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accounting Midterm Exam
Intermediate Management Accounting (Acctg424)
University of Alberta
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YORK UNIVERSITY
SCHULICH SCHOOL OF BUSINESS
ACTG 3120A – October 19, 2021 - Fall 2021 TIMED MIDTERM EXAMINATION
Instructor: Liz Farrell
INSTRUCTIONS: Please read carefully
Your midterm exam must be completed in the Word file template posted on our Canvas homepage for ACTG 3120A as an announcement. You must submit your response in the Word document provided. No other document types, PDF, Excel, JPEG or other, will be marked.
All of the work completed must be your own. You may not contact anyone, classmates or others, during the exam or write the exam as a group. You may access only your textbook. No other resources are allowed. You may not cut and paste from any source including the textbook and your own course notes. You may not copy pictures into this word document. You may copy (cut and paste) any calculations completed in Excel into the Word document completed in the timed examination.
Only work completed in the Word file will be marked.
The exam has ONE (1) question which is a case. The question must be answered on your laptop and only typed responses submitted through the assignment function on Canvas will be accepted. As soon as you upload the file on Canvas send an e-mail with your file attached to actgexams@schulich.yorku with the file so we have a backup copy. Put Actg 3120A midterm in the subject line.
5. Immediately at 4: 05 p .m. EST STOP WRITING and start uploading your files to Canvas in the assignment section under midterm. You will have until 4:15 p. EST to complete the upload. At 4:15 and after that time, Canvas will not accept files. The extra 15 minutes provided is strictly provided for download and upload time.
Late submissions will be docked 20% per minute based upon the email submission time to actgexams@schulich.yorku. Therefore, an email submission received 1 minute after the final upload time will be docked by 20% and a submission 5 minutes after the final upload time will be docked by 100%.
Save your work regularly as you type. For PC users use the shortcut keys “Ctrl + s” or “Command
- s” if you are a Mac user. Prior to the start of the exam, confirm where your response file will be saved on your computer.
If you experience technical issues in Canvas, you will need to immediately email askit@yorku and copy your instructor. You must obtain email confirmation from York IT about the technical issue –York IT can validate whether a technical issue arose in Canvas and provide confirmation of the matter.
By writing the exam, you certify that you are committed to ethical conduct in this examination by not engaging in behaviours that are counter to the intent and integrity of the exam or to the policies of the Schulich School of Business.
QUESTION 1:
Fast Delivery Inc. (FDI) is a privately-held Canadian company founded in 2015 by two friends
working in the trucking industry Enid Flint and Don Powell. Enid and Don owned the majority of
the common shares. The remaining shares were owned by friends. FDI started out with a small
fleet of 50 trucks delivering packages from retailers to customers. They currently own and operate
250 trucks. FDI’s revenues grew over 300% from 2020 to 2021 due to Covid-19 and the increase
in on-line shopping. The Board of FDI made the decision to go public in 2021. In 2021, a stock
option plan was initiated for senior management.
During 2021, FDI increased their bank financing from $25 million to $30 million with Canada
Bank to assist with the completion of the development of a new app to track deliveries,
reconfiguration of their parcel sorting system and expansion of their warehouse. The interest rate
for the loan remained at 6%. This modification extended the loan for an additional 10 years.
Canada Bank added a maximum debt to equity ratio of 65%.
You have recently been hired as an accounting advisor for FDI and have been asked to assist with
the transition from ASPE to IFRS financial statements. The Board would like you to provide a
report to them discussing changes required to the company’s existing policies (Exhibit I) as well
as discussing new accounting policies for transactions that occurred during the fiscal 2021 year
(Exhibit II). They want support for calculations. The enacted tax rates are: 2020-34% and 2021-
36%. The enacted tax rate for 2021 was not known in 2020. Incremental borrowing rate is 6%.
Exhibit I – Existing Accounting Policies
1. In Oct. 2020, FDI’s research department began creating an app that tracks the location of
deliveries and provides an estimate of when the package will be delivered. This app has a huge
potential to increase revenues since FDI’s customers (major retailers) will be able to reduce
customer service costs by having information provided on the status of their packages to relay to
their customers. In 2020, FDI spent $50,000 on researching viable alternatives for the app and
finalized decisions on the features to include in the app. In 2021, FDI spent an additional $500,
on developing the app and filing a patent. The app started being used by FDI’s drivers on July 1,
2021. Financing was provided by the increased bank loan. FDI’s accounting policy is to expense
all research and development costs. The app is expected to have a useful life of five years.
2. FDI currently uses the taxes payable method of accounting for income taxes. At Dec 31, 2020,
on their Balance Sheet they have a net book value of $12 million related to their property, plant,
and equipment (PP&E). There is no balance for the development costs associated with the app
since those costs were expensed. For tax purposes the UCC balance at Dec 31, 2020 for PP&E is
$8 million. For 2021, CCA is $2 million and depreciation expense is $1 million.
3. In addition to the increased bank loan to raise additional financing for the reorganization and
expansion of their warehouse FDI issued a $1,500,000 convertible bond at the investors’ option
on Jan 1, 2021 for $1,600,000 cash. The bond is for five years and pays interest of 4% semi-
annually. FDI recorded the entire amount of the bond as a liability on the balance sheet assigning
zero to the conversion rights. FDI measured the bond using amortized cost and the straight-line
method of amortization.
accounting Midterm Exam
Course: Intermediate Management Accounting (Acctg424)
University: University of Alberta
