acct1511 2009s1 final exam modified jan2015

7/23/2019 ACCT1511 2009s1 Final Exam Modified Jan2015

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SURNAME OF CANDIDATE:

FIRST NAME OF CANDIDATE:

STUDENT ID:

SIGNATURE:

SCHOOL OF ACCOUNTING

ACCT 1511:

Accounting and Financial Management 1B

FINAL EXAMINATION

JUNE 2009

Time Allowed: 2 HoursReading Time: 10 minutesTotal Number of Questions: 6Total Number of Pages 34

Answer ALLquestions.

The questions are NOTof equal value.

Answers to Questions 1 to 5must be written in ink on the lines or in boxesprovidedin this Booklet.

Question 6 (multiple choice questions) must be answered on the separateGeneralised Answer Sheetprovided using a 2B pencil.

This is a Closed Bookexamination.

Candidates may bring their own UNSW-approved calculator.

This paper is NOT to be retained by the candidate.

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED BY THE EXAM

SUPERVISOR

Official Use Only

Q Mark

1

2

3

4

5

Total

(/40)


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QUESTION 1 (10 MARKS): CASH FLOW STATEMENT

The following information is extracted from the annual report of JNT Ltd.:

JNT Ltd.Comparative Balance Sheet

As at 30 June

2008 2007

Cash $183,000 $38,000Accounts receivable 520,000 430,000Allowance for doubtful debts (10,000) (21,000)Inventory 175,000 325,000Prepaid insurance 11,000 5,000Long-term investments 214,000 203,000Land 231,000 168,000

Buildings 184,000 225,000Accumulated depreciation - buildings (65,000) (81,000)Equipment 46,000 103,000Accumulated depreciation - equipment (33,000) (67,000)

Total assets $1,456,000 $1,328,000

Accounts payable $287,000 $302,000Accrued expenses 26,000 28,000Interest payable 19,000 19,000Income tax payable 30,000 32,000Final dividends payable 18,000 15,000

Short-term loan 12,000 20,000Bonds payable 100,000 165,000Share capital 403,000 416,000Asset revaluation reserve 42,000 39,000General reserve 120,000 25,000Retained earnings 399,000 267,000

Total liabilities & shareholders' equity $1,456,000 $1,328,000


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QUESTION 1 (CONT.): CASH FLOW STATEMENT

JNT Ltd.

Income Statement

For Year Ended 30 June 2008

Sales $1,485,000Gain on sale of equipment 16,000Dividends received 3,000

Total income $1,504,000

COGS $(986,000)Bad debt expense (76,000)Insurance expense (12,000)Interest expense (27,000)Other expenses (53,000)Income tax expense (74,000)Loss on disposal of buildings (19,000)

Total expenses (1,247,000)

Net profit $257,000

Additional information during the year:

a) Buildings with original cost of $74,000 and accumulated depreciation of $45,000were sold.

b) A piece of equipment with an original cost of $57,000 and accumulateddepreciation of $43,000 was disposed of.

c) A parcel of land with unknown original cost was revalued upward by $38,000.

d) A bonus share issue of $35,000 was declared out of Asset Revaluation Reserve.

e)

JNT conducted a share buy-back during the year. Information reveals that theaverage price of the buy-back is the same as the original issue price of those shares.


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QUESTION 1 (CONT.):

1. Calculate the amount of depreciation expense that is included in the Other Expensesaccount by using relevant T-accounts. (3 marks)

DO NOT WRITE OUTSIDE THE BOX


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QUESTION 1 (CONT.):

2. Prepare the operating cash flow section of the statement of cash flows for JNT Ltd.for 2008 by using the indirect method. (7 marks)



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QUESTION 2 (8 MARKS):FINANCIAL STATEMENT ANALYSIS & ACCOUNTING POLICY CHOICE

The following information relate to JP Morgan Chase & Co (JPM).

JP Morgan Chase & Co.Selected balance sheet data December 31 (in millions) 2008 2007

AssetsCash and due from banks $ 26,895 $ 40,144Deposits with banks 138,139 11,466Federal funds sold and securities purchased under resale

agreements 203,115 170,897Securities borrowed 124,000 84,184Trading assets:Debt and equity instruments 347,357 414,273

Derivative receivables 162,626 77,136Securities 205,943 85,450Loans 744,898 519,374Allowance for loan losses (23,164) (9,234)

Loans, net of allowance for loan losses 721,734 510,140Accrued interest and accounts receivable 60,987 24,823Goodwill 48,027 45,270Other intangible assets 14,984 14,731Other assets 121,245 83,633

Total assets $2,175,052 $1,562,147

LiabilitiesDeposits $1,009,277 $ 740,728Federal funds purchased and securities loaned or sold under

repurchase agreements 192,546 154,398Commercial paper and other borrowed funds 170,245 78,431Trading liabilities:Debt and equity instruments 45,274 89,162Derivative payables 121,604 68,705Accounts payable and other liabilities 187,978 94,476Beneficial interests issued by consolidated VIEs 10,561 14,016

Long-term debt and trust preferred capital debt securities 270,683 199,010

Total liabilities 2,008,168 1,438,926Stockholders equity 166,884 123,221

Total liabilities and stockholders equity $2,175,052 $1,562,147

(Extracted from JPMs Annual Report on 10-K filing with SEC)


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QUESTION 2 (CONT.):

Note: Firm-wide Level 3 assets are expected to be approximately 6% of total firm assets at 12/31/08.(Extracted from JPMs presentation to analysts for financial year ended 31 December 2008).

Level 3 assets, also known as mark to make believe, are those in which there are no clearlydefinable market prices banks can define the prices based on unobservable inputs that reflectmanagements own assumptions . (Tracy Alloway, ft.com 16 January 2009)

Accounting rulemakers now want banks to bring some of those (off-balance sheet) assets backonto their books. They are trying to crack down on transactions that banks used to sidestep rulesinspired by the off-balance-sheet antics that led to Enron Corp.s collapse. In its annual filing,JPMorgan said the rules change (SFAS140/FIN46R)might lead it to bring back about $160 billionin assets. Citigroup estimated it may have to reclaim $179 billion. That would equal about 9

percent of year-end 2008 assets at Citigroup, and about 7 percent at JPMorgan. (David Reilly,Bloomberg.com, 25 March 2009)


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QUESTION 2 (CONT.):

(Extracted from Office of Comptroller of Currency Quarterly Report on Bank Tradingand Derivatives Activities, Fourth Quarter 2008.)

Five of America's largest banks, most of which have received $145 billion in taxpayer

bailout dollars, still face potentially catastrophic losses from exotic investments ifeconomic conditions substantially worsen, their latest financial reports show. ...Citibank, Bank of America , HSBC Bank USA , Wells Fargo Bank and J.P. MorganChase reported that their "current" net loss risks from derivatives insurance-like betstied to a loan or other underlying asset surged to $587 billion as of Dec. 31 2008 J.P. Morgan is credited with launching the credit-default market and is one of the mostsophisticated players. It remains highly profitable, even after acquiring the remains offailed investment banker dealer Bear Stearns , and says it has limited its exposure. The

New York -based bank, however, also has received $25 billion in federal bailoutmoney. (Greg Gordon and Kevin G. Hall, McClatchy Newspapers, news.yahoo.com,9 March 2009)


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QUESTION 2 (CONT.):

Required:

(1) With reference to the information on JP Morgan Chase & Co (JPM) above, analyse

the balance sheet of JPM and discuss THREE (3) limitations of the balance sheet aspresented. (6 marks):

1.

2.

3.


(2) As an investor analysing the information on JPM above, what could be your opinionas to the possible going-concern (solvency) situation of JPM? (2 marks)



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Note: If required, please use the following formulae to calculate ratios for

Question 2.

Performance Ratios

Return on Equity (ROE) = Net Profit After Tax / Shareholders Equity

Return on Assets (ROA) = Earnings before Interest & Tax (EBIT) / Total AssetsProfit Margin = Net Profit After Tax / Sales RevenueGross Margin = Gross Profit / Sales Revenue

Activity Ratios

Asset Turnover = Sales Revenue / Total AssetsInventory Turnover = COGS / Average InventoryDays Inventory on Hand = 365 / Inventory TurnoverDebtors (receivables) Turnover = Credit Sales / Average Trade DebtorsDays in Debtors = 365 / Debtors turnoverCreditors Turnover = Purchases (or COGS) / Average Accounts Payable

Days in Creditors = 365 / Creditors TurnoverCash Flow Cycle = Days in Inventory + Days in Receivables Days in Creditors

Liquidity and Financial Structure Ratios

Current Ratio = Current Assets / Current LiabilitiesQuick Ratio = (Current Assets Inventories) / Current LiabilitiesInterest Coverage = EBIT / Interest Expense (net)Debt to Equity Ratio = Total Liabilities / Total EquityDebt to Assets = Total Liabilities / Total AssetsLeverage = Total Assets / Shareholders Equity


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QUESTION 3 (6 MARKS): CORPORATE GOVERNANCE

Note: 1B no longer covers the topic of corporate governance therefore, this questionis removed.

QUESTION 4 (6 MARKS): COSTING SYSTEMS

Kang Company provided the following data for the year 2008:

Labor:

Direct labour cost (25,000 hours) $175,000

Indirect labour 35,000

Materials:

Direct materials:

Inventory, January 1, 1998 $ 25,000Purchases on accoun t 200,000

Direct materials issued 190,000

Indirect materials issued 10,000

Other factory overhead costs:

Depreciation 55,000

Maintenance 25,000

Miscellaneous 15,500

Work in Progress:

Beginning inventory 110,000

Ending inventory 80,250

The company uses a normal costing system with predetermined overhead rate based on

direct labour hours. The rate for 2008 was $5.20 per direct labour hour.

Required:

Prepare a statement of cost of goods sold.


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QUESTION 4 (CONT.): COSTING SYSTEMS

Statement of cost of goods sold (6 marks):



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QUESTION 5 (10 MARKS): BUDGETING FOR PLANNING AND

CONTROL

Echo Systems manufactures high-quality loudspeakers that are sold to manufacturers ofstereo equipment. Assume the following:

a) Budgeted sales for the first 4 months of the year are:

January 60,000 speakersFebruary 80,000 speakersMarch 100,000 speakersApril 80,000 speakers

b) The company sells its loudspeakers for $70 per unit and expects one-half of

each months sales revenue to be received in the month of sale and the otherhalf to be received in the month following sale.

c)

On 1 January, 15,000 speakers are in finished goods inventory. The companywants the number of speakers in its beginning finished goods inventory eachmonth to equal 25% of the months budgeted sales (in units).

d) The Accounts Receivable account has a balance of $4,000,000 on 1 January.

e) Eight feet of expensive audio cable is used in the manufacture of each speaker.

On 1 January, the company has 104,000 feet of this cable in its raw materials

inventory. The amount of cable in inventory at the beginning of each month

should be 20% of the months usage requirement.

f) The company pays $.40 per foot for audio cable in the month following

purchase. Decembers purchases were 900,000 feet at $.40 per foot.

Required:

1. Prepare a sales budget for the first 4 months of the year.

2.

Prepare a cash receipts budget for the first 4 months of the year. Deleted as nolonger examinable.

3. Prepare a production budget for the first 3 months of the year.

4. Prepare a raw materials purchases budget for audio cable for the months of

January and February.


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QUESTION 5 (CONT.):

1. Sales budget (2 marks):


2. Cash receipts budget (2 marks):

NOT EXAMINABLE in the current 1B



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QUESTION 5 (CONT.):

3. Production budget (2 marks):



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4.

Raw materials purchases budget (4 marks):



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QUESTION 6 (20 MARKS): MULTIPLE CHOICE QUESTIONS

There are twenty (20) Multiple Choice Questions. Choose one (1) best answer perquestion. Answers are to be recorded on the separate Generalised Answer Sheet

provided using a 2B pencil by blackening appropriate boxes. You must record your

student number and name on the provided answer sheet.

1. Which of the following statements about prepaid expenses is NOT true?

A They are expenses which should be recognised in the income statement as soon asthey are paid.

B They are usually classified as current assets.C They are expenses which have not yet been incurred but have been paid for during

the current period.D They are usually associated with cash outflows.E Both A and C are NOT true.

2. Which of the following items would be recognised in the balance sheet as aliability?

A Advances from customers for goods and services to be provided next year.B Payment in advance to suppliers for raw materials to be delivered next year.

C Allowances made for potential bad debts in the current period.D Contingent liabilities.E A and D.

3. ProVice Ltd issued 10,000 ordinary shares for $2.50 each, payable $1 onapplication, 50 cents on allotment and $1 in calls as required. The journal entriesto record the allotment of 10,000 shares would include a:

A Credit to Cash, $5,000

B Credit to Allotment, $10,000C Credit to Share Capital, $25,000D Credit to Share Capital, $5,000E Credit to Allotment, $5,000


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4. What is the usual journal entry to create a General Reserve account?

A Dr Asset Revaluation Reserve

Cr General ReserveB Dr General Expenses

Cr General ReserveC Dr Profit and Loss Summary

Cr General ReserveD Dr Retained Profits

Cr General ReserveE Dr General Reserve

Cr Cash

5. Which of the following can NOT be an example of an investing cash flow?

A Purchase of land.B Payment to acquire shares of other companies.C Sale of shares previously purchased.D Dividend paid.E Shares issued.

6. Which of the following could NOT explain an increase in the Return On Equity(ROE)?

A Creating a general reserve account.B Payment of an interim dividend.C Increase in net profits.D Declaring a final dividend.E Share buyback.

7. Which of the following ratios may indicate the efficiency with which the resourcesof the company are being utilised to generate profit?

A Current ratioB Debt to assets ratioC Quick ratioD Return on assetsE B and D.


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8. Which of the following statements about the current ratio is true?

A It indicates whether the company has enough short-term assets to cover its short-term liabilities.

B An extremely high ratio always is a favourable sign.

C A ratio above 1 indicates that working capital is negative.D It will increase when cash is collected from debtors.E A and D.

9. Which of the following transactions may decrease the current ratio?

A Slow cash collection from debtors.B Sale of a major non-current asset.C A large prepayment.

D Existence of a large obsolescent inventory stock.E Increasing the allowance for doubtful debts.

10. Which of the following is NOT an area in which companies typically makeaccounting policy choices?

A How to calculate amortisation of development costs.B How to calculate depreciation on land.C How to value inventories.D Whether to capitalise development costs.E None of the above: that is, all are accounting policy choices available to

companies.

11. Which of the following is an accounting method that could be chosen by acompany to decrease reported profits?

A Overstating allowance for doubtful debtsB Increasing the useful life of plant and equipment which is being depreciated using

straight line method.C Classifying longer-term debts as current liabilitiesD Creating a general reserve account using the companys retained profits account.E A and D.


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Questions 12 14 are based on the following information.

Turnaround Ltd, which has been in business one year, has an income tax rate of 40%.The company makes it a practice to capitalise its advertising costs as a deferred assetand to amortise it at 25% per annum. The accountant has suggested to the general

manager that the policy of capitalising advertising should be ended because theeconomic benefit of such expenditure is not clearly determinable. The amount ofadvertising capitalised this year was $150,000.

12. What effect would such a policy change have on Net Profit After Tax this year?

A $112,500 reductionB $45,000 reductionC $60,000 reductionD $67,500 reductionE $25,000 reduction

13. What effect would such a policy change have on total assets this year?

A $150,000 reductionB $67,500 reductionC $112,500 reductionD $45,000 reductionE No effect

14. What effect would such a policy change have on cash flows from operations thisyear?

A $150,000 reductionB $67,500 reductionC $45,000 increaseD $45,000 reductionE No effect

15. Which of the following statements is true regarding manufacturing overheadcosts?

A They consist of direct material and direct labour costs.B They are easily traced to jobs.C They include all selling costs.D They should not be assigned to individual jobs because they bear no obvious

relationship to them.E They are a diverse pool of indirect production costs that can include gas and

electricity costs and depreciation associated with manufacturing.


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16. Which of the following statements is NOT correct regarding Work In Process?

A Work In Process is partially completed inventory.B Work In Process consists of direct labour, direct material and manufacturing

overhead.C Work In Process is debited as product costs are incurred.D Work In Process is credited when goods are sold.E A and C

17. Process costing is normally used when:

A Small numbers of distinctly different products are manufactured.B Large numbers of different products are manufactured.

C Large numbers of nearly identical products are manufactured.D Small numbers of nearly identical products are manufactured.E The fixed costs of manufacturing exceed the variable cost of manufacturing.

18. Which of the following statements is true regarding cost?

A A cost is always an expense.B A cost is always an asset.C A cost is something quite different from either an expense or an asset.D It can be either an expense or an asset.E It is always a liability.

19. Which of the following is a manufacturing cost?

A Marketing costs.B Administrative costs.C Research and development costs.D Indirect material costs.E Sales personnel salaries.

20. Which of the following statements is true?

A Budgets are usually available as part of the companys annual report.B Budgets are part of the organisations planning and control processes.C Budgets ensure that accounting records comply with GAAP.D Budgets are not always used to aid in setting up of the short-term goals of the

company.E All of the above: that is, all statements are true.

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acct1511 2009s1 final exam modified jan2015

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