accounts

ACCT 621:

Total Marks: 100

Instructions:

1.) The exam will be a take-home exam and is considered open book.

2.) You may not share any ideas or answers with other students under ANY circumstances.

3.) The exam is 2 hours long and must be returned by email to your instructor no later than 2 hours after it is received.

Question 1:

Please refer to the financial statements provided in Appendix 1:

a.) For each of the following, please provide a calculation of the appropriate ratio amount for 2017 and 2018 years. Show your calculations (22 Marks). See Notes to specific financial statement items in calculations.

b.) Please provide commentary to your observations, and your assessment of how the change in year-over-year ratios is reflective of the financial performance and health of the company (22 Marks).

c.) For Current Ratio, Inventory Turnover and Accounts Receivable Turnover, please provide two examples each of things the company can do to improve these ratios (6 Marks).

Answers: 1 a. and 1.b

Ratio	Calculation	Commentary
Gross Profit Rate (Note 2)
Profit Margin (Note 1,2)
Return on Assets (Note 1)
Asset Turnover (Note 2)
Debt to Asset Ratio
Times Interest Earned (Note 3)
Free Cash Flow
Current Ratio
Inventory Turnover
Working Capital
Accounts Receivable Turnover (Note 4)

Note 1: Ignore Income/Loss attributable to non-controlling interests.

Note 2: Consider all revenue items to be sales.

Note 3: Include all interest expense items to be part of the cost of financing.

Note 4: Consider all receivable items to be trade receivables.

Answers: 1c.:

Ratio	Steps to Improve Ratio
Current Ratio
Inventory Turnover
Accounts Receivable Turnover

Question 2:

You have recently taken over the role of the Chief Financial Officer of GT Gold Chasers Ltd. (“GT Gold”). GT Gold is junior mining company, that is hoping to hit it big with their next mining venture. You work out of the head office that is based out of Vancouver. GT has got a reputation in the industry for being quick to act, and the management team are known for pushing the envelope to get results. There has been a high turnover of people in the last two years, and the current team are mainly new to the job.

During your first few weeks on the job, you have noticed a few “oddities” around how things in the office run. A couple of examples of these are as follows:

· Your assistant staff accountant, Stella Monibag helps you with the preparation of the accounting financial statements for the company. Stella spends her days reconciling the bank accounts of the company on a daily basis, which is great, because you need to know how much cash you have in the company at all times. Once she has reconciled the accounting general ledger to the bank statement, she prepares all the cheques for the new bills that needs to be paid. You have the authority to sign the cheques, but when you are out of the office, Stella is also able to sign these cheques or approve payments on your behalf. Stella keeps the cheque book on her desk so that she doesn’t lose it easily. Once you have approved a payment, Stella will access the company accounting system to enter the transactions in the general ledger.

· Recently the company started to pay some larger invoices to vendors that you have never really heard of. One the vendors, SM Consultants Inc. provided printing services, a piece of furniture and six hours of printing consulting. These were not expected costs, but you are new to the office, and you figure that it will probably sort itself out later.

2.a) Please advise provides commentary on any internal control weaknesses that may exist in GT Gold, based on the above information (12 marks).

2.b) Please provide three possible solutions to the internal control weaknesses you have identified above, and how these will help solve the control weakness (6 marks).

2.c) Provide some commentary and two examples regarding things you would try to change in the organization to address internal control risk (hint: refer back to the Fraud Triangle model discussed during class), and how these changes would impact the company (4 marks).

Question 3:

The following transactions appeared in the accounting records of GT Gold during the year. Stella comes to your office, and wants to understand how we should be entering these into the accounting system for the December 31 year-end. Please summarize these transactions using the metric below (i.e. show how the change in Assets, Liabilities or Shareholder Equity should be shown). Show your calculations.

1.) On January 1, GT purchased a mining machine from Japan. The machine cost CAN$1,350,000 and had to be shipped to Vancouver. Once it arrived in Vancouver, there were customs duties of CAN$50,000. The machine and its unassembled components were placed on a train and assembled on site. The cost of the freight was CAN$10,000, and a friendly mechanic named Mitch assembled the machine components once it arrived at its destination in Northern BC. GT paid Mitch $2,000. (3 marks)

2.) One week into the machine operating, a cable snapped, and Mitch had to replace it. Mitch recommended that we get a better cable that can lift more weight. It would make the machine way better Mitch said. The new cable cost $12,000. (3 Marks)

3.) GT employs a double declining method depreciation, assuming a salvage value of 15,000, and 6 year life. Stella wants to know what to book for depreciation for the year. (8 marks)

4.) On March 31 the next year, a competitor firm to GT offered to buy the mining machine for $2,000,000. GT took the offer and sold the machine on the same day. Assume for the purpose of this point only that accumulated depreciation on this asset at the time of sale was $200,000. Stella wants to know how to account for the sale. (8 marks).

5.) GT currently has $2,000,000 in its receivables on its books. Last year Stella booked $100,000 on the AFDA account. This year, you estimate that 3.5% of receivables are uncollectible. Stella wants to know what to book this year (4 marks).

6.) After making the adjustment in point 5, Stella finds out that one of the accounts is uncollectible. They owe GT $65,000. Please help Stella with the adjustment (2 marks).

Assets	Liabilities	Shareholder Equity