Question

Question 1: Alameda Corporation has paid 60 consecutive quarterly cash dividends (15 years’ worth). The last six months have been a real cash drain on the company, however, as profit margins have been greatly narrowed by increasing competition.

With a cash balance that is only enough to meet day-to-day operating needs, the president, Vince Ramsey, has decided that a stock dividend instead of a cash dividend should be declared. He tells Alameda’s financial vice-president, Janice Rahn, to issue a press release stating that the company is extending its consecutive dividend record with the declaration of a 5% stock dividend. “Write the press release convincing the shareholders that the stock dividend is just as good as a cash dividend,” he orders. “Just watch our share price rise when we announce the stock dividend; it must be a good thing if that happens.”

Instructions: What is the effect of a stock dividend on a corporation’s shareholders’ equity accounts? Which would you rather receive as a stock holder _a cash dividend or a stock dividend? Why?  (2 Marks for the answer, 3 marks for analysis = 5 Marks)

Question 2:  Doman Industries Ltd., whose products are sold in 30 countries worldwide, is an integrated Canadian forest products company.

Doman sells the majority of its lumber products in the United States and a significant amount of its pulp products in asia.Demon also has loans from other countries. For example, on June 18, 2018, the company borrowed US$160 million at an annual interest rate of 12%.

Demon must repay this loan, and interest, in U.S.dollars

One of the challenges global companies face is to make themselves attractive to investors from other currencies. This is difficult to do when different accounting rules in different countries blur the real impact of earnings. For example, in 2018 Doman reported a loss of $2.3 million, using Canadian accounting rules.Had it reported under U.S. accounting rules, its loss would have been $12.1 million.

Many companies that want to be more easily compared with U.S and other global competitors have switched to U,S. accounting principles. Canadian National Railway. Corel,CottInco,and the Thomson Corporation are but a few examples of large Canadian Companies whose financial statement are now presented in U.S.dollars ,which adhere to U.S. GAAP,or are recognized to U.S. GAAP.

 

 

Instructions:

1. Suppose you wish to compare Doman Industries to Canadian –based competitors. If the companies chose to apply generally acceptable Canadian accounting policies differently, how could this affect your comparison of their financial results?  (Quality of Information: 3 marks; Analysis – 2 marks = 5 mark)

2. Do you see any significant distinction between comparing statements prepared using generally accepted accounted principles of different countries and comparing statements prepared using generally accepted accounting principles of the same country (e.g.,U.S.) but that apply the principles differently? (Analysis: 3 marks; Application of the Concepts: 2 marks = 5 marks)

 

PART II. PROBLEM SOLVING (25 MARKS)

 

Directions: Read the problems carefully, analyze and solve them. Legibly write your answers and on an A4 paper.

 

Question 1: For the year ending December 31,2018,Fritz Inc. reports net income $160,000 and dividends $85,000.Prepare the retained earning statement for the year assuming the balance in retained earnings on January 1,2018,was $240,000.(8 marks for retained earning statement;pr;2 marks for presentation=10 marks)

 

Question 2: In recent years, Waterfront Transportation purchased one used bus. The  accountant selected the straight line method to compute the depreciation.

Information concerning the bus is summarized as follow.

 

Bus	Acquired	cost	salvage Value	Useful Life in Years	Depreciation Method
1	1/1/12	$86,000	$6,000	4	Straight-line

 

1. Compute the amount of accumulated depreciation at December 31, 2014 .(formula:2 marks; computation :2 marks; final answer:1mark=5 marks)

 

1. If the bus was purchased on April 1 instead of January 1,what is the depreciation expense for the bus in (1) 2012 and (2) 2013.( formula:2 marks; computation :2 marks; final answer:1mark=5 marks)X 2=10 marks