accounting policies

Name:
Section:

University of Toronto
At Mississauga

Financial Accounting Theory & Policy I
MGT 224

Mid-Term
October 23, 2006
6:10-7:40 p.m.

Instructions:
1. This is a ninety minute examination.
2. The test consists of two short exercises and one case. Please show your calculations. For the case analysis, use the case analysis framework as discussed in class.
3. You are allowed to use only a non-programmable calculator. No other aids are allowed.
4. You may also make use of your CICA Handbook.
5. GOOD LUCK

Question 1 (worth 25% of the marks)

Lennox Ltd. (LL) contracted to build a high-rise for $18,000,000. Construction began in 2005 and is expected to be completed in 2007. Original estimate of total costs was $ 14,000,000. Actual data for the years 2005 through 2007 are shown below:

2005 2006 2007 Costs incurred in year $8,200,000 $ 6,200,000 $ 3,750,000 Estimated costs to complete 6,000,000 4,500,000 -0- Billing 7,000,000 6,000,000 5,000,000 Cash collections 6,500,000 6,500,000 5,000,000

Required:

For percentage-of-completion accounting and for completed-contract accounting, show the gross profit or loss that should be recorded for 2005, 2006, and 2007. Journal entries are not required.

Percentage of Completed Completion Contract

2005
2006
2007

Solution (000’s)

2005 2,194 or 2,204 depending on rounding 0

2006 (3,094) (900)

2007 750 750,

15 marks—carryforward where possible

Question 2 (worth 25% of the marks)

Discuss (briefly but clearly) how each of the