifferent countries, in addition to respecting the laws of the countries, a firm should

a) ignore the fair market value for the product.b) give prime consideration to the overall profit of the firm.c) do whatever is necessary to minimize customs duties.d) do whatever is necessary to maximize foreign subsidiary net income after taxes.e) none of the above.

54. The role of learning in influencing organizational behaviour includes which of thefollowing?

a) Learning through reinforcement helps management steer employee behaviour toachieve desired results.

b) Learning results in a relatively temporary change in behaviour; therefore,management must continually reinforce past learning to maintain desired behaviourtowards achieving a particular result.

c) Once employees have learned to achieve one set of results, it is relatively easy tomotivate them to change their behaviour to achieve different results.

d) Both a) and b) above.

e) Both a) and c) above.

55. Measuring individual performance using both financial and non-financial measures iscrucial to:

a) ensure compliance with the company’s pre-established plan.b) demonstrate the importance of financial measures.c) provide additional means of evaluating and compensating staff, which would also

lead to a greater degree of staff satisfaction.d) better align individual goals with the company objectives and strategies.e) both a) and b).

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56. Which of the following actions committed by a management accountant is ethicallyquestionable?

a) Near the end of a fiscal year with lower than expected profits, suggesting that anexpensive advertising campaign be delayed until the next fiscal year.

b) Recommending that the highest quality and least expensive bid for a certain supply

be rejected on the basis that the supplier’s practices have a detrimental effect on theecological environment.

c) At the request of the division manager, using the most favourable projections tosupport a proposal without drawing any attention to the potentially unfavourableprojections.

d) Reporting to the controller a suspicion that a line manager is providing incorrectproduction data in an effort to increase his year-end bonus.

e) Near the end of a fiscal year with lower than expected profits, suggesting thatperformance incentives to sales staff for the fourth quarter be increased.

57. A subunit of an organization is referred to as a profit centre if it has

a) authority to choose its markets and sources of supply.b) authority to choose its markets and sources of supply and has significant control over

the amount of invested capital.c) authority to make decisions over the most significant costs of operations including

choice of the sources of supply.d) authority to provide specialized support to other subunits within the organization.e) responsibility for combining the direct materials, direct manufacturing labour, and

other factors of production into finished goods.

58. A production department in charge of waste disposal met their very aggressive year-endcost reduction target. The manager of this department received a significant bonus as aresult of achieving this target. Months later, Judy Brown, a staff accountant, was

reviewing several files from different departments to obtain information she needed for areport requested by the director of finance. In a production department file, she foundsome handwritten notes that led her to believe that this department was sometimesmixing toxic waste with regular waste that was then disposed of as non-toxic material.Judy could not find any new notes in the current fiscal year indicating that theseincidences had stopped. Which of the following should Judy do first?

a) Seek the advice of her boss, the director of finance.b) Bring the information to the attention of a friend who is an outside member of the

board of directors.c) Anonymously release the information to government officials.d) Bring the information to the attention of the production department manager.

e) Do nothing because the bonus has been paid and the problem has stopped.

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59. Recent studies have found that personality dimensions affect work-related behaviourand job performance. Which of the following is the most valuable personality dimensionfor a customer relations employee to successfully handle requests and complaints fromcustomers?

a) Conscientiousness

b) Emotional stabilityc) Openness to experienced) Agreeablenesse) Introversion

60. ZIL Inc. operates two divisions, which are treated as investment centres. Data for eachdivision for Year 4 are as follows (in ‘000s):

Division A Division BNet income $65,000 $140,000Total assets $400,000 $850,000

The company’s required rate of return is 15%. The president wishes to evaluate theperformance of these divisions and is not sure whether to use return on investment(ROI) or residual income (RI) as the performance measure. Which division performedbetter based on the ROI and RI performance measures?

a) Division A, because its RI is higher than that of Division B.b) Division B, because its ROI and RI are higher than those of Division A.c) Division A, because its ROI is higher than that of Division B.d) Both a) and c) above.e) None of the above.


OEM Company, which manufactures sports equipment, consists of several divisions. Eachdivision operates as a profit centre with full autonomy. Division B informed Division A that it haschanged its transfer pricing policy from variable-cost plus to full-cost plus pricing. Division Adecided to purchase component EX1 outside the company when Division B increased thetransfer price from $156 to $164 per unit. Information for Division A and Division B with respectto component EX1 is as follows:

Outside price for component EX1 $160Division A’s annual purchases 10,000 unitsDivision B’s variable manufacturing cost $120 per unitDivision B’s fixed manufacturing cost $1,000,000Division B’s production capacity 50,000 unitsDivision B’s capacity utilization 100%

All units of component EX1 produced by Division B can be sold in the market. Variable sellingcost is $7 per unit for external sales. All other selling and administrative costs are fixed,regardless of whether component EX1 is sold to Division A or other external customers. DivisionB will sell component EX1 to external customers at the market price of $160 per unit.

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61. Which of the following statements is true?

a) Division A purchases 10,000 units of component EX1 from the outside supplier at aprice of $160 and the company saves $40,000 in costs.

b) Division B sells 10,000 units of component EX1 to Division A at $164 and thecompany income increases by $110,000.

c) Division A purchases 10,000 units of component EX1 from Division B becauseDivision B has idle capacity if Division A purchases the component externally.

d) Division B sells all 50,000 units of component EX1 to external customers and thecompany maximizes its income.

e) Division A purchases 10,000 units of component EX1 from Division B and thecompany income increases by $70,000.

62. Now assume that Division B is currently selling 46,000 units externally instead of 50,000units, and has not changed its transfer pricing policy. What is the minimum transfer priceper unit that Division B would accept to provide Division A with the 10,000 units itrequires?

a) $120.00b) $125.00c) $139.80d) $160.00e) $144.00

------------------------------------

63. (+) Mr. Smith owns and manages a Canadian-controlled private corporation (CCPC) witha total corporate tax rate of 18.12%. The corporation has profits of $25,000 beforesalaries and income tax. Mr. Smith will receive his only income in the form of salary orother than eligible dividends from the CCPC he manages. Mr. Smith’s personal income

would be taxed at 15.5% federally and 10% provincially. The full $25,000 will bedistributed either as other than eligible dividends or salary. Ignoring the effects of federaland provincial personal tax credits, if the corporate earnings are distributed in the form ofother than eligible dividends rather than salary, Mr. Smith will (rounded to the nearestdollar)

a) save $5,249 in personal income taxes.b) pay $150 more in personal income taxes.c) save $3,813 in personal income taxes.d) pay $1,594 more in personal income taxes.e) save $4,968 in personal income taxes.

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64. (-) Mr. and Mrs. Smith have two children, Angela, aged 4, and Brent, aged 2. Mr. Smithis employed by a large manufacturing company and usually works between 45 and 60hours per week. Mr. Smith’s compensation and incentive plan consists of base pay plusindividual incentive, four weeks’ vacation and comprehensive basic and extendedmedical and dental coverage for his family. Mrs. Smith has been out of the job market forfive years to look after her children and is considering returning to work, provided the

compensation and incentive package is attractive. Which one of the following incentivepackages would be most attractive to Mrs. Smith?

a) Extended medical benefitsb) Substantial opportunities for advancementc) A company card) Job sharing and onsite child care facilitiese) Piecework incentive bonuses

65. Which of the following is a motivator according to Herzberg’s motivator-hygiene theoryas well as a growth need according to ERG theory?

a) Increased job responsibilityb) Technical competence of the bossc) Relationships with customersd) Comfortable working conditionse) Job security

66. (-) Which of the following statements about performance feedback would NOT motivatehigher performance?

a) Feedback is specific and related to agreed upon goals.b) Feedback comes from a credible source.c) Feedback relates to specific employee behaviours.

d) Feedback is given for a performance event that occurred in the previous year.e) Feedback frequency is appropriately linked to the employee’s familiarity with the

task.

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Financial Management


Company D is considering an investment in a new more efficient machine to replace an existing

machine to produce Product Q. Product Q is in the mature stage of its life cycle and Company Dexpects to produce and sell it for only four more years. Data pertaining to the two machines areas follows:

New Machine Existing MachineCurrent cost $75,000 NACurrent disposal value $75,000 $40,000Disposal value in four years $31,000 $16,000Annual amortization $11,000 $6,000Annual cash operating costs $9,000 $17,000Other cash costs to produce Product Q $89 per unit $93 per unit

The company expects to produce and sell 4,500 units of Product Q per year for the next fouryears. Its required rate of return is 14%. For tax purposes, the two machines are considered tobe in the same asset class, together with many other of the company’s assets.

67. (+) Ignoring income taxes, what is the incremental net present value of the investment inthe new machine (rounded to the nearest hundred)?

a) $70,100b) $40,800c) $59,100d) $(2,800)e) $49,600

68. Assume that Company D has an effective income tax rate of 40%, that neither theexisting nor new machine will have any disposal value at the end of four years, that bothmachines have a capital cost allowance (CCA) rate of 30%, and that the currentundepreciated capital cost (UCC) of the old machine is $35,000. What would be theincremental CCA tax shield if the investment were made in the new machine (rounded tothe nearest hundred)?

a) $9,000b) $5,600c) $8,300d) $9,500e) $10,200

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69. The Capital Asset Pricing Model (CAPM) disregards diversifiable risk because the model

a) assumes that investors are risk neutral, and not risk averse.b) assumes that investors will be holding anywhere from one security to the entire

market of securities.c) assumes that diversifiable risk represents that aspect of financial risk which is unique

to that security and not related to the financial risk of the market.d) recognizes that diversifiable risk can be virtually eliminated with a large enough

portfolio.e) values only unsystematic risk.

70. The revenues, expenses and capital structure of a company are as follows:

Sales $500,000Variable costs (40% of sales) $200,000Fixed costs (excluding interest and taxes) $120,000 Debt (at 10% annual interest) $800,000

Equity (100,000 shares) $1,200,000 (+) Given the information provided above, what is the degree of operating leverage forthis company?

a) 1.5b) 1.7c) 2.8d) 1.8e) 2.5

71. (+) The following is a condensed income statement for a Canadian-controlled private

corporation for the year ended December 31, Year 10 (in ‘000s):

Sales $12,400Cost of goods sold $7,000Amortization 1,000Advertising and promotion 1,600Miscellaneous 1,400 11,000Income before income taxes 1,400Income taxes 560Net income $ 840

Other information:

1. The cost of goods sold includes a reserve for warranties in the amount of $150,000.

2. The company claims the maximum allowable capital cost allowance (CCA) eachyear. No capital assets were purchased or disposed of during Year 10.Undepreciated capital cost balances at the beginning of the year:

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

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3. The miscellaneous expenses include $90,000 for meals at business meetings and$75,000 of interest expense related to a loan used to buy shares of a supplier’scompany.

What is the taxable income for the company for Year 10 (in ‘000s)?

a) $1,525b) $1,330c) $1,570d) $1,375e) $1,600

72. (+) Twoquest Inc. is considering a new investment. The following table sets outinformation regarding the firm and the potential project.

Annual revenues for the project $1,200,000Annual expenses for the project $740,000

Initial investment $1,000,000Weighted average cost of capital 12%Corporate tax rate 40%Market value debt/equity ratio 1Cost of debt 12%

The project has an expected life of five years. There will be no salvage value at thattime. Annual revenues and expenses occur at the end of each year for the five years.Assume that the initial investment can be neither amortized nor expensed for taxpurposes.

What is the net present value of the project?

a) $994,980b) $658,300c) $(336,680)d) $394,980e) $(5,020)

73. (+) On November 1, Year 10, Ken Walker sells a capital property for $300,000. Theadjusted cost base of the property is $110,000 and selling costs amount to $8,000. Kenreceives an immediate cash payment for the entire sales price on November 10. Thetotal taxable capital gain that would be included in Ken’s net income for tax purposes forYear 10 would be

a) $118,000.b) $91,000.c) $95,000.d) $182,000.e) $190,000.

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74. Marston Supply Company has credit sales of $2 million/year. Collections average$8,000/day with 250 working days per year. Marston is going to reduce its internalcollection processing time by 1 day. What would be its annual savings assuming a 14%cost of funds?

a) $1,120

b) $1,000c) $1,550d) $8,000e) $767

75. XYZ company recently issued rights to raise financing. The shares are currently tradingfor $18 per share on the TSE. The subscription price for the rights offering is $14 pershare and an investor will require 3 rights to purchase one share. The value of one rightis

a) $12.00.b) $1.67.

c) $1.00.d) $0.e) $4.00.

76. GEF Inc. believes that if it acquires HIP Ltd., the resulting combined company willexperience synergistic annual operating savings of $1,000,000 before taxes. Currently,HIP Ltd. generates annual after-tax cash flows of $4,000,000. Both the current annualcash flows and the synergistic savings are expected to continue indefinitely. Assumingan income tax rate of 40% and a required rate of return of 16%, what would be themaximum amount that GEF Inc. should be willing to pay for HIP Ltd?

a) $21,250,000

b) $31,250,000c) $18,750,000d) $28,750,000e) $25,000,000

77. In order for a taxpayer to exchange shares in Corporation A for shares in Corporation Bfor tax deferral purposes, which of the following conditions must apply?

a) The transferred shares of the taxpayer must be capital property.b) Immediately prior to the exchange, the taxpayer and Corporation B must be dealing

with each other at arm’s length.c) Immediately after the exchange, the taxpayer must not control Corporation B.

d) Both b) and c) above.e) All of a), b) and c) above.

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78. The following benefits are paid by a company on behalf of Joe Taxpayer, the company’scontroller:

Membership fee for a golf and country club $5,000Tuition fee for a course related to his work $2,000Registered pension plan contribution (defined benefit) $1,200

Private dental plan premiums $500Fee for seminar not related to his work $400Drug plan premium $150Travel allowance for public transit cost to commute to office $1,500

For federal taxation purposes, what amount would be added to Joe Taxpayer’semployment income as a taxable benefit?

a) $6,900b) $8,900c) $7,550d) $10,750e) $5,400

79. A construction company does a large volume of its business with the federalgovernment. With the prospect of an upcoming federal election, the companycontributed $1,000 each to three political parties. If the contributions were all made in thesame taxation year, the maximum tax credit that the company can claim for the politicalcontributions in the year is

a) $3,000.b) $0.c) $1,000.d) the lower of 20% of net income for tax purposes or a total contribution of $3,000.e) none of the above.

80. An individual has the following portfolio of investments:

Amount Rate of ReturnInvestment 1 $20,000 8%Investment 2 $40,000 6%Investment 3 $70,000 3%Investment 4 $10,000 10%

What is the expected rate of return for the entire portfolio?

a) 3.00%b) 5.07%c) 6.75%d) 7.00%e) 27.00%

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81. (+) A bond was issued on June 1, Year 1, and it matures on June 1, Year 15. Thepresent date is June 1, Year 5, and the June 1, Year 5, coupon payment has just beenpaid. The bond has a face value of $1,000, a coupon rate of 8% compounded semi-annually, and a current yield of 10% compounded semi-annually. Ignoring taxes, what isthe current dollar price of the bond (rounded to the nearest dollar)?

a) $846b) $1,000c) $1,135d) $1,173e) $875

Financial Reporting

82. (+) H Ltd., a construction company, recognizes revenue on a percentage of completion

basis. H Ltd. has only one project in process for a total contracted price of $42,000,000.The project was started in Year 1 and is expected to be completed in Year 3. Datarelating to the project are as follows (in ’000s):

Year 1 Year 2 Year 3Billings $14,000 $14,000 $14,000Costs incurred during the year $12,000 $13,000 $14,000Expected costs to complete $24,000 $15,000 0

The gross profit (loss) reported by H Ltd. in Year 2 in ‘000s is

a) $(750).b) $2,000.c) $1,250.d) $0.e) $1,000.

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Another World Inc. (AWI) is a foreign subsidiary of a Canadian company in its second year ofoperation. The following December 31 year-end balances, denominated in the host country’sforeign currency (FC), appeared in the records of AWI:

Year 1 Year 2Cash 30,000 FC 150,000 FCAccounts receivable 45,000 FC 90,000 FCInventory (FIFO basis) 40,000 FC 75,000 FCCapital assets 190,000 FC 180,000 FCAccounts payable 55,000 FC 25,000 FCCapital stock 10,000 FC 10,000 FCRetained earnings, January 1 0 FC 240,000 FCSales 550,000 FC 600,000 FCCost of sales 200,000 FC 250,000 FCAmortization expense 10,000 FC 10,000 FC

Other operating expenses 100,000 FC 120,000 FC

Other Information:1) The inventory was purchased evenly over the fourth quarter of each respective year.2) Capital assets were purchased on January 1, Year 1.3) Capital stock was issued on January 1, Year 1.4) Sales, purchases and expenses occurred evenly throughout each year.5) Exchange rates were as follows:

1 FC = CDN$Year 1 Year 2

January 1 0.36 0.30

December 31 0.30 0.34Average for the year 0.33 0.32Average for the fourth quarter 0.31 0.35

83. (+) If AWI is financially and operationally independent of its Canadian parent, theamounts that should appear on the Year 2 translated year-end financial statements ofAWI (in Canadian dollars) are

a) inventory $24,000, sales $192,000, amortization expense $3,200.b) inventory $25,500, sales $204,000, amortization expense $3,400.c) inventory $25,500, sales $192,000, amortization expense $3,200.d) inventory $26,250, sales $204,000, amortization expense $3,400.

e) inventory $26,250, sales $192,000, amortization expense $3,200.

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84. (+) If AWI uses the current rate method, what amount of cumulative translation gain/lossshould appear on AWI’s December 31, Year 2, balance sheet?

a) $9,800 gainb) $6,600 gainc) $4,400 gain

d) $6,800 gaine) $0

------------------------------------

85. The Farell Co. Ltd. had a net loss of $160,000 last year. The following data for last yearare available:

Dividends paid $40,000Amortization expense $30,000Increase in accounts payable $15,000

Proceeds from issuing shares $100,000Retirement of debt $50,000

What was the amount of net cash provided (or used) from operations last year?

a) $(205,000)b) $(130,000)c) $(115,000)d) $65,000e) $75,000

86. Information regarding accounting policies adopted by a company is essential to financialstatement users. An example of a required disclosure for merchandise inventory is the

a) identification of major customers.b) composition of inventory, i.e. raw material, work-in-process, and finished goods.c) market value of the inventory when it is lower than cost.d) cost of the inventory when it is lower than the market.e) method of determining cost of inventory.

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87. The balance in all of Company K’s asset accounts combined is $100,000 onDecember 1. During December, the following transactions took place:

• Purchase of $10,000 of inventory for cash• Purchase of $15,000 of machinery on account• Retirement of $20,000 in bonds with cash

What is the combined December 31 balance in the asset accounts?

a) $70,000b) $80,000c) $95,000d) $115,000e) $105,000

88. (+) As at January 1, Year 4, Future Stuff Inc. had a credit balance of $13,000 in itsallowance for uncollectible accounts. During Year 4, Future Stuff Inc. wrote off $16,500of uncollectible accounts, which consisted of $12,000 from sales made in Year 4 and

$4,500 from sales made in Year 3. Sales for Year 4 were $6,000,000, of which$4,500,000 were credit sales. In addition, a $2,000 account receivable that had beenwritten off in Year 3 was collected in Year 4. As at December 31, Year 4, Future StuffInc.’s accounts receivable were as follows:

Aging Amount Collectible0-30 days $1,000,000 100%

31-60 days 600,000 90%61-90 days 25,000 75%

more than 91 days 8,000 $5,000$1,633,000

Using the percentage of receivables method, what amount of bad debt expense shouldbe reported in Future Stuff Inc.’s income statement for the year ended December 31,Year 4?

a) $54,250b) $56,250c) $69,250d) $70,750e) $72,750

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89. The following pertains to G Co.’s temporary investment portfolio as at December 31:

TemporaryInvestments

FaceValue

Numberof Shares Cost

MarketValue

UnrealizedGain(Loss)

Canadian Air shares 1,000 $31,500 $39,375 $7,875Superior shares 10,500 $246,750 $243,625 ($3,125)Volatile bonds $100,000 $92,750 $92,000 ($750)

What amount of net temporary investments should be reported on G Co.’s December 31balance sheet?

a) $378,875b) $371,000c) $375,000d) $378,250e) $367,125

90. On July 1, Year 10, ABC Ltd. purchased a vehicle for $30,000 cash. ABC Ltd.’s fiscalyear end is December 31. At the time of acquisition, the vehicle was expected to last fiveyears with an estimated ending residual value of $2,400. ABC Ltd. uses the straight-linemethod to amortize its vehicles. On January 1, Year 12, ABC Ltd. changed the totalestimated useful life of the vehicle from 5 years to 4 years and the estimated endingresidual value from $2,400 to $3,600. In Year 12, ABC Ltd. would record amortization onthe vehicle amounting to

a) $5,177.b) $7,680.c) $7,728.d) $6,600.e) $7,248.

91. On January 1, Year 1, BDS Inc. issued $100,000 of 10% bonds due in five years, withsemi-annual interest payments of $5,000 payable on June 30 and December 31 eachyear. Because the investors were willing to accept an effective annual interest rate ofonly 8% (compounded semi-annually), the bonds sold for $108,111. Using the effectiveinterest method, what would BDS Inc. record as interest expense for the periodJanuary 1 to June 30, Year 1?

a) $4,324b) $5,000c) $5,406d) $4,000e) $4,189

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92. Preparing closing entries is one step in the accounting cycle. Which of the followingwould qualify as a closing entry?

a) Interest expense $126,000Interest payable $126,000

b) Dividends payable $332,000

Retained earnings $332,000c) Income tax expense $288,000

Income tax payable $288,000d) Income summary $432,000

Retained earnings $432,000e) All of the above.

93. (+) On January 1, Drummond Ltd. had 800,000 common shares outstanding and$1,000,000 of 7% convertible bonds outstanding. The bonds had been issued at facevalue and are convertible into 50,000 common shares. No bonds were converted duringthe year. Drummond Ltd.’s net income for the year was $4,000,000 and its tax rate was40%. What is the fully diluted earnings per share?

a) $4.71b) $4.76c) $4.79d) $5.00e) $5.05

94. (-) An independent automobile dealer acts as an agent for an automobile manufactureron a non-consignment basis. The automobile manufacturer should normally recognizerevenue when

a) an order for an automobile is received from the dealer.

b) an automobile comes off the assembly line.c) an automobile is shipped to the dealer.d) an automobile is picked up by the consumer from the dealer.e) payment is received from the dealer.

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95. In which of the following independent situations pertaining to long-term service contractswould the use of the completed contract method of accounting be used?

a) The stage of completion can be reliably determined, but the amount of revenue to bereceived is dependant upon completing the contract on time. Over the past tenyears, the company has been late in completing only 2% of its contracts.

b) The company continuously works on a large number of contracts that begin and endevenly throughout the year, and the amount of the revenue depends on the outcomeof the contracted service, which can vary greatly.

c) The stage of completion can only be determined by estimates of costs to date andexpected costs to complete. The company has a great deal of experience reliablyestimating these types of costs.

d) The stage of completion can be determined by reference to the number of acts tocomplete the contract versus the total number of acts that the contract requires(which is known). Each act of completion is of a similar magnitude in terms of costand labour time.

e) Both a) and b) above.

96. (+) The following information relates to SEN Ltd.’s defined benefit pension plan forYear 20:

Actual return on pension fund assets $160,000Expected return on pension fund assets $184,000Pension benefits paid to retirees $90,000Amortization of unrecognized past service costs $120,000Amortization of unrecognized net actuarial loss $66,000Interest on accrued benefits (projected benefit obligation) $290,000Service costs $640,000

What was SEN Ltd.’s net pension expense for Year 20?

a) $932,000b) $1,022,000c) $956,000d) $800,000e) $866,000

97. Which of the following will create a temporary difference between accounting andtaxable incomes for which future income tax debits or credits must be recorded?

a) Dividends received on Canadian investments

b) Political contributionsc) Membership dues to a country club at which clients are entertainedd) Provision for warranty repairse) None of the above

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98. Assume you are employed as the chief accountant for DrawPro Inc., a computersoftware company. The company was developing a new software program calledGraphics Tool. At the end of the year, the director of research estimated that $1 millionwas spent during the year for the Graphics Tool program. He asked you to reduce hisexpenses by capitalizing $1 million as development costs.

Prior to capitalizing the development costs, which of the following questions would NOT be considered in ensuring that your statements would be in accordance with generallyaccepted accounting principles?

a) Has the future market for Graphics Tool been clearly defined?b) Is the Graphics Tool program technology feasible?c) Are the costs related to research activities or development activities?d) Does management intend to launch the Graphics Tool program upon completion?e) How soon will the Graphics Tool program be ready to begin marketing?

99. In preparing its year-end adjusting entries, the Jesson Co. Ltd. neglected to adjust theprepaid insurance account for the amount of insurance expired during the year. As a

result of this error,

a) net income is understated, the retained earnings balance is understated and theassets are understated.

b) net income is overstated, the retained earnings balance is overstated and the assetsare correctly stated.

c) net income is understated, the retained earnings balance is overstated and theassets are overstated.

d) net income is overstated, the retained earnings balance is overstated and the assetsare overstated.

e) none of the above are correct.

100. (+) On December 9, Year 10, Company X, a Canadian company, acquired inventoryfrom a foreign supplier for FC100,000, with payments due in Foreign Currency (FC) onJanuary 8, Year 11. Exchange rates for the Foreign Currency were as follows:

December 9, Year 10 FC1 = $1.50December 31, Year 10 FC1 = $1.55January 8, Year 11 FC1 = $1.57

For Company X, with a December 31 year end, these transactions resulted in a foreigncurrency transaction

a) loss of $0 in Year 10 and loss of $7,000 in Year 11.

b) loss of $5,000 in Year 10 and loss of $2,000 in Year 11.c) gain of $5,000 in Year 10 and gain of $2,000 in Year 11.d) gain of $0 in Year 10 and gain of $7,000 in Year 11.e) loss of $55,000 in Year 10 and loss of $2,000 in Year 11.

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101. A not-for-profit seniors’ home is preparing its year-end financial statements. Which of thefollowing should be included in the current assets section of the balance sheet?

a) A bank savings account with a balance of $52,000 representing a restricted capitalfund for an expansion project to take place in two years.

b) A $20,000 grant application for a project that has been completed. There is a 20%

likelihood of the grant application being accepted; however, at the time of preparingthe financial statements, no word on the grant’s status has been received.

c) Inventory totalling $80,000 representing gift items held on consignment. When theitems are sold, the seniors’ home receives 20% of the revenue to aid in theexpansion of one of the wings of the building.

d) Cash held in trust in a bank account for the residents of the seniors’ home.e) None of the above.

The following information pertains to questions 102 to 105.

Selected data from RCL Inc.’s financial statements are presented below (in thousands):

December 31Year 2 Year 1

Cash $ 57 $ 46 Marketable securities 269 256 Accounts receivable (net) 345 314 Merchandise inventory 770 658 Tangible fixed assets 810 636 Total assets 2,331 2,183 Current liabilities 648 618 Total liabilities 1,035 1,280 Common shares 429 374 Retained earnings 867 529

Year 2 OperationsNet sales (85% on account) $7,938 Cost of goods sold 5,477 Interest expense 85 Income tax (excluding tax on loss on disposal of asset) 449 Loss on disposal of asset (net of $90 tax) 135 Net income 538 Dividends declared and paid 200

102. What is the current ratio for Year 2?

a) 3.60b) 1.39c) 2.22d) 2.25e) 1.04

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103. What is the accounts receivable turnover in days (using 365 days) for Year 2?

a) 15.2 daysb) 17.8 daysc) 17.0 daysd) 51.2 days

e) 20.5 days

104. What is the times interest earned for Year 2?

a) 14.2 timesb) 11.0 timesc) 13.7 timesd) 6.3 timese) 7.3 times

105. What is the total debt-to-equity ratio for Year 2?

a) 0.30b) 1.19c) 2.41d) 0.80e) 0.44

------------------------------------


Acquire Ltd. is a commercial property company. On February 1, Year 9, Acquire Ltd. purchaseda property and office building from Sell Co. The book values and appraisal values of the assetson February 1, Year 9, were as follows:

Book Value Appraised ValueLand $ 8,000,000 $12,000,000Building 21,000,000 36,000,000

$29,000,000 $48,000,000

In exchange for the commercial property, Acquire Ltd. will give Sell Co. 3,750,000 Acquire Ltd.common shares with a market value of $11.20 per share. The corporate tax rate is 40%. Theannual real net income from rental leases is expected to remain constant at $7,800,000 over thenext ten years.

Consider the following five options for Acquire Ltd. to record the acquisition of assets:

A B C D EDebit:

LandBuilding

$12,000,00036,000,000

$12,000,00036,000,000

$10,500,00031,500,000

$12,000,00036,000,000

$10,080,00026,460,000

Credit:Common sharesGain on shares soldTaxes payable

$48,000,000 $42,000,0006,000,000

$42,000,000 $42,000,0003,600,0002,400,000

$36,540,000

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106. (+) Which of the above options is the correct entry for recording the acquisition of assetsin Acquire Ltd.’s accounts?

a) Option Ab) Option Bc) Option C

d) Option De) Option E

107. (+) Assume Acquire Ltd. wants to raise capital by issuing a $48,000,000 mortgage bond.A brokerage firm that raises market capital for Acquire Ltd. estimates that the 10-yearbond will need an annual interest rate of 8.0%. Semi-annual interest payments are madeon January 31st and July 31st each year. The brokerage firm also applies 2.5% forcommission and administration charges. This bond is sold to the primary market onFebruary 1, Year 9, with an effective interest rate of 10.0%. How much cash will AcquireLtd. receive from the sale of this mortgage bond?

a) $42,023,040

b) $42,124,800c) $40,823,040d) $41,071,680e) $40,924,800

------------------------------------


Company A is a publisher specializing in the post-secondary education market. One ofCompany A’s strategies for the upcoming year is to expand e-book development and usage.E-book usage is increasing at colleges and universities, and the company would like to increaseits market share. The following table provides selected results for Company A for the past threeyears:

Year 8 Year 9 Year 10

Company(’000s)

E-booksSegment(’000s)

Company(’000s)


Company(’000s)


Total sales $30,000 $2,400 $31,500 $3,150 $32,400 $4,212Contribution margin 8,400 821 8,568 1,213 8,904 1,761Net operating income 3,000 235 3,240 485 3,300 889

The sales volume (’000s of dollars) for the e-book usage market for the past three years is asfollows:

Year 8 $100,000Year 9 120,000Year 10 144,000

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108. (+) According to trend or horizontal analysis, which of the following statements is true?

a) The company contribution margin is increasing at a greater rate than company netoperating income.

b) The company is increasing its share of the e-book usage market.c) The e-book segment is performing better than the company as a whole.

d) Both a) and b) above.e) Both b) and c) above.

109. Company A takes into consideration the impact on the triple bottom line (economic,environmental and social criteria) when developing its strategies. Which of thecomponents of the triple bottom line does Company A’s strategy for the upcoming yearemphasize?

a) Economic onlyb) Environmental onlyc) Social onlyd) Both a) and b) above

e) a), b) and c)

End of Exam

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Solutions to Sample 2009 Entrance Examination

Answer Summary:

1 d 26 a 51 c 76 d 101 e

2 a 27 c 52 a 77 e 102 c

3 e 28 a 53 b 78 a 103 b

4 b 29 c 54 a 79 b 104 a

5 e 30 d 55 d 80 b 105 d

6 b 31 c 56 c 81 e 106 c

7 c 32 c 57 a 82 a 107 c

8 c 33 d 58 a 83 c 108 e

9 d 34 b 59 d 84 b 109 d10 e 35 d 60 b 85 c

11 a 36 c 61 e 86 e

12 a 37 d 62 c 87 c

13 e 38 c 63 e 88 d

14 d 39 d 64 d 89 c

15 e 40 d 65 a 90 e

16 b 41 d 66 d 91 a

17 b 42 e 67 e 92 d

18 a 43 e 68 a 93 b

19 b 44 b 69 d 94 c

20 c 45 a 70 b 95 b

21 e 46 d 71 a 96 a

22 d 47 b 72 e 97 d

23 e 48 d 73 b 98 e

24 c 49 c 74 a 99 d

25 e 50 d 75 c 100 b

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1. Answer: d.Economies of scale, the “primary” entry barrier in the question, do not deter an entrantfrom accomplishing choices a), b), c) and e). If significant cost advantages result fromeconomies of scale, it becomes difficult, if not impossible, for a new entrant to produceon a scale comparable to that of its established rivals and achieve such costadvantages. On the other hand, although a large-scale production is possible, it involves

a greater risk of mammoth initial capital costs, which may easily turn into sunk costs.

2. Answer: a.Choices b) and e) represent tangible resources which are fairly easy to imitate. Choicesd) and c) represent intangible resources, but they can be imitated too, although withsome difficulty because of their company-specific nature. An intangible resource, suchas a brand name, is the most difficult to imitate because it symbolizes a “company’sreputation.” Also, law prohibits competitors from imitating brand names.

3. Answer: e.A mission statement may or may not cover legislative lobby groups, depending on thetype of business the company is engaged in. Although choices b), c) and d) are

embodied in a mission statement, its ultimate purpose is to integrate b), c) and d) intothe company’s strategy formulation process.

4. Answer: b.Only a matrix structure allows a different mix of resources at various stages of atechnologically complex product. It provides the flexibility required for the availability of aproper combination of organizational resources when products or processes changedramatically. Choices a), c), d) and e) are wrong because, under these structuralchoices, project-specific technological expertise cannot be combined with the verticalflows of authority and communication.

5. Answer: e.

Benchmarking is based on the concept that reinventing something that someone else isalready using successfully makes no sense. It involves finding the company that is thebest performer for a certain key activity (i.e. the best-in-class company), determining thedifference in performance between your company and the best-in-class company, anddeveloping tactical programs to match or improve on the best-in-class company’sperformance. The other choices are more general strategies, e.g. benchmarking mightbe a component of a continuous improvement or TQM strategy.

6. Answer: b.Each option offered in the question represents change, some amount of upheaval, andthe need to spend additional funds. In general, meeting delivery dates is critical to thereputation of a firm. In some industries (e.g. auto manufacturing), missing a delivery

means paying heavy financial penalties and being cut off as a supplier. Therefore, theleast desirable choice is to allow a delivery date to slip creating a backorder and/orstockout (choice b). Choices a), c), d) and e) represent options that could bebrainstormed in a meeting followed by a search for the “best” choice given the situationat hand. Each of these choices comes with different financial and organizational costs(e.g. an unhappy workforce, an agitated union, the need for space to store inventory,etc.), but each choice will permit a delivery date to be met.

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7. Answer: c.Convenience products are items that the consumer purchases frequently, convenientlyand with a minimum of shopping effort (e.g. toothpaste). Since these products arerelatively inexpensive, there is low psychological and financial risk.

Other choices:

a) Unsought goods are things that the consumer typically puts off because it does notsatisfy an immediate want or need, like insurance. They often involve some shoppingeffort as well as some psychological and/or financial risk.

b) Tangible goods include all classes of products.d) Shopping goods are products typically bought in an environment where the

consumer can compare quality and price with competitors.e) Specialty goods are products where a good deal of time and effort is usually put into

the buying process.

8. Answer: c.New products can be seen to follow a life cycle pattern of introductory stage wherecustomers begin to try the product and company profits on the product start in the

negative range. Once consumers start to accept the product, it will enter the growthstage where we see rapid sales growth and high profitability. As more companies enterthe market for that product, enticed by the high profitability, and competition thusincreases, we see downward pressure on price and a squeezing of profit margins. Heresales growth for the company begins to decline and this is referred to as the maturitystage. Without new product innovation and improvement, the product will enter thedecline stage of the life cycle.

9. Answer: d

A mission statement describes the current state of an organization, i.e. why theorganization exists, what it believes in, who the organization’s customers are,and what products/services it provides.

In contrast, a vision statement creates a long-term vision of an organization andarticulates an ideal state of the business. It answers the following questions:a) What will success look like?b) Why did I start this business?c) When I move out of this business, what do I want to leave behind?d) If my business could be everything I dreamed, how would it be?

Choice d) appears to pertain to the future aspirations of the organization andwould, therefore, be a component of a vision statement, not a missionstatement.

10. Answer: e.

a) to d) are all parts of internal control; however, in a broader sense, internalcontrol is mainly concerned with how policies and procedures affect the totaleffectiveness of the management process and consistency with theorganization’s objectives and strategies.

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11. Answer: a.The principal mechanism for preventing fraud is control. Primary responsibility forestablishing and maintaining control rests with management. Such prevention isultimately a matter of policies and procedures established by management.

12. Answer: a.

Fraudulent actions by a group of employees (i.e. collusion) is difficult to detect by aninternal control system. Such controls can be circumvented by a group of employeeswho collude to defraud the company.

13. Answer: e.Sales quotas (choice b) and standard costs (choice c) are used as targets in amanagement control system. Analyzing variances (choice a) is a procedure of detectingproblems, which is an important control procedure. Therefore, choice e) is the correctchoice.

14. Answer: d.Both b) and c) are effective methods of monitoring and controlling purchases.

Choice a) – Getting third-party reports does not control purchases, as it would happenafter purchases are made and likely would not be completed until after the raw materialis used.

15. Answer: e.The first step is to define, as clearly as possible, the risk to be mitigated, and thenestimate the amount and likelihood of potential risk or exposure to loss.

16. Answer: b.

17. Answer: b.An accounts receivable clerk who never takes vacations may be “lapping,” i.e. keepingamounts received and later making up shortages by using new cash receipts. This typeof fraud often goes undetected for long periods of time until the clerk has an unexpectedabsence, requiring someone else to assume the clerk’s duties.

18. Answer: a.This measure would prevent receiving staff from overlooking or removing any additionalmerchandise that may have been received.

19. Answer: b.

20. Answer: c.At some point in any process, individual judgment will be relied on and is neithercontrollable nor always correct.

Choice a) – Internal controls would create the segregation of duties appropriate tomaximize effectiveness.

Choice b) – Procedures are created to reassure management that employees areacting in accordance to proper authorization.

Choice d) – Electronic processing is relied on to increase control, as equipment,assuming correct setup, will be error-free.

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21. Answer: e.This is an example of a detective control. It allows only items meeting specifications topass through the division.

22. Answer: d.

A control register is a detective control, not a preventive control.

23. Answer: e.These are all controls that check for correctness, meaningfulness and security of datathat are input to the system.

24. Answer: c.Expropriation is a form of nationalization where the government compensates the firmfor taking over its assets.Choice a) – Nationalization in general describes when a government takes over the

assets of a private firm.Choice b) – Privatization is the reverse of nationalization.

Choice d) – Repatriation would restrict the amount of profits the Canadian firm couldtake out of the foreign country to Canada.

Choice e) – Confiscation is nationalization when the government does not compensatethe foreign firm in anyway.

25. Answer: e.The lead responsibility for formulating and executing corporate strategy falls to keymanagers. The chief strategic role of the board of directors is to exercise oversight andsee that the strategic management is done in a manner that benefits the shareholders(for investor-owned organizations) or stakeholders (for not-for-profit organizations). Thisis done by 1) critically appraising and ultimately approving strategic action plans (choicec), and 2) evaluating the strategic leadership skills of the CEO and others in line to

succeed the incumbent CEO (choice a). Therefore, the board of directors approves, butdoes not actually formulate, the strategy (choice b) or the corporate vision (choice d).

26. Answer: a.Highest activity is in month 2 and lowest activity is in month 1.Variable cost = Change in costs/Change in activity

= ($30,000 - $24,000)/(42,000 - 30,000)= $6,000/12,000 = $0.50

Fixed cost = Total cost - Variable cost= $30,000 - $0.50(42,000 units)= $30,000 - $21,000 = $9,000

Therefore, the cost function is estimated as follows:Y = 9,000 + 0.5 x number of units produced

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27. Answer: c.Variable cost per unit = $5 + $4 + (.75 x $4) = $12Total contribution margin = ($17 - $12) x 5,000 = $25,000Gross margin = $25,000 - $16,500 = $8,500

Choice a) – Incorrect calculation of variable overhead and ignores fixed overhead:

($17 - $5 - $4 - $0.75) x 5,000 = $36,250Choice b) – Ignores variable overhead: ($17 - $5 - $4) x 5,000 - $16,500 = $23,500Choice d) – Incorrect calculation of variable overhead:

($17 - $5 - $4 - $0.75) x 5,000 - $16,500 = $19,750Choice e) – Contribution margin of $25,000

28. Answer: a.The factory manager’s salary is an indirect cost because it is associated with themanufacturing process but does not constitute a direct labour cost. It is a fixedmanufacturing cost, not a variable, period, or administrative cost.

29. Answer: c.

Calculated using the high-low method:Variable cost = ($154,000 - $129,000)/(400,000 - 300,000) = $0.25/DLHFixed cost = $129,000 - (300,000 x $0.25) = $54,000

30. Answer: d.

Direct materials used ($38,000 + $82,000 - $30,000) $ 90,000Direct labour used 60,000Factory overhead applied ($60,000/$7.50 x $10) 80,000Total manufacturing costs incurred 230,000Work in process inventory – March 1 18,000Work in process inventory – March 31 (12,000)

Cost of goods manufactured $236,000

Choice a) – This equals the total manufacturing costs plus the opening work in process:$230,000 + $18,000 = $248,000.

Choice b) – Cost of goods available for sales: $236,000 cost of goods manufactured +$54,000 opening finished goods = $290,000.

Choice c) – Total manufacturing costs of $230,000.Choice e) – Cost of goods sold: $236,000 + $54,000 - $72,000 = $218,000.

31. Answer: c.When there is only one main product, all overhead will relate to the single product;therefore, a single plant-wide overhead rate would be appropriate for determining

production costs related to the product for pricing purposes.

32. Answer: c.Total spoilage = 18,000 - 15,000 - 2,000 = 1,000 unitsNormal spoilage = 4% x 15,000 = 600 unitsAbnormal spoilage = 1,000 - 600 = 400 unitsLoss from abnormal spoilage = 400 x ($11.00 + $15.00) = $10,400

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33. Answer: d.Conversion costs = Cost of ending work in process - Cost of material A= $34,000 - ($11.00 x 2,000)

= $34,000 - $22,000 = $12,000Equivalent units of conversion costs = $12,000 ÷ $15.00 = 800 unitsPercentage of completion = 800 equivalent units ÷ 2,000 total units = 40% complete

Choice a) – Incorrectly divided by the sum of the cost per equivalent unit for Material Aand Conversion Costs: ($34,000 ÷ $26.00) ÷ 2,000 units = 65.4%

Choice b) – Incorrectly included the cost per equivalent unit for Material B:[$34,000 - (2,000 x $11.80)]÷ $15.00 ÷ 2,000 units = 34.7%

Choice c) – Incorrectly divided the conversion costs in ending work-in-process inventoryby the cost per equivalent unit for Material A:($12,000 ÷ $11.00) ÷ 2,000 units = 54.5%

Choice e) – Incorrectly divided by the total cost per equivalent unit:($34,000 ÷ $26.80) ÷ 2,000 = 63.4%

34. Answer: b.

A B C TotalSales price per litre before refining $20 $25 $10Output at split-off (litres) 2,500 1,600 3,000 7,100Sales value at split-off $50,000 $40,000 $30,000 $120,000

Joint costs to allocate = $25,000 + $35,000 = $60,000Joint costs allocated to Chemical A = $60,000 x ($50,000/$120,000) = $25,000

Choice a) – Uses the physical measures method:$60,000 x (2,500/7,100) = $21,127 = $21,100 (rounded)

Choice c) – Uses estimated net realizable value method:A B C Total

Sales price per litre after refining $35 $40 $18Output after refining (litres) 2,300 1,500 2,700 6,500Final sales value $80,500 $60,000 $48,600 $189,100Less: Costs of refining (separable costs) $28,000 $10,000 $12,000 $50,000Net realizable value $52,500 $50,000 $36,600 $139,100

Joint costs allocated to Chemical A = $60,000 x ($52,500/$139,100) = $22,646= $22,600 (rounded)

Choice d) – Uses final sales value:Joint costs allocated to Chemical A = $60,000 x ($80,500/$189,100) = $25,542= $25,500 (rounded)

Choice e) – Uses cost of refining (i.e. $28,000 + $10,000 + $12,000 = $50,000):Joint costs allocated to Chemical A = $60,000 x ($28,000/$50,000) = $33,600

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35. Answer: d.The joint process costs are irrelevant to the decision.

Revenue from sales of refined Chemical C = 2,700 litres x $18 = $48,600Revenue from sales of unrefined Chemical C = 3,000 litres x $10 = 30,000Incremental revenue 18,600

Cost of refining 3,000 litres of Chemical C (12,000)Cost of disposing by-product = 3,000 litres x 10% x $5 = (1,500)Increase in profits $ 5,100

Choice a) – Neglects the cost of refining:Incremental revenue of $18,600 minus $1,500 cost of disposing by-product= $17,100.

Choice b) – Deducts joint costs:Joint costs allocated to Product C using the physical measures method= $60,000 x (3,000/7,100) = $25,352.Correct incremental profit less joint costs = $5,100 - $25,352 = $(20,252)= $(20,300) rounded

Choice c) – Incorrectly calculates incremental revenue:Incremental revenue = ($18 - $10) x 2,700 litres of output = $21,600Incremental profits = $21,600 - $12,000 - $1,500 = $8,100 increase.

Choice e) – Uses $5 per litre of input as cost of disposal of by-product:Incremental revenue of $18,600 minus $12,000 cost of refining minus$15,000 cost of disposal of by-product (i.e. $5 x 3,000 litres) = $(8,400).

36. Answer: c.Department 1 overhead rate = $150,000/30,000 MH = $5 per MHDepartment 2 overhead rate = $300,000/100,000 DLH = $3/DLH

Job 94-669 overhead = ($5 x 5,000 MH) + ($3 x 2,000 DLH)

= $25,000 + $6,000= $31,000

37. Answer: d.Department 1 overhead applied = $5 x 35,000 MH = $175,000Department 2 overhead applied = $3 x 98,000 DLH = $294,000

Actual – Applied = ($150,000 + $300,000) – ($175,000 + $294,000)= $19,000 overapplied

38. Answer: c.The direct materials charged to Job No. 9 is calculated as follows:

Balance in work-in-process ($28,400 – $24,000) $4,400Less direct labour (1,000)Less overhead applied ($1,000 x 80%) (800)Direct materials $2,600

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39. Answer: d.Backflush costing is a costing system that omits recording some or all of the journalentries relating to the cycle from purchase of direct materials to the sale of finishedgoods. Traditional systems track costs sequentially as products pass from directmaterials, to work in process, to finished goods, and finally to sales. With backflushcosting, work in process is not recorded, and in some cases, direct materials inventory

and/or finished goods inventory are not recorded. Backflush costing is appropriate for a just-in-time production system because inventories are minimized in such a system andthe need to track costs at the various stages of production is not required.

Choice a) – Kaizen costing is an approach that incorporates continuous improvement.Choice b) – Hybrid costing blends characteristics from both job-costing and process-

costing systems.Choice c) – Product life cycle costing tracks and accumulates the actual costs

attributable to each product from start to finish, including initial R&D to finalcustomer servicing & support in the marketplace.

Choice e) – Normal costing using the traditional system of tracking costs sequentiallythrough each stage of the production process (materials purchases,

conversion into work in process, conversion into finished goods, sale offinished goods).

40. Answer: d.Direct method: 10,000 + 20,000 = 30,000 total sq. metres(10,000 ÷ 30,000) x $25,000 = $8,333.

Choice a) – Includes service departments in calculations.(10,000/33,000) x $25,000 = $7,576

Choice b) – Uses step-down method.(10,000/32,000) x $25,000 = $7,813

Choice c) – Uses number of employees.

(150/350) x $25,000 = $10,714Choice e) – Uses step-down method with personnel as first step.

(10,000/30,000) x $26,200 = $8,733

41. Answer: d.Plant administration allocation = $360,000 ÷ (6,000 + 18,000 + 30,000) = $6.667/hr.Custodial services allocation = [$90,000 + (6,000 x $6.667)] ÷ 50,000 = $2.60/m2.Cutting department costs = $261,000 + (18,000 x $6.667) + (5,000 x $2.60) = $394,000Polishing department costs = $689,000 + (30,000 x $6.667) + (45,000 x $2.60) =$1,006,000

Choice a) – Allocating only the plant administration costs using the direct method.

Choice b) – Using the direct method:Cutting = $261,000 + ($360,000 x 18,000/48,000) + ($90,000 x5,000/50,000) = $261,000 + $135,000 + $9,000 = $405,000.Polishing = $689,000 + ($360,000 x 30,000/48,000) + ($90,000 x45,000/50,000) = $689,000 + $225,000 + $81,000 = $995,000.

Choice c) – Allocating only the plant administration costs using the step-down method.Choice e) – Using the wrong denominator for allocation in applying the direct approach.

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45. Answer: a.Fixed costs = $50,000 + $37,500 = $87,500Contribution margin = $13.50 - $8.00 variable production costs - $0.50 variable selling &administration costs = $5.00 per unitBreakeven volume = $87,500 ÷ $5.00 = 17,500 units

Choice b) – $50,000 ÷ $5.00 = 10,000 (did not include other fixed expenses)Choice c) – ($50,000 + $12,500 + $37,500) ÷ ($13.50 - $8) = $100,000 ÷ $5.50 =

18,182 (treated variable selling & admin. as a fixed cost)Choice d) – $87,500 ÷ ($13.50 - $8.00) = $87,500 ÷ $5.50 = 15,909 (omitted variable

selling and administration costs)Choice e) – $87,500 ÷ ($8.00 + $0.50) = $87,500 ÷ $8.50 = 10,294 (used variable costs

instead of contribution margin)

46. Answer: d.Let x be the total number of units required to break even.($120 - $70) x .6x + ($500 - $200) x .4x = $300,000$30x + $120x = $300,000

x = 2,000

Choice a) – Uses a 1:1 ratio: $300,000/($50 + $300) = 857Choice b) – Uses variable costs instead of contribution margin:

$300,000/[($70 x .6) + ($200 x .4)] = 2,459Choice c) – Uses average CM: $300,000/[($50 + $300)/2] = 1,714Choice e) – Uses revenue instead of CM: $300,000/[($120 x .6) + ($500 x .4)] = 1,103

47. Answer: b.Since fixed costs would remain the same regardless of the bid price, they are notrelevant to the decision.

A B C = A x B C x 150,000

PriceVar.

Cost/Unit CM/Unit Probability

ExpectedIncremental

CM/unit

ExpectedIncremental

Total CMa) $5.00 $3.60 $1.40 100% $1.40 $210,000b) $5.50 $3.60 $1.90 90% $1.71 $256,500c) $6.00 $3.60 $2.40 65% $1.56 $234,000d) $6.50 $3.60 $2.90 40% $1.16 $174,000e) $7.00 $3.60 $3.40 10% $0.34 $51,000

The highest expected incremental income would occur at a bid price of $5.50 per unit.

48. Answer: d.June cash sales ($600,000 x 20%) $120,000Collections from credit sales:

June ($600,000 x 80% x 30%) 144,000May ($525,000 x 80% x 50%) 210,000April ($400,000 x 80% x 20%) 64,000

Total expected collections $538,000

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Choice a) – Uses 100% (instead of 80%) of April and May sales to determinecollections on account for those months: $120,000 + (30% x $600,000) +(50% x $525,000) + (20% x $400,000) = $642,500

Choice b) – Uses 100% (instead of 80%) of sales each month to determine collectionson account: (30% x $600,000) + (50% x $525,000) + (20% x $400,000)= $522,500

Choice c) – Includes only collections from June sales: $120,000 + $144,000 = $264,000Choice e) – Does not include June cash sales: $144,000 + $210,000 + $64,000

= $418,000

49. Answer: c.Accounting information systems record and report business transactions and othereconomic events. Objectives include recording and reporting the flow of funds throughan organization, producing financial statements, producing forecasts of future conditions,and planning and controlling business operations, such as inventory control.

Choice a) – Customer relationship management is an objective of the marketingmanagement system.

Choice b) – Process control is an objective of the production/operations managementsystem.

Choice d) – Employee performance evaluation is an objective of the human resourcemanagement system.

Choice e) – Manufacturing resource planning is an objective of theproduction/operations management system.

50. Answer: d.A performance measurement system should relate to the goals of the organization(choice a), be reasonably objective and easily quantifiable (choice c), and should beapplied consistently and regularly. It should also be designed to balance managers’attention on both short- and long-term concerns. Otherwise, managers may make

decisions that result in higher current year profit, for example, at the expense ofinvestments that would result in even greater profits in future years. Therefore, choice b)is not appropriate and choice d) is correct.

51. Answer: c.Under decentralization, the benefits of a decision for one subunit may result in greatercosts to another subunit, resulting in suboptimal decision making and goal incongruence.The other choices are all true.

52. Answer: a.Decentralized decision making is appropriate for very large, multiproduct, diverse andcomplex businesses. In organizations where there is high risk associated with decision-

making, centralized decision making tends to lower the risk. For example, in a verticallyintegrated company, if the decisions of one division highly affect the operations ofanother division and the success of the organization depends on all the divisionscooperating with each other, the higher the risk associated with the decision, the moreoften the decision is made centrally.

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53. Answer: b.In transfers between divisions located in different countries, the company should giveprime consideration to the overall profit of the firm while also respecting the laws of thecountries. Differential tax rates, tariffs, customs duties, and governments incentives aresome of the factors that would influence the decision for setting transfer prices thatwould maximize overall company profits.

Choice a) – In order to respect the laws of the countries, the transfer price must oftenbe set at the fair market value of the product.

Choice c) – Minimizing custom duties is one of the factors that influence overallcompany profits. Sometimes there is a trade-off between the cost of exciseduties and the cost of taxes in determining the overall effect of transfers oncompany profits.

Choice d) – Overall company profits may be maximized by minimizing, rather thanmaximizing, foreign subsidiary net income after taxes.

54. Answer: a.Learning is a relatively permanent change in behaviour as a result of a person’s

interaction with the environment. Behaviour modification and reinforcement theoriesrecognize this. Therefore, management is able to use learning through reinforcement tosteer employee behaviour to achieve desired results. For example, if increases in salesis the desired result, management can use bonuses as a positive reinforcement to steersales staff to achieve sales targets (i.e. the sales staff learn that they need to find waysto achieve the sales targets in order to gain the bonus; once the effective salestechniques have been learned and used, sales staff would likely continue to use thesesuccessful techniques, even if there were no longer any bonuses).

Because learning causes relatively permanent changes in behaviour, continuousreinforcement is generally not required to maintain desired behaviour (choice b). Also,once an employee learns to achieve a certain set of results, there would usually have to

be some “unlearning” before new behaviours can be learned. Therefore, it would berelatively difficult to change behaviour to achieve different results (choice c).

55. Answer: d.Using both financial and non-financial measures informs the employee about the driversof current and future success which help align the employee goals with the companymission and strategy.

Choice a) – Measurements are intended to communicate, inform and teach, not control.Choice b) – Financial measures are a critical measurement of performance; however,

an integrated set of measurements that include non-financial measureslinks the customer, internal process and employee performance to long-

term financial success. Including non-financial measures also mitigatesfocus from solely short-term financial objectives to long-term success, thusreducing the emphasis on strictly financial measures.

Choice c) – It has been demonstrated in surveys that employees put a higher value intrust, autonomy, flexibility and sharing similar values with their employerthan in compensation and feedback.

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56. Answer: c.The management accountant should ensure that the potential risks associated with aproposal be considered as well as the potential rewards. It would not be ethical to showonly the most favourable potential outcomes of a proposal. To do so, even at the requestof the division manager, compromises the management accountant’s competence,objectivity and integrity.

Choice a) – Delaying an expensive advertising campaign does not represent an ethicallyquestionable action and could be a reasonable option in the circumstances.Even if the advertising expenditure was not delayed, it could be argued thatthe matching principle would support expensing the advertising costs in thenext fiscal year, if the impact on sales is likely to be felt only in the nextfiscal year.

Choice b) – Supporting a supplier that has practices that are detrimental to theecological environment by accepting their bid would be unethical, even ifthe bid is the least expensive and of the highest quality.

Choice d) – This represents a correct response to a suspicion of a co-workercommitting an unethical act.

Choice e) – Increasing performance incentives is a legitimate option for management toconsider in the situation and does not represent an ethically questionableaction.

57. Answer: a.Profit centres are subunits for which both revenues and costs are reported. Profit centresnormally are associated with high decentralization, but they can be highly centralized.

58. Answer: a.The situation presents an ethical conflict for Judy. The first step Judy should take is todiscuss the problem with her immediate superior, unless that person is involved in theethical conflict. It is unlikely that the director of finance is involved, so Judy should speak

with him/her. It is possible that the production department manager is a party to theconflict, so he/she should not be consulted first (choice d). Professional ethics woulddictate that confidential information should not be communicated to anyone outside theorganization (choices b and c). It would also be inappropriate to take the problem to theboard of directors unless it could not be resolved at lower organizational levels (choiceb). To do nothing (choice e) is also inacceptable because employees need feedbackwhen inappropriate behaviour occurs. By not taking corrective action, there is nothing toprevent the occurrence from happening again. Consequently, the most appropriateaction is to notify the director of finance of these findings (choice a).

59. Answer: d.Agreeableness includes the traits of being courteous, good-natured, emphatic, and

caring. People with a high degree of agreeableness are very good at effectively handlingcustomer relations and conflict-based situations.

Choice a) – Conscientiousness refers people who are careful, dependable, self-disciplined and set high goals for themselves. While this is a usefulpersonality dimension for a customer relations employee, it is not asimportant as agreeableness.

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Choice b) – People with high emotional stability are poised, secure, and calm. Whilethis is a useful personality dimension for a customer relations employee, itis not as important as agreeableness.

Choice c) – Openness to experience generally refers to the extent that people aresensitive, flexible, creative and curious. While this is a useful personalitydimension for a customer relations employee, it is not as important as

agreeableness.Choice e) – Introversion refers to people who are quiet, shy and cautious. These are not

ideal traits for a customer relations employee.

60. Answer: b.ROI Division A = $65,000/$400,000 = 16.3%ROI Division B = $140,000/$850,000 = 16.5%

RI Division A = $65,000 - ($400,000 x .15) = $5,000RI Division B = $140,000 - ($850,000 x .15) = $7,500

Division B has a higher ROI and RI.

61. Answer: e.From the company’s perspective, when all 50,000 units of component EX1 are sold at$160 to external customers:Contribution margin from sales of 50,000 units $1,650,000($160 - ($120 + $7)) x 50,000 unitsCost of purchasing 10,000 units from external supplier 1,600,000$160 x 10,000 unitsNet contribution $ 50,000

From the company’s perspective, when 40,000 units of component EX1 are sold at $160to external customers and 10,000 units are supplied to Division A:

Contribution margin from sales of 40,000 units $1,320,000($160 - ($120 + $7)) x 40,000 unitsIncremental costs of supplying 10,000 units to Division A 1,200,000$120 x 10,000 unitsNet contribution $ 120,000

Division A should purchase 10,000 units from Division B at $164 because there is anincrease in income of $70,000 for the company as a whole.

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Choice a) – There is a cost saving of $40,000 (($164 - $160) x 10,000 units) to DivisionA if Division A purchases the 10,000 units from an external supplier. Thestatement is FALSE.

Choice b) – There is an increase in income of $110,000 (($164 - ($160 - $7)) x 10,000units) to Division B if Division B sells the 10,000 units to Division A. Thestatement is FALSE.

Choice c) – There is no idle capacity in Division B when Division A purchases the10,000 units from an external supplier, because Division B can sell all unitsproduced, i.e. 50,000 units, in the market. The statement is FALSE.

Choice d) – The company’s income is not maximized when Division B sells 50,000 unitsto external customers, because Division A also has to purchase 10,000units from an external supplier. The company’s income is maximized whenDivision B sells 40,000 units to external customers and transfers 10,000units to Division A. The statement is FALSE.

62. Answer: c.In order to supply Division A with the units it requires, Division B will lose some of itsexternal sales. The transfer price must take into account the contribution margin lost on

the external sales as well as the variable selling cost savings:Contribution margin per unit on lost sales= ($160 - $120 - $7) x 6,000 units / 10,000 units = $19.80Transfer price = Variable cost per unit less variable selling cost savings + lostcontribution margin per unit = $120 + $19.80 = $139.80.

Choice a) – Does not take into account the lost sales or the variable selling costsavings: transfer price = variable costs = $120.

Choice b) – Includes fixed manufacturing cost when calculating the lost contributionmargin:CM per unit lost = [$160 - $120 - ($1,000,000 / 50,000)] x 6,000 units / 10,000 units = $12; transfer price = $120 - $7 + $12 = $125.

Choice d) – Uses the external selling price as the transfer; transfer price = $160.Choice e) – Disregards the variable selling cost savings: transfer price = $120 + $24

= $144.

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63. Answer: e.Salaries are distributed out of before-tax profits and dividends are distributed out of after-tax profits.Dividends received = after-tax profits: $25,000 - ($25,000 x 18.12%)= $25,000 - $4,530 = $20,470Grossed-up dividends: $20,470 x 5/4 = $25,587.50

Taxes on dividends: [Grossed-up dividends x (combined federal and provincial taxrates)] - [Grossed-up dividends x (combined federal and provincial dividend tax credit)]= [$25,587.50 x (15.5% + 10%)] - [$25,587.50 x (13 1/3% + 6 2/3%)]= $6,524.81 - $5,117.50 = $1,407.31

Salary received = $25,000Taxes on salary = Salary x (combined federal and provincial tax rates)= $25,000 x (15.5% + 10%) = $6,375.00

Net increase (savings) in taxes = Taxes on dividends - taxes on salary= $1,407.31 - $6,375.00 = ($4,967.69) or ($4,968) rounded

Choice a) – Dividend gross-up is ignoredTaxes on dividends: [Dividends x (combined federal and provincial tax rates)] -[Dividends x (combined federal and provincial dividend tax credit)]= [$20,470 x (15.5% + 10%)] - [$20,470 x (13 1/3% + 6 2/3%)]= $5,219.85 - $4,094.00 = $1,125.85

Net increase (savings) in taxes = Taxes on dividends - taxes on salary= $1,125.85 - $6,375.00 = ($5,249.15) or ($5,249) rounded

Choice b) – Dividend tax credit is ignoredTaxes on dividends: [Grossed-up dividends x (combined federal and provincial taxrates)] = [$25,587.50 x (15.5% + 10%)] = $6,524.81

Net increase (savings) in taxes = Taxes on dividends - taxes on salary= $6,527.81 - $6,375.00 = $149.81 or $150 rounded

Choice c) – Incorrectly assume salaries were distributed out of after-tax income:Salary received = $25,000 - ($25,000 x 18.12%) = $25,000 - $4,530 = $20,470Taxes on salary = Salary x (combined federal and provincial tax rates)= $20,470 x (15.5% + 10%) = $5,219.85Net increase (savings) in taxes = Taxes on dividends - taxes on salary= $1,407.31 - $5,219.85 = ($3,812.54) or ($3,813) rounded

Choice d) – Ignore corporate taxes and the dividend tax credit:Dividends received = before-tax profits: $25,000

Grossed-up dividends: $25,000 x 5/4 = $31,250Taxes on dividends: [Grossed-up dividends x (combined federal and provincial taxrates)] = [$31,250 x (15.5% + 10%)] = $7,968.75Net increase (savings) in taxes = Taxes on dividends - taxes on salary= $7,968.75 - $6,375.00 = $1,593.75 or $1,594 rounded

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64. Answer: d.Onsite child care facilities and the opportunity to job share would be appealing to amother with a four-year-old and a two-year-old, especially if her husband works longhours.

Choice a) – Would have little appeal since Mr. Smith has benefits.

Choice b) – May have less appeal as advancement would mean more responsibilitiesand more time at work.

Choice c) – A company car would be a taxable benefit and likely not the most suitablefor transporting children.

Choice e) – In order to achieve bonuses, Mrs. Smith may be required to work longer,hours which would be less appealing.

65. Answer: a.Increased job responsibility provides greater job satisfaction which is a motivatoraccording to Herzberg and satisfies growth needs according to the ERG theory. Theother choices are hygiene factors that according to Herzberg would act as demotivatorsor dissatisfiers if they were not present. Choices b), c) and e) are relatedness needs

according to ERG theory. Choice d) is an example of an existence need according toERG theory.

66. Answer: d.Feedback should be available as soon as possible so that employees see a clearassociation between their behaviour and its consequences. Therefore, feedback forevents should be provided during the year the event occurred, not in the following year.Statements a), b), c) and e) would all contribute to motivating higher performance.

67. Answer: e.

Annual savings in cash operating costs ($17,000 - $9,000) $ 8,000

Annual savings in other production costs ($93 - $89) x 4,500 18,00026,000

Present value factor (4 year annuity, 14%) x 2.914Present value of operating cash inflows 75,764Less net capital cost ($75,000 - $40,000) (35,000

40,764Plus present value of difference in disposal values at end of

4 years ($31,000 - $16,000) x .592 8,880Net present value $49,644 Choice a) – Deducts the difference in the annual amortization costs instead of the initial

capital cost = [$26,000 - ($11,000 - $6,000)] x 2.914 + $8,880 = $70,074

Choice b) – Ignores the disposal value = ($26,000 x 2.914) - $35,000 = $40,764Choice c) – Ignores the disposal value of the old machine = $40,764 + ($31,000 x .592)

= $59,116Choice d) – Ignores the annual savings from other production costs = ($8,000 x 2.914) -

$35,000 + $8,880 = $(2,808)

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68. Answer: a.CCA tax shield = [($75,000 - $40,000) x .3 x .4] ÷ (.14 + .3) x [(2 + .14) ÷ 2(1 + .14)]= $4,200 ÷ .44 x (2.14/2.28) = $8,959

Choice b) – Uses the tax rate instead of the CCA rate in the denominator= [($75,000 - $40,000) x .3 x .4] ÷ (.14 + .4) x (2.14/2.28) = $5,632

Choice c) – Does not apply the half-year rule to the current disposal value of theexisting machine = [$75,000 x .3 x .4 ÷ .44 x (2.14/2.28)] - [$40,000 x .3 x

.4 ÷ .44] = $19,199 - $10,909 = $8,290Choice d) – Ignores the half-year rule = [($75,000 - $40,000) x .3 x .4] ÷ (.14 + .3)

= $9,545Choice e) – Uses UCC of existing machine instead of the disposal value to determine

the net capital cost to plug into the formula = [($75,000 - $35,000) x .3x .4]

÷ .44 x (2.14/2.28) = $4,800 ÷ .44 x (2.14/2.28) = $10,239

69. Answer: d.The CAPM links nondiversifiable risk and return for all assets and recognizes that

diversifiable risk can be eliminated.

Choice a) – The risk preference of the investor has no bearing on the model.Choice b) – The model assumes investor portfolios will be diversified to minimize risk.Choice c) – This response has no bearing on why the model disregards diversifiable

risk.Choice e) – The model values systematic risk.

70. Answer: b.Operating leverage reflects the extent to which fixed assets and their associated fixedcosts are utilized in a firm. The degree of operating leverage may be defined as thepercentage change in operating income that occurs as a result of a percentage change

in sales volume. The following are two ways to calculate the degree of operatingleverage.

EBIT = $500,000 - $200,000 - $120,000 = $180,000.

1) 1 + (Fixed costs ÷ EBIT) = 1 + ($120,000 ÷ $180,000) = 1.72) (Sales - Variable costs) ÷ EBIT = ($500,000 - $200,000) ÷ $180,000 = 1.7

Choice a) – EBIT ÷ Fixed costs = $180,000 ÷ $120,000 = 1.5Choice c) – Sales ÷ EBIT = $500,000 ÷ $180,000 = 2.8Choice d) – EBIT ÷ (EBIT - Interest) = $180,000 ÷ ($180,000 - $80,000)

= 1.8 (financial leverage)

Choice e) – Contribution margin ÷ Fixed costs = $300,000 ÷ $120,000 = 2.5

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71. Answer: a.

Net income $ 840Income taxes 560Amortization expense 1,000Reserve for warranties 150

Non-deductible portion of business meals ($90,000 x .5) 45CCA ($2,500 x .2 + $1,900 x .3) (1,070)Taxable income $1,525

Choice b) – Adjusts for income taxes and amortization/CCA only: $840 + $560 +$1,000 - $1,070 = $1,330

Choice c) – Adds back 100% of meals instead of 50%: $1,525 + $45 = $1,570Choice d) – Neglects to add the reserve for warranties: $1,525 - $150 = $1,375Choice e) – Adds back interest expense: $1,525 + $75 = $1,600

72. Answer: e.NPV = PV of after-tax cash flows - the original investment.

Annual after-tax cash flows = ($1,200,000 - $740,000) x (1 - .4) = $276,000.PV of after-tax cash flows for 5 years at 12% = $276,000 x 3.605 = $994,980.Net present value = $994,980 - $1,000,000 = $(5,020).

Choice a) – PV of after-tax cash flows for 5 years at 12% = $276,000 x 3.605 =$994,980

Choice b) – Annual after-tax cash flows = ($1,200,000 - $740,000) = $460,000.PV of after-tax cash flows for 5 years at 12% = $460,000 x 3.605 =$1,658,300.Net present value = $1,658,300 - $1,000,000 = $658,300.

Choice c) – Annual after-tax cash flows = ($1,200,000 - $740,000) x 0.4 = $184,000.PV of after-tax cash flows for 5 years at 12% = $184,000 x 3.605 =$663,320.Net present value = $663,320 - $1,000,000 = $(336,680).

Choice d) – Annual after-tax cash flows = ($1,200,000 - $740,000) = $460,000.PV of after-tax cash flows for 5 years at 12% = $460,000 x 3.605 =$1,658,300.Net present value = $1,658,300 - $1,000,000 = $658,300.After tax: $658,300 * (1-.4) = $394,980.

73. Answer: b.

Proceeds of disposition $300,000Less:

Adjusted cost base $110,000Disposition costs 8,000 118,000

Total capital gain $182,000Non-taxable (50%*) 91,000Total taxable capital gain $ 91,000

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74. Answer: a.$8,000 x 14% = $1,120

75. Answer: c.Value right = ($18 - $14) / (3 + 1) = $1

Choice a) – Incorrectly multiplies by the number of rights: 3 x ($18 - $14) = $12Choice b) – Multiplies the cash required by the number of rights and divides by the

current value of the shares: ($14 x 3) / $18 = $2.33Choice d) – This is correct if the market price of a share is less than the subscription

price of a share with three rights.Choice e) – Ignores the number of rights: $18 - $14 = $4

76. Answer: d.The maximum amount that GEF Inc. should be willing to pay for HIP Ltd. would be theamount that provides GEF Inc. with exactly a 16% return on investment (or a net presentvalue of zero using a 16% discount rate). This amount is calculated as follows:

[$4,000,000 + ($1,000,000 x .6)]/.16 = $4,600,000/.16 = $28,750,000.

Choice a) – After-tax operating savings are subtracted instead of added:($4,000,000 - $600,000)/.16 = $21,250,000

Choice b) – Uses before-tax operating savings: ($4,000,000 + $1,000,000)/.16= $31,250,000

Choice c) – Before-tax savings operating savings are subtracted instead of added:($4,000,000 - $1,000,000)/.16 = $18,750,000

Choice e) – Ignores synergistic savings: $4,000,000/.16 = $25,000,000

77. Answer: e.Subsection 85.1 permits a tax-free rollover to a shareholder of a corporation who

exchanges shares on one company for shares of another company if certain conditionsare met. Choices a), b) and c) are three of these conditions.

78. Answer: a.The membership fee for a golf and country club is taxable as it is unlikely that such clubmembership by the controller would benefit the company.Tuition fee for course related to work is exempt, because it would benefit the employer.The registered pension plan contribution is specifically exempt.Private dental plan and drug plan premiums are exempt.The fee for the seminar is not related to his work; therefore, it is a taxable benefit.Travel expenses for travel between home and usual place of work are considered topersonal expenses; therefore, the travel allowance is a taxable benefit.

Therefore, the taxable benefit would be $5,000 + $400 + $1,500 = $6,900.

Choice b) – Incorrectly includes the tuition fee for course related to his work: $5,000 +$2,000 + $400 + $1,500 = $8,900

Choice c) – Incorrectly includes the dental and drug plan premiums: $5,000 + $500 +$400 + $150 + $1,500 = $7,550

Choice d) – Includes all the benefits: $5,000 + $2,000 + $1,200 + $500 + $400 + $150 +$1,500 = $10,750

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Choice e) – Incorrectly excludes the travel allowance: $5,000 + $400 = $5,400

79. Answer: b.Only individuals can make a contribution to a federally registered party.

Canada Elections ActPART 18. DIVISION 2: GENERAL FINANCIAL PROVISIONS

Contributions

Ineligible contributors

404. (1) No person or entity other than an individual who is a citizen or permanentresident as defined in subsection 2(1) of the Immigration and Refugee Protection Act shall make a contribution to a registered party, a registered association, a candidate, aleadership contestant or a nomination contestant.

80. Answer: b.($20,000/$140,000 x 8%) + ($40,000/$140,000 x 6%) + ($70,000/$140,000 x 3%) +($10,000/$140,000 x 10%) = 5.07%.

81. Answer: e.Price = Present value of face value + Present value of semi-annual interest payments.= ($1,000 x PVIF20,5%) + ($40 x PVIFA 20,5%)= ($1,000 x .377) + ($40 x 12.462) = $875

82. Answer: a.Gross profit reported in Year 1:$12,000 costs to date + $24,000 expected costs to complete = $36,000 total expected

cost% complete in Year 1 = $12,000/$36,000 = 33.3%Gross profit reported in Year 1 = 33.3% x ($42,000 - $36,000) = 33.3% x $6,000= $2,000

Gross profit reported in Year 2:$12,000 Year 1 costs + $13,000 Year 2 costs + $15,000 estimated costs to complete= $40,000 total expected costs% complete in Year 2 = $25,000/$40,000 = 62.5%Gross profit reported in Year 2 = [62.5% x ($42,000 - $40,000)] - $2,000 recognized inYear 1= 62.5% x $2,000 - $2,000 = $1,250 - $2,000 = $(750) (i.e. a loss of $750)

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83. Answer: c.Since AWI is financially and operationally independent of its Canadian parent, it is a self-sustaining foreign operation and its statements should be translated using the currentrate method. Under the current rate method, assets and liabilities should be translatedusing the December 31, Year 2, exchange rate of 0.34 and income statement itemsshould be translated using the 0.32 average rate for Year 2:

inventory = 75,000 FC x .34 = $25,500;sales = 600,000 FC x .32 = $192,000;amortization = 10,000 FC x .32 = $3,200.

Choice a) – Uses the average rate for Year 2 of .32 for all.Choice b) – Uses the Dec. 31, Year 2, rate of .34 for all.Choice d) – Uses the Year 2, 4th quarter average for inventory (.35) and the Dec. 31,

Year 2, rate of .34 for sales and amortization.Choice e) – Uses the Year 2, 4th quarter average rate for inventory (.35) and the Year 2

average rate of .32 for sales and amortization.

84. Answer: b.

Year 2 Rate TranslatedCash 150,000 FC .34 $ 51,000 drAccounts receivable 90,000 FC .34 30,600 drInventory (FIFO basis) 75,000 FC .34 25,500 drCapital assets 180,000 FC .34 61,200 drAccounts payable 25,000 FC .34 8,500 crCapital stock 10,000 FC .36 3,600 crRetained earnings, January 1 240,000 FC .33 79,200 crSales 600,000 FC .32 192,000 crCost of sales 250,000 FC .32 80,000 drAmortization expense 10,000 FC .32 3,200 drOther operating expenses 120,000 FC .32 38,400 drCumulative translation gain 6,600 dr

Choice a) – Uses the temporal method.Choice c) – Capital stock and retained earning translated at the year-end rate for Year 2

of 0.34.Choice d) – Capital stock translated at the year-end rate for Year 2 of 0.34.Choice e) – Assumes all accounts are translated at the same rate.

85. Answer: c.

Net loss from operations $(160,000)Add back amortization 30,000Add back increase in accounts payable 15,000Cash provided (used) from operations $(115,000)

86. Answer: e.According to section 3030.10 of the CICA Handbook, the method of determining cost ofinventory (e.g. FIFO, LIFO, average cost) is a required disclosure. The composition ofinventory (choice b) is desirable, but not required.

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87. Answer: c.Opening balance $100,000Purchase of inventory (increase inventory, decrease cash) -Purchase of machinery (increase assets, increase liabilities) + 15,000Retirement of bonds (decrease liabilities, decrease cash) – 20,000

Closing balance (December 31) $ 95,00088. Answer: d.

[(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 + $16,500 - $2,000= $70,750

Choice a) – [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 -$2,000= $54,250

Choice b) – [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000= $56,250

Choice c) – [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] = $69,250Choice e) – [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 +

$16,500= $72,750

89. Answer: c.Temporary investments should be reported at fair value at each balance sheet date.The fair value of the temporary investments = $39,375 + $243,625 + $92,000= $375,000.

Choice a) – Uses highest value: $39,375 + $246,750 + $92,750 = $378,875Choice b) – Uses cost: $31,500 + $246,750 + $92,750 = $371,000Choice d) – Uses cost of shares and face value of bonds: $31,500 + $246,750 +

$100,000 = $378,250

Choice e) – Uses lower of cost or market: $31,500 + $243,625 + $92,000 = $367,125

90. Answer: e.Year 10 amortization = ($30,000 - $2,400)/5 x 50% = $5,520 x 50% = $2,760Year 11 amortization = $5,520Year 12 amortization = ($30,000 - $3,600 - $2,760 - $5,520)/2.5 = $18,120/2.5 = $7,248.

Choice a) – Uses 3.5 years instead of 2.5 years in the calculation: $18,120/3.5 = $5,177Choice b) – Assumes the vehicle was purchased on Jan. 1 instead of July 1: ($30,000 -

$3,600 - $5,520 - $5,520)/2 = $15,360/2 = $7,680Choice c) – Uses the old residual value: ($30,000 - $2,400 - $2,760 - $5,520)/2.5

= $7,728

Choice d) – Ignores amortization already recorded in years 10 and 11: ($30,000 -$3,600)/4= $6,600

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91. Answer: a.The effective interest for the first six months = $108,111 x 8% x ½ year = $4,324.

Choice b) – $100,000 x 10% x ½ = $5,000Choice c) – $108,111 x 10% x ½ = $5,406Choice d) – $100,000 x 8% x ½ = $4,000

Choice e) – ($100,000 x 10% x ½) - ($8,111 premium ÷ 10 payment periods) =$5,000 - $811= $4,189

92. Answer: d.At the end of an accounting period, entries are made to reduce all the temporaryaccounts to zero, and transfer the net income (loss) to an equity account (retainedearnings for a corporation). These are called closing entries. Choice d) represents anappropriate closing entry.

Choice a) – This is an adjusting entry to record accrued interest expense.Choice b) – An appropriate closing entry would be the recording of a dividend payment.

However, the entry would debit retained earnings and credit dividendspayable.

Choice c) – This is an adjusting entry to record income taxes payable for the year.

93. Answer: b.Fully diluted earnings per share= (net income + net interest on bonds) ÷ (fully diluted weighted average number ofshares outstanding)= [$4,000,000 + ($1,000,000 x 7% x .6)] ÷ (800,000 + 50,000) = $4.76.

94. Answer: c.The revenue recognition principle dictates that revenue gets recognized when the risks

and rewards of ownership are transferred and reasonable assurance exists regardingthe amount and collectability of the consideration for the goods. Because the dealer actsas an agent for the manufacturer on a non-consignment basis, the risks and rewards ofownership are transferred when an automobile is shipped to the dealer. Also, there isreasonable assurance that the agent will pay a price that was likely agreed upon prior toplacing the order.

95. Answer: b.For choice b), the company would be able to determine the stage of completion, but theamount of revenue is uncertain; therefore, it would be appropriate to use the completedcontract method for this situation.

For choices a), c) and d), the stage of completion can be determined and the amount ofrevenue to be received is fairly certain; therefore, the percentage-of-completion methodshould be used for these situations.

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96. Answer: a.Pension expense = service costs + interest on accrued benefits - expected return onpension fund assets + amortization of past service costs + amortization of net actuarialunrecognized loss= $640,000 + $290,000 - $184,000 + $120,000 + $66,000 = $932,000.

Choice b) – Includes pension benefits paid to retirees: $640,000 + $290,000 -$184,000 + $120,000 + $66,000 + $90,000 = $1,022,000

Choice c) – Includes actual return on pension fund assets instead of the expectedreturn: $640,000 + $290,000 - $160,000 + $120,000 + $66,000= $956,000

Choice d) – Deducts the amortization of unrecognized net actuarial gain (i.e. treats itlike a loss): $640,000 + $290,000 - $184,000 + $120,000 - $66,000= $800,000

Choice e) – Does not include amortization of unrecognized net actuarial loss: $640,000+ $290,000 - $184,000 + $120,000 = $866,000

97. Answer: d.

Provisions for warranty repairs are not deductible for tax purposes. Only costs actuallyincurred for warranty repairs during the year are deductible. Therefore, a provision forfuture repair costs will create a timing difference whereby non-deductible expenses inone year will be deductible in a future year when the actual expenditure is incurred.Choices a), b) and c) represent permanent differences.

98. Answer: e.In accordance with generally accepted accounting principles, development costs (but notresearch costs) can be capitalized if certain criteria are met. Choices a), b) and d) relateto three of the specified criteria for capitalizing development costs. Choice c) must beanswered before even considering the criteria. Only choice e) is not one of the criteriafor capitalizing development costs.

99. Answer: d.Since the insurance was not adjusted: insurance expense is too low (=overstatedincome); prepaid insurance is too high (=assets are overstated).

100. Answer: b.When a foreign currency transaction gives rise to a receivable or a payable, a change inthe exchange rate between the functional currency and the currency in which thetransaction is denominated is a foreign currency transaction gain or loss that should beincluded as a component of income from continuing operations in the period in which theexchange rate changes. The transaction was recorded at $1.50 per Foreign Currency. AtDecember 31, Year 10, the exchange rate had risen to $1.55, so Company X should

recognize a loss of $5,000 [i.e. ($1.55 - $1.50) x FC100,000] in Year 10. The Year 11recognized loss is $2,000 [i.e. ($1.57 - $1.55) x FC100,000].

7/31/2019 2009_EE_en



66 CMA Canada

101. Answer: e.Choice a) is a restricted fund that can only be used for a specific project to take place intwo years; therefore, it is not liquid. The project costs in choice b) must be expensed inthe year because the grant is not guaranteed and cannot be recorded as a receivable.For choice c), the seniors’ home does not have ownership of the gift items; therefore,they cannot be recorded as assets. For choice d), the account is held in trust and is

therefore not accessible to the seniors’ home. Therefore, choice e) is the correctanswer.

102. Answer: c.Current ratio = (Cash + Marketable securities + Receivables + Inventory)/Currentliabilities = ($57 + $269 + $345 + $770)/$648 = 2.22

Choice a) – Uses total assets in numerator: $2,331/$648 = 3.60Choice b) – Uses total liabilities in the denominator: $1,441/$1,035 = 1.39Choice d) – Uses total assets and total liabilities: $2,331/$1,035 = 2.25Choice e) – Quick ratio: ($57 + $269 + $345)/$648 = 1.04

103. Answer: b.Accounts receivable turnover in days = 365/[Net credit sales/Average net accountsreceivable] or Average net accounts receivable/Net credit sales x 365 days= 365/{($7,938 x 85%)/[($345 + $314)/2]} = 17.8 days

Choice a) – Uses total sales instead of credit sales: 365/{$7,938/[($315 + $286)/2]}= 15.2 days

Choice c) – Uses Year 1 accounts receivable: 365/[($7,938 x 85%)/$314] = 17.0 daysChoice d) – Uses gross margin and year-end accounts receivable: 365/[($7,938 -

$5,477)/$345]= 51.2 days

Choice e) – Neglects to convert to days: ($7,938 x 85%)/[($345 + $314)/2] = 20.5 days

104. Answer: a.Times interest earned = Income before interest & taxes ÷ Interest= ($538 + $135 + $449 + $85)/$85 = 14.2 times

Choice b) – Treats the loss as a gain: ($538 - $135 + $449 + $85)/$85 = 11.0 times.Choice c) – Ignores pre-tax loss on disposal of asset: ($538 + $90 + $449 + $85)/$85

= 13.7 timesChoice d) – Uses net income: $538/$85 = 6.3 timesChoice e) – Use net income before interest but after taxes: ($538 + $85)/$85

= 7.3 times

105. Answer: d.Total debt-to-equity ratio = Total liabilities/Total shareholders’ equity= $1,035/($429 + $867) = $1,035/$1,296 = 0.80

Choice a) – Uses long-term debt: ($1,035 - $648)/$1,296 = 0.30Choice b) – Uses retained earnings only: $1,035/$867 = 1.19Choice c) – Uses common shares only: $1,035/$429 = 2.41Choice e) – Uses total assets instead of equity: $1,035/$2,331 = 0.44

7/31/2019 2009_EE_en



CMA Canada 67

106. Answer: c.The general standard for determining cost in an exchange of non-monetary assets isthat the asset should be measured at the fair value of the asset given up, unless the fairvalue of the asset received is more clearly evident, with the resulting gain or lossrecognized in income. In this case, the fair value of the shares given up is more clearly

evident than the fair value of the asset received (it is an estimate, not an appraisedvalue). Therefore, the value of the shares (i.e. $11.20 x 3,750,000 = $42,000,000)should be prorated to the assets acquired, based on their estimated value:Land = $12,000,000 / $48,000,000 x $42,000,000 = $10,500,000;Building = $36,000,000 / $48,000,000 x $42,000,000 = $31,500,000.

Choice a) – Incorrectly records the assets at their estimated value and adds the gainon sale of the shares to the value of the shares.

Choice b) – Incorrectly records the assets at their estimated value and recognizes inincome a gain on sale of the shares that were exchanged (i.e. gain= $48,000,000 - $42,000,000 = $6,000,000.

Choice d) – Incorrectly records the assets at their estimated value and recognizes in

income a gain on sale of the shares that were exchanged. As well, a taxliability (i.e. tax = $6,000,000 x 40% = $2,400,000) should not exist.

Choice e) – Prorates the value of the shares to the assets acquired based on theirbook values.

107. Answer: c

B = Gross Value from bond sale at time zeroI = 4.0% (= 8.0% / 2)n = 20 payments (coupon payments are semi-annual)M = $48,000,000k = 10.0% p.a.

B = (M x I x PVIFA, 4% @ n terms) + (M x PVIF, 5% @ 20 terms)B = ($48,000,000 x 4% x PVIFA 5%,20) + ($48,000,000 x PVIF 5%,20)

= ($48,000,000 x 4% x 12.462) + ($48,000,000 x 0.377)= $23,927,040 + $18,096,000= $42,023,040

Brokerage Charge = $48,000,000 x 2.5%= $1,200,000

Net proceeds from sale of bond = $42,023,040 - $1,200,000 = $40,823,040

7/31/2019 2009_EE_en



68 CMA Canada

Choice a) – Ignores commission fee.

Choice b) – Uses annual interest payments and ignores commission:B = (M x I x PVIFA, 8% @ n terms) + (M x PVIF, 10.0% @ N terms)B= ($48,000,000 x 8% x 6.145) + ($48,000,000 x 0.386)= $23,596,800 + $18,528,000

= $42,124,800

Choice d) – Uses annual interest payments and calculates commission incorrectly:B = $42,124,800

Brokerage Charge = $42,124,800 x 2.5% = $1,053,120Net proceeds from sale of bond = $42,124,800 - $1,053,120 = $41,071,680

Choice e) – Uses annual interest payments with correct commission figure:B = $42,124,800

Brokerage Charge = $48,000,000 x 2.5% = $1,200,000

Net proceeds from sale of bond = $42,124,800 - $1,200,000 = $40,924,800

108. Answer: e.Horizontal analysis indicates that the company contribution margin in Year 10 is 106% ofthe contribution margin in Year 8, while the net operating income in Year 10 is 110% ofthe net operating income in Year 8. Therefore, choice a) is false because the netoperating income is increasing at a greater rate than the contribution margin for thecompany.

Trend analysis indicates that Company A’s share of the e-book usage market hasincreased from 2.4% in Year 8 to 2.6% in Year 9 and 2.9% in Year 10. Therefore, choiceb) is true.

The following table shows the e-book segment as a proportion of the company:

Year 8 Year 9 Year 10Total sales 8.0% 10.0% 13.0%Contribution margin 9.8% 14.2% 19.8%Net operating income 7.8% 15.0% 26.9%

The e-book segment is contributing more as a percentage of the total company results insales, contribution margin and net operating income each year. Therefore, choice c) istrue.

Since choice b) and choice c) are both true, choice e) is the correct answer. Choice d) isincorrect because choice a) is false.

109. Answer: d.Expanding e-book usage emphasizes the economic component (choice a), theenvironmental component (choice b) by reducing paper usage, but not the socialcomponent (choice c). Therefore, choice d) is correct and choice e) is not.

7/31/2019 2009_EE_en



CMA Canada 69

Supplement of Formulae and Tables

1. CAPITAL STRUCTURE

a) After-Tax Marginal Cost of Debt:

( )k k T or T I

F b = −

−1

1( )

where k = interest rate

T = corporate tax rate I = annual interest payment on debtF = face value of debt

b) Cost of Preferred Shares:

k D

NP p

p

p

=

where D p = stated annual dividend payment on shares

NP p = net proceeds on preferred share issue

c) Cost of Common Equity:

i) Cost of Common Shares (Capitalization of Dividends with Constant Growth Rate):

k D

NPge

e

= +1

where D1 = dividend expected for period 1

NPe = net proceeds on common share issue

g = annual long-term dividend growth rate

ii) Cost of Retained Earnings:

k r D

Pgre e

e

= = +1

where Pe = market price of a share

r e = expected return on common equity

iii) Capital Asset Pricing Model:

( ) R R R R j f j m f = + −β

where R j = expected rate of return on security j

R f = risk-free rate Rm = expected return for the market portfolio

β j = beta coefficient for security j (measure of systematic risk)

7/31/2019 2009_EE_en



70 CMA Canada

d) Weighted Average Cost of Capital:

k B

V k

P

V k

E

V k b p e=

⎛ ⎝ ⎜

⎞ ⎠⎟ +

⎛ ⎝ ⎜

⎞ ⎠⎟ +

⎛ ⎝ ⎜

⎞ ⎠⎟

where B = amount of debt outstandingP = amount of preferred shares outstanding

E = amount of common equity outstandingV = B + P + E = total value of firm

2. PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS

a) Present Value of Total Tax Shield from CCA for a New Asset

Present Value =CdT

d k

k

k

CdT

d+ k

k

k +++

⎛ ⎝ ⎜

⎞ ⎠⎟ =

++

⎛ ⎝ ⎜

⎞ ⎠⎟

2

21

1 05

1( )

.

b) Present Value of Total Tax Shield from CCA for an Asset that is Not Newly Acquired

Present Value = UCC

dT

d+k

⎛

⎝ ⎜

⎞

⎠⎟

c) Present Value of Total Tax Shield Lost From Salvage

( ) ( )Present Value =

S

+k

dT

d+k or

S

+k

dT

d+k

n n

n1 1

1n

⎛ ⎝ ⎜

⎞ ⎠⎟

⎛ ⎝ ⎜

⎞ ⎠⎟−, depending on cashflow assumptions

Notation for above formulae: C = net initial investmentUCC = undepreciated capital cost of asset S n = salvage value of asset realized at end of year n

T = corporate tax ratek = discount rate or time value of moneyd = maximum rate of capital cost allowancen = total life of investment

7/31/2019 2009_EE_en



CMA Canada 71

Table 1

Present Value of One Dollar Due at the End of n Years ( )

Pi

n=

+

1

1

n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

0102030405

0.990.980.971.961.951

0.980.961.942.924.906

0.971.943.915.888.863

0.962.925.889.855.822

0.952.907.864.823.784

0.943.890.840.792.747

0.935.873.816.763.713

0.926.857.794.735.681

0.917.842.772.708.650

0.909.826.751.683.621

0607

080910

.942

.933

.923.914

.905

.888

.871

.853.837

.820

.837

.813

.789.766

.744

.790

.760

.731.703

.676

.746

.711

.677.645

.614

.705

.665

.627.592

.558

.666

.623

.582.544

.508

.630

.583

.540.500

.463

.596

.547

.502.460

.422

.564

.513

.467.424

.386

1112131415

.896

.887

.879

.870

.861

.804

.788

.773

.758

.743

.722

.701

.681

.661

.642

.650

.625

.601

.577

.555

.585

.557

.530

.505

.481

.527

.497

.469

.442

.417

.475

.444

.415

.388

.362

.429

.397

.368

.340

.315

.388

.356

.326

.299

.275

.350

.319

.290

.263

.239

16171819

20

.853

.844

.836

.828

.820

.728

.714

.700

.686

.673

.623

.605

.587

.570

.554

.534

.513

.494

.475

.456

.458

.436

.416

.396

.377

.394

.371

.350

.331

.312

.339

.317

.296

.277

.258

.292

.270

.250

.232

.215

.252

.231

.212

.194

.178

.218

.198

.180

.164

.1492122232425

.811

.803

.795

.788

.780

.660

.647

.634

.622

.610

.538

.522

.507

.492

.478

.439

.422

.406

.390

.375

.359

.342

.326

.310

.295

.294

.278

.262

.247

.233

.242

.226

.211

.197

.184

.199

.184

.170

.158

.146

.164

.150

.138

.126

.116

.135

.123

.112

.102

.092

7/31/2019 2009_EE_en



72 CMA Canada

Table 1 (cont’d)

Present Value of One Dollar Due at the End of n Years

( )P

in

=+

1

1

n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

0102030405

0.901.812.731.659.593

0.893.797.712.636.567

0.885.783.693.613.543

0.877.769.675.592.519

0.870.756.658.572.497

0.862.743.641.552.476

0.855.731.624.534.456

0.847.718.609.516.437

0.840.706.593.499.419

0.833.694.579.482.402

0607

080910

.535

.482

.434.391

.352

.507

.452

.404.361

.322

.480

.425

.376.333

.295

.456

.400

.351.308

.270

.432

.376

.327.284

.247

.410

.354

.305.263

.227

.390

.333

.285.243

.208

.370

.314

.266.225

.191

.352

.296

.249.209

.176

.335

.279

.233.194

.162

1112131415

.317

.286

.258

.232

.209

.287

.257

.229

.205

.183

.261

.231

.204

.181

.160

.237

.208

.182

.160

.140

.215

.187

.163

.141

.123

.195

.168

.145

.125

.108

.178

.152

.130

.111

.095

.162

.137

.116

.099

.084

.148

.124

.104

.088

.074

.135

.112

.093

.078

.065

16171819

20

.188

.170

.153

.138

.124

.163

.146

.130

.116

.104

.142

.125

.111

.098

.087

.123

.108

.095

.083

.073

.107

.093

.081

.070

.061

.093

.080

.069

.060

.051

.081

.069

.059

.051

.043

.071

.060

.051

.043

.037

.062

.052

.044

.037

.031

.054

.045

.038

.031

.0262122232425

.112

.101

.091

.082

.074

.093

.083

.074

.066

.059

.077

.068

.060

.053

.047

.064

.056

.049

.043

.038

.053

.046

.040

.035

.030

.044

.038

.033

.028

.024

.037

.032

.027

.023

.020

.031

.026

.022

.019

.016

.026

.022

.018

.015

.013

.022

.018

.015

.013

.010

7/31/2019 2009_EE_en



CMA Canada 73

Table 1 (cont’d)


( )P

in

=+

1

1

n 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%

0102030405

0.826.683.564.467.386

0.820.672.551.451.370

0.813.661.537.437.355

0.806.650.524.423.341

0.800.640.512.410.328

0.794.630.500.397.315

0.787.620.488.384.303

0.781.610.477.373.291

0.775.601.466.361.280

0.769.592.455.350.269

0607

080910

.319

.263

.218.180

.149

.303

.249

.204.167

.137

.289

.235

.191.155

.126

.275

.222

.179.144

.116

.262

.210

.168.134

.107

.250

.198

.157.125

.099

.238

.188

.148.116

.092

.227

.178

.139.108

.085

.217

.168

.130.101

.078

.207

.159

.123.094

.073

1112131415

.123

.102

.084

.069

.057

.112

.092

.075

.062

.051

.103

.083

.068

.055

.045

.094

.076

.061

.049

.040

.086

.069

.055

.044

.035

.079

.062

.050

.039

.031

.072

.057

.045

.035

.028

.066

.052

.040

.032

.025

.061

.047

.037

.028

.022

.056

.043

.033

.025

.020

16171819

20

.047

.039

.032

.027

.022

.042

.034

.028

.023

.019

.036

.030

.024

.020

.016

.032

.026

.021

.017

.014

.028

.023

.018

.014

.012

.025

.020

.016

.012

.010

.022

.017

.014

.011

.008

.019

.015

.012

.009

.007

.017

.013

.010

.008

.006

.015

.012

.009

.007

.0052122232425

.018

.015

.012

.010

.009

.015

.013

.010

.008

.007

.013

.011

.009

.007

.006

.011

.009

.007

.006

.005

.009

.007

.006

.005

.004

.008

.006

.005

.004

.003

.007

.005

.004

.003

.003

.006

.004

.003

.003

.002

.005

.004

.003

.002

.002

.004

.003

.002

.002

.001

7/31/2019 2009_EE_en



74 CMA Canada

Table 1 (cont’d)


( )P

in

=+

1

1

n 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%

0102030405

0.763.583.445.340.259

0.758.574.435.329.250

0.752.565.425.320.240

0.746.557.416.310.231

0.741.549.406.301.223

0.735.541.398.292.215

0.730.533.389.284.207

0.725.525.381.276.200

0.719.518.372.268.193

0.714.510.364.260.186

0607

080910

.198

.151

.115.088

.067

.189

.143

.108.082

.062

.181

.136

.102.077

.058

.173

.129

.096.072

.054

.165

.122

.091.067

.050

.158

.116

.085.063

.046

.151

.110

.081.059

.043

.145

.105

.076.055

.040

.139

.100

.072.052

.037

.133

.095

.068.048

.035

1112131415

.051

.039

.030

.023

.017

.047

.036

.027

.021

.016

.043

.033

.025

.018

.014

.040

.030

.022

.017

.012

.037

.027

.020

.015

.011

.034

.025

.018

.014

.010

.031

.023

.017

.012

.009

.029

.021

.015

.011

.008

.027

.019

.014

.010

.007

.025

.018

.013

.009

.006

16171819

20

.013

.010

.008

.006

.005

.012

.009

.007

.005

.004

.010

.008

.006

.004

.003

.009

.007

.005

.004

.003

.008

.006

.005

.003

.002

.007

.005

.004

.003

.002

.006

.005

.003

.003

.002

.006

.004

.003

.002

.002

.005

.004

.003

.002

.001

.005

.003

.002

.002

.0012122232425

.003

.003

.002

.002

.001

.003

.002

.002

.001

.001

.003

.002

.001

.001

.001

.002

.002

.001

.001

.001

.002

.001

.001

.001

.001

.002

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

.001

7/31/2019 2009_EE_en



CMA Canada 75

Table 2

Present Value of One Dollar Per Year — n Years at i%

( )Pi

in

n

=

−+

⎛

⎝

⎜⎜

⎞

⎠

⎟⎟

11

1

n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

0102030405

0.9901.9702.9413.9024.854

0.9801.9422.8843.8084.713

0.9711.9142.8293.7174.580

0.9621.8862.7753.6304.452

0.9521.8592.7233.5474.330

0.9431.8332.6733.4654.212

0.9351.8082.6243.3874.100

0.9261.7832.5773.3123.993

0.9171.7592.5313.2403.890

0.9091.7362.4873.1703.791

06

07080910

5.796

6.7287.6528.5669.471

5.601

6.4727.3258.1628.983

5.417

6.2307.0207.7868.530

5.242

6.0026.7337.4358.111

5.076

5.7866.4637.1087.722

4.917

5.5826.2106.8027.360

4.767

5.3895.9716.5157.024

4.623

5.2065.7476.2476.710

4.486

5.0335.5355.9956.418

4.355

4.8685.3355.7596.145

1112131415

10.36811.25512.13413.00413.865

9.78710.57511.34812.10612.849

9.2539.954

10.63511.29611.938

8.7609.3859.98610.56311.118

8.3068.8639.3949.89910.380

7.8878.3848.8539.2959.712

7.4997.9438.3588.7459.108

7.1397.5367.9048.2248.560

6.8057.1617.4877.7868.061

6.4956.8147.1037.3677.606

161718

1920

14.71815.56216.398

17.22618.046

13.57814.29214.992

15.67816.351

12.56113.16613.753

14.32414.877

11.65212.16612.659

13.13413.590

10.83811.27411.690

12.08512.462

10.10610.47710.828

11.15811.470

9.4479.76310.059

10.33610.594

8.8519.1229.372

9.6049.818

8.3138.5448.756

8.9509.129

7.8248.0228.201

8.3658.514

2122232425

18.85719.66120.45621.24422.023

17.01117.65818.29218.91419.523

15.41515.93716.44416.93617.413

14.02914.45114.85715.24715.622

12.82113.16313.48913.79914.094

11.76412.04212.30312.55012.783

10.83611.06111.27211.46911.654

10.01710.20110.37110.52910.675

9.2929.4429.5809.7079.823

8.6498.7728.8838.9859.077

7/31/2019 2009_EE_en



76 CMA Canada

Table 2 (cont’d)


( )Pi

in

n

=

−+

⎛

⎝

⎜⎜

⎞

⎠

⎟⎟

11

1

n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

0102030405

0.9011.7132.4443.1023.696

0.8931.6902.4023.0373.605

0.8851.6682.3612.9753.517

0.8771.6472.3222.9143.433

0.8701.6262.2832.8553.352

0.8621.6052.2462.7983.274

0.8551.5852.2102.7433.199

0.8481.5662.1742.6903.127

0.8401.5472.1402.6393.058

0.8331.5282.1072.5892.991

06

07080910

4.231

4.7125.1465.5375.889

4.111

4.5644.9685.3285.650

3.998

4.4234.7995.1325.426

3.889

4.2884.6394.9465.216

3.785

4.1604.4874.7725.019

3.685

4.0394.3444.6074.833

3.589

3.9224.2074.4514.659

3.498

3.8124.0784.3034.494

3.410

3.7063.9544.1634.339

3.326

3.6053.8374.0314.193

1112131415

6.2076.4926.7506.9827.191

5.9386.1946.4246.6286.811

5.6875.9186.1226.3036.462

5.4535.6605.8426.0026.142

5.2345.4215.5835.7255.847

5.0295.1975.3425.4685.576

4.8364.9885.1185.2295.324

4.6564.7934.9105.0085.092

4.4874.6114.7154.8024.876

4.3274.4394.5334.6114.676

161718

1920

7.3797.5497.702

7.8397.963

6.9747.1207.250

7.3667.469

6.6046.7296.840

6.9387.025

6.2656.3736.467

6.5506.623

5.9546.0476.128

6.1986.259

5.6695.7495.818

5.8785.929

5.4055.4755.534

5.5855.628

5.1625.2225.273

5.3165.353

4.9384.9905.033

5.0705.101

4.7304.7754.812

4.8444.870

2122232425

8.0758.1768.2668.3488.422

7.5627.6457.7187.7847.843

7.1027.1707.2307.2837.330

6.6876.7436.7926.8356.873

6.3136.3596.3996.4346.464

5.9736.0116.0446.0736.097

5.6655.6965.7235.7475.766

5.3845.4105.4325.4515.467

5.1275.1495.1675.1825.195

4.8914.9094.9254.9374.948

7/31/2019 2009_EE_en



CMA Canada 77

Table 2 (cont’d)


( )Pi

in

n

=

−+

⎛

⎝

⎜⎜

⎞

⎠

⎟⎟

11

1

n 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%

0102030405

0.8261.5102.0742.5402.926

0.8201.4922.0422.4942.864

0.8131.4742.0112.4482.804

0.8071.4571.9812.4042.745

0.8001.4401.9522.3622.689

0.7941.4241.9232.3202.635

0.7871.4071.8962.2802.583

0.7811.3921.8682.2412.532

0.7751.3761.8422.2032.483

0.7691.3611.8162.1662.436

06

07080910

3.245

3.5083.7263.9054.054

3.167

3.4163.6193.7863.923

3.092

3.3273.5183.6733.799

3.021

3.2423.4213.5663.682

2.951

3.1613.3293.4633.571

2.885

3.0833.2413.3663.465

2.821

3.0093.1563.2733.364

2.759

2.9373.0763.1843.269

2.700

2.8682.9993.1003.178

2.643

2.8022.9253.0193.092

1112131415

4.1774.2794.3624.4324.489

4.0354.1274.2034.2654.315

3.9023.9854.0534.1084.153

3.7763.8513.9123.9624.001

3.6563.7253.7803.8243.859

3.5433.6063.6563.6953.726

3.4373.4933.5383.5733.601

3.3353.3873.4273.4593.483

3.2393.2863.3223.3513.373

3.1473.1903.2233.2493.268

161718

1920

4.5364.5764.608

4.6354.657

4.3574.3914.419

4.4424.460

4.1894.2194.243

4.2634.279

4.0334.0594.080

4.0974.110

3.8873.9103.928

3.9423.954

3.7513.7713.786

3.7993.808

3.6233.6403.654

3.6643.673

3.5033.5183.529

3.5393.546

3.3903.4033.413

3.4213.427

3.2833.2953.304

3.3113.316

2122232425

4.6754.6904.7034.7134.721

4.4764.4884.4994.5074.514

4.2924.3024.3114.3184.323

4.1214.1304.1374.1434.147

3.9633.9713.9763.9813.985

3.8163.8223.8273.8313.834

3.6793.6843.6893.6923.694

3.5513.5563.5593.5623.564

3.4323.4363.4383.4413.442

3.3203.3233.3253.3273.329

7/31/2019 2009_EE_en



Table 2 (cont’d)


( )Pi

in

n

=

−+

⎛

⎝

⎜⎜

⎞

⎠

⎟⎟

11

1

n 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%

0102030405

0.7631.3461.7912.1312.390

0.7581.3321.7662.0962.345

0.7521.3171.7422.0622.302

0.7461.3031.7192.0292.260

0.7411.2891.6961.9972.220

0.7351.2761.6741.9662.181

0.7301.2631.6521.9362.143

0.7251.2501.6301.9062.106

0.7191.2371.6091.8772.070

0.7141.2251.5891.8492.035

06

07080910

2.588

2.7392.8542.9423.009

2.534

2.6782.7862.8682.930

2.483

2.6192.7212.7982.855

2.433

2.5622.6582.7302.784

2.385

2.5082.5982.6652.715

2.339

2.4552.5402.6032.650

2.294

2.4042.4852.5442.587

2.251

2.3562.4322.4872.527

2.209

2.3082.3802.4322.469

2.168

2.2632.3312.3792.414

1112131415

3.0603.1003.1293.1523.170

2.9783.0133.0403.0613.076

2.8992.9312.9562.9742.988

2.8242.8532.8762.8922.905

2.7522.7792.7992.8142.826

2.6832.7082.7272.7402.750

2.6182.6412.6582.6702.679

2.5562.5762.5922.6032.611

2.4962.5152.5292.5392.546

2.4382.4562.4692.4782.484

161718

1920

3.1833.1933.201

3.2073.211

3.0883.0973.104

3.1093.113

2.9993.0073.012

3.0173.020

2.9142.9212.926

2.9302.933

2.8342.8402.844

2.8482.850

2.7582.7632.767

2.7702.772

2.6852.6902.693

2.6962.698

2.6162.6212.624

2.6262.627

2.5512.5552.557

2.5592.561

2.4892.4922.494

2.4962.497

2122232425

3.2153.2173.2193.2213.222

3.1163.1183.1203.1213.122

3.0233.0253.0263.0273.028

2.9352.9372.9382.9392.939

2.8522.8532.8542.8552.856

2.7732.7752.7752.7762.777

2.6992.7002.7012.7012.702

2.6292.6292.6302.6302.631

2.5622.5622.5632.5632.563

2.4982.4992.4992.4992.499

2009_EE_en

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