Midterm Comm293

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Sauder School of Business COMM 293 Midterm Examination Question Booklet

Answer all questions in the other (answer) booklet, this booklet WILL NOT BE REVIEWED FOR GRADING PURPOSES
Time: 110 minutes Total Marks: 100
No programmable calculators are permitted. Please show all calculations in an orderly and clear format for part marks. Time management is crucial. Be sure to attempt each question. No questions will be permitted during this examination. If you need to make an assumption, state it and continue. Read the questions carefully before making any assumptions. Question 1 (18 marks; suggested time 18 minutes) Revenue Recognition

Part A Brigante Construction Ltd. entered into a contract on October 1, 2002 with the province of
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(4 marks) (b) Determine the ending balances of Bad debts expense and Allowance for doubtful accounts for 2005 using the aging method. (5 marks) (c) Calculate the A/R turnover ratio using your answers from part (b) [aging method] and briefly comment on Elway’s management of accounts receivable. Are managers doing a good or bad job? Explain your conclusion. (3 marks) (d) Identify and discuss (in detail) two reasons why the direct write-off method for bad debts is not acceptable under GAAP. (6 marks) Question 3 (17 marks; suggested time 17 minutes) Temporary Investments On January 1, 2003, Drug Corporation Limited raised $10 million in an initial public offering (IPO) to finance research and product testing for a drug to treat individuals addicted to harmful substances. These funds were expected to last three years. As only $2.9 million was required

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immediately, the balance of $7.1 million was invested in temporary investments. Below are details of the stock portfolio from January 2003 until it was exhausted on October 27, 2005: Date Jan 2, ‘03 Description of Transaction Bought: 100,000 Silverados at $20@ 200,000 Impalas at $9@ 300,000 Edisels at $11 @ Sold: Sold: Sold: 100,000 Impalas at $12@ 50,000 Silverados at $17@ 50,000 Silverados at $12@ 100,000 Impalas at $14@ Cash Inflow or (Outflow) ($2,000,000) (1,800,000) (3,300,000) ($7,100,000) $1,200,000 $850,000 $ 600,000 1,400,000 $2,000,000

July 1, ‘03 July 1, ‘04 Oct 27, ‘05

The market value of

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