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Mark
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SCHOOL OF ACCOUNTING
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ACCT 1511:
Accounting and Financial Management 1B
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Total
(/75)
FINAL EXAMINATION
October/November 2008
Time Allowed:
Reading Time:
Total Number of Questions:
3 Hours
10 minutes
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$450,000
140,000
220,000
6,000
18,000
50,000
30,000
$914,000
Uses of cash:
For salaries & wages
For utilities expense
For purchase of insurance
For rental payment
For purchase of equipment by issuing note
For purchase of computer system
For purchase of building
For repayment of short-term loan
Total uses of cash
$380,000
85,000
26,000
33,000
50,000
210,000
100,000
40,000
$924,000
$(10,000)
After speaking to four local banks, NWCC was still unable to secure the mortgage.
The banks had doubts about the accuracy of the information regarding cash above and
believe that NWCC might not be able to continue its operations.
Required:
(a) Prepare a correct Statement of Cash Flows using the direct method for NoWhere
Community College (NWCC). (7 marks)
(b) Based on the Statement of Cash Flows in part (a), do you think NWCC now
stands a better chance of obtaining the mortgage from one of the local banks?
Explain your answer. (3 marks)
Part B: (5 marks)
You are working for a brokerage firm as a stock analyst and your boss is asking you
to evaluate and recommend the stocks of Cherry Crumble Ltd. and Violet Ripe Ltd. to
your clients. Since both companies operate in the same industry, earn about the same
net income and have similar financial positions, your final recommendation depends
very much on their statement of cash flows.
Cherry Crumble
Net cash from operations
$130,000
$(180,000)
20,000
Issuance of shares
Repayment of long-term loan
Net cash from financing activities
50,000
-
Violet Ripe
$110,000
$(20,000)
50,000
(160,000)
30,000
(120,000)
50,000
(120,000)
$20,000
$20,000
Required:
Based on all the cash flow information given, how would you choose between the two
companies? Give your reasons.
Part B: (6 marks)
Mr. Tate OStew is a financial consultant who is considering recommending a
catering company, ROAST Ltd, to his clients. However, before he makes any
recommendations, Tate would like to know the answers to several questions. The
financial information for ROAST Ltd for the last three (3) years is summarised in the
table below:
Current ratio
Quick ratio
Debtors turnover
Inventory turnover
Dividends per share
Return on assets (ROA)
Return on equity (ROE)
2008
2.9
0.7
6.9
6.5
$2.20
0.112
0.06
2007
2.4
1.0
8.2
7.7
$2.20
0.131
0.07
2006
1.6
1.5
10.5
8.8
$2.20
0.148
0.09
0.08
0.07
0.05
Required:
Support your answers with appropriate ratios (if any).
provided on page 10.
(a) Comment on the liquidity of ROAST Ltd. over the last three (3) years. (1 mark)
(b) Are customers of ROAST Ltd. paying their invoices faster now than they did in
2006? (1 mark)
(c) ROAST Ltd.s dividend per share has remained the same for the last three (3)
years at $2.20. Do you believe that this is keeping in line with the trend in its
financial performance? (2 marks)
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Accounts
Net profit
Assets
Net profit
Total assets
Cash flow from
operations (current year)
Net profit
Required:
If the accounting policy changes are accepted, what will be the effect (increase,
decrease, or no effect) on the selected accounts in the table above?
Write your answers in the following table:
Accounts
1
Net profit
Assets
Net profit
Total assets
Effect
(increase, decrease, or no effect)
Net profit
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Part B: (7 marks)
You are assisting in the preparation of the financial statements of Plight of the
Cormorants Ltd., and Jemaine has asked you to expense $50,000 worth of set-up costs
previously capitalised during the current financial year. The company has a 30% tax
rate.
Required:
(a) What journal entries would you use to record this transaction? In your journal
entry, clearly indicate the type of each account (revenue, expense, asset, liability).
(1 mark)
(b) What would be the effect (in dollars) on the companys net assets? (1 mark)
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(c) What would be the effect (in dollars) on net cash flow this year? (1 mark)
(d) What will be the effect (in dollars) on next years net cash flow? (1 mark)
(e) Give three possible reasons for Jemaines decision to expense previously
capitalised set-up costs. (3 marks)
$ 6,750,000
$ 7,500,000
$ 9,000,000
$ 9,750,000
$10,500,000
SportsKraft Ltd. has a policy of setting its finished goods inventory level at the end of
each month to equal 30% of the next months budgeted bat sales.
Each cricket bat requires 2 metres of willow wood planks and 1 litre of linseed oil.
Direct labour is projected to be 3.5 hours per production of each bat, and the company
incurs a cost of $45 per hour for direct labour wages. Willow planks cost $10.50 per
metre, and linseed oil is $20 per litre. The company ends each month with enough
planks to cover 10 per cent of the next months production requirements; linseed oil,
however, is all used up each month.
Currently, SportsKraft Ltd.s customers pay 45% of sales in the month of the sale,
50% in the following month, and any outstanding balance is considered to be not
collectable and written off straight away. The company also has a policy of paying its
supplier in instalments: 55% in the month of purchase and 45% in the following
month.
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Required:
(a) Prepare a production budget for the quarter ending 30 September 2008. (3 marks)
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(b) Prepare a raw materials budget for the quarter ending 30 September 2008.
(7 marks)
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(c) Prepare a schedule of expected cash collections for the quarter ending 30
September 2008. (5 marks) Note: this is no longer examinable in 1B from 2015
onwards.
Part B: (5 marks)
Flexibility has been identified as one of the key features of effective operating
budgets. Identify one of the operating budgets, and explain why flexibility is required
for it to be effective in aiding organisations planning and controlling processes.
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IS
NO
LONGER
1.
They are expenses which should be recognised in the income statement as soon as
they are paid.
They are usually classified as current assets.
They are expenses which have not yet been incurred but have been paid for during
the current period.
They are usually associated with cash outflows.
Both A and C are NOT true.
B
C
D
E
2.
A
B
C
D
E
3.
A
B
C
D
E
ProVice Ltd issued 10,000 ordinary shares for $2.50 each, payable $1 on
application, 50 cents on allotment and $1 in calls as required. The journal entries
to record the allotment of 10,000 shares would include a:
Credit to Cash, $5,000
Credit to Allotment, $10,000
Credit to Share Capital, $25,000
Credit to Share Capital, $5,000
Credit to Allotment, $5,000
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4.
A
B
C
D
E
5.
A
B
C
D
E
6.
A
B
C
D
E
7.
A
B
C
D
E
Which of the following statements about the general reserve account is NOT true?
A transfer to this account may be used to indicate to shareholders that it is unlikely
to be paid out in dividends.
Funds can be transferred back from it to retained profits.
It provides an indication of where funds are invested.
It appears under shareholders equity in the balance sheet.
Both A and C are NOT true.
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8.
A
B
C
D
E
9.
A
B
C
D
E
10.
A
B
C
D
E
11.
A
B
C
D
E
Which of the following could NOT explain an increase in the Return On Equity
(ROE)?
Creating a general reserve account.
Payment of an interim dividend.
Increase in net profits.
Declaring a final dividend.
Share buyback.
Which of the following ratios may indicate the efficiency with which the resources
of the company are being utilised to generate profit?
Current ratio
Debt to assets ratio
Quick ratio
Return on assets
B and D.
Which of the following statements about the current ratio is true?
It indicates whether the company has enough short-term assets to cover its shortterm liabilities.
An extremely high ratio always is a favourable sign.
A ratio above 1 indicates that working capital is negative.
It will increase when cash is collected from debtors.
A and D.
12.
A
B
C
D
E
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13.
A
B
C
D
E
15.
A
B
C
D
E
16.
A
B
C
D
E
What effect would such a policy change have on Net Profit After Tax this year?
$112,500 reduction
$45,000 reduction
$60,000 reduction
$67,500 reduction
$25,000 reduction
What effect would such a policy change have on total assets this year?
$150,000 reduction
$67,500 reduction
$112,500 reduction
$45,000 reduction
No effect
What effect would such a policy change have on cash flows from operations this
year?
$150,000 reduction
$67,500 reduction
$45,000 increase
$45,000 reduction
No effect
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17.
A
B
C
D
18.
A
B
C
D
E
19.
A
B
C
D
E
20.
A
B
C
D
E
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21.
A
B
C
D
E
Marketing costs.
Administrative costs.
Research and development costs.
Indirect material costs.
Sales personnel salaries.
22.
A
B
C
D
23.
Winter Ltds sales are 30% in cash and 70% on credit. 60% of the credit sales are
collected in the month of sale, 25% in the month following sale, and 12% in the
second month following sale. The remainder is uncollectible. Based on the
following budgeted sales data, what is the total Budgeted Cash Receipts in April?
Total sales
January
$60,000
February
$70,000
March
$50,000
April
$30,000
A
B
C
D
E
$27,230
$36,230
$38,900
$47,900
None of the above.
24.
Cooks Ltd has budgeted $40,000 in sales for the month of December. The
company's cost of goods sold is 30% of sales. If the company has budgeted to
purchase $18,000 in merchandise during December, then the budgeted change in
inventory levels by the end of December is:
A
B
C
D
E
$6,000 increase
$10,000 decrease
$15,000 increase
$22,000 decrease
$45,000 increase
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25.
Exterminator Ltd. forecasts sales for the second quarter at 5,000 units and for the
third quarter at 10,000 units. The desired ending inventory for the second quarter
is 1,000 units and for the third quarter, 4,000 units. How many units must be
produced in the third quarter?
A
B
C
D
E
5,000 units
11,000 units
12,000 units
13,000 units
15,000 units
---------------------------------END OF PAPER----------------------------------
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