acct1511 final version
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final exam version of acct1511, good for practicesTRANSCRIPT
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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 Hours Reading Time: 10 minutes Total Number of Questions: 6 Total Number of Pages 34
Answer ALL questions.
The questions are NOT of equal value.
Answers to Questions 1 to 5 must be written in ink on the lines or in boxes provided in this Booklet.
Question 6 (multiple choice questions) must be answered on the separate Generalised Answer Sheet provided using a 2B pencil.
This is a Closed Book examination.
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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Page 2 of 29
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 Cash
2007 $183,000 $38,000
Accounts receivable 520,000 430,000 Allowance for doubtful debts (10,000) (21,000) Inventory 175,000 325,000 Prepaid insurance 11,000 5,000 Long-term investments 214,000 203,000 Land 231,000 168,000 Buildings 184,000 225,000 Accumulated depreciation - buildings (65,000) (81,000) Equipment 46,000 103,000 Accumulated depreciation - equipment (33,000) (67,000) Total assets $1,456,000 $1,328,000 Accounts payable $287,000 $302,000 Accrued expenses 26,000 28,000 Interest payable 19,000 19,000 Income tax payable 30,000 32,000 Final dividends payable 18,000 15,000 Short-term loan 12,000 20,000 Bonds payable 100,000 165,000 Share capital 403,000 416,000 Asset revaluation reserve 42,000 39,000 General reserve 120,000 25,000 Retained earnings 399,000 267,000 Total liabilities & shareholders' equity $1,456,000 $1,328,000
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Page 3 of 29
QUESTION 1 (CONT.): CASH FLOW STATEMENT
JNT Ltd. Income Statement
For Year Ended 30 June 2008 Sales $1,485,000 Gain on sale of equipment 16,000 Dividends 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 $45,000 were sold.
b) A piece of equipment with an original cost of $57,000 and accumulated depreciation 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 the average price of the buy-back is the same as the original issue price of those shares.
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Page 5 of 29
QUESTION 1 (CONT.): 1. Calculate the amount of depreciation expense that is included in the Other Expenses
account by using relevant T-accounts. (3 marks)
DO NOT WRITE OUTSIDE THE BOX
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Page 7 of 29
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)
DO NOT WRITE OUTSIDE THE BOX
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Page 8 of 29
QUESTION 2 (8 MARKS): Note that some components of this question may not be relevant in Session 2 2009 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
Assets Cash and due from banks $ 26,895 $ 40,144 Deposits with banks 138,139 11,466 Federal funds sold and securities purchased under resale
agreements 203,115 170,897 Securities borrowed 124,000 84,184 Trading assets: Debt and equity instruments 347,357 414,273 Derivative receivables 162,626 77,136 Securities 205,943 85,450 Loans 744,898 519,374 Allowance for loan losses (23,164 ) (9,234 )
Loans, net of allowance for loan losses 721,734 510,140 Accrued interest and accounts receivable 60,987 24,823 Goodwill 48,027 45,270 Other intangible assets 14,984 14,731 Other assets 121,245 83,633
Total assets $ 2,175,052 $ 1,562,147
Liabilities Deposits $ 1,009,277 $ 740,728 Federal funds purchased and securities loaned or sold under
repurchase agreements 192,546 154,398 Commercial paper and other borrowed funds 170,245 78,431 Trading liabilities: Debt and equity instruments 45,274 89,162 Derivative payables 121,604 68,705 Accounts payable and other liabilities 187,978 94,476 Beneficial 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 1,438,926 Stockholders 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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Page 9 of 29
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 clearly definable market prices banks can define the prices based on unobservable inputs that reflect managements own assumptions . (Tracy Alloway, ft.com 16 January 2009) Accounting rulemakers now want banks to bring some of those (off-balance sheet) assets back onto their books. They are trying to crack down on transactions that banks used to sidestep rules inspired 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 billion in 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)
http://ftalphaville.ft.com/blog/2008/12/11/50329/mo-problem-assets-mo-problems/http://www.fasb.org/http://www.fasb.org/draft/ed_amend_fin46r.pdfhttp://www.bloomberg.com/apps/quote?ticker=ENRNQ%3AUS
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Page 10 of 29
QUESTION 2 (CONT.):
(Extracted from Office of Comptroller of Currency Quarterly Report on Bank Trading and 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 if economic conditions substantially worsen, their latest financial reports show. ... Citibank, Bank of America , HSBC Bank USA , Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives insurance-like bets tied 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 most sophisticated players. It remains highly profitable, even after acquiring the remains of failed 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 bailout money. (Greg Gordon and Kevin G. Hall, McClatchy Newspapers, news.yahoo.com, 9 March 2009)
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Page 11 of 29
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 as presented. (6 marks): 1. 2. 3.
DO NOT WRITE OUTSIDE THE BOX (2) As an investor analysing the information on JPM above, what could be your opinion as to the possible going-concern (solvency) situation of JPM? (2 marks)
DO NOT WRITE OUTSIDE THE BOX
Audit and Corporate Standing Committee Membership Compliance Governance Nominating Remuneration Risk
Executive Voting Directors
David Clarke AO Chairman Member Chairman
Allan Moss AO Member
Mark Johnson Member Member
Laurie Cox AO Member
Independent Directors
John Allpass Member* Member Member
Peter Kirby Member Member
Audit and Corporate Standing Committee Membership Compliance Governance Nominating Remuneration Risk
Executive Voting Directors
David Clarke AO Chairman Member Chairman
Allan Moss AO Member
Mark Johnson Member Member
Laurie Cox AO Member
Independent Directors
John Allpass Member* Member Member
Peter Kirby Member Member
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Page 12 of 29
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 Assets Profit Margin = Net Profit After Tax / Sales Revenue Gross Margin = Gross Profit / Sales Revenue Activity Ratios Asset Turnover = Sales Revenue / Total Assets Inventory Turnover = COGS / Average Inventory Days Inventory on Hand = 365 / Inventory Turnover Debtors (receivables) Turnover = Credit Sales / Average Trade Debtors Days in Debtors = 365 / Debtors turnover Creditors Turnover = Purchases (or COGS) / Average Accounts Payable Days in Creditors = 365 / Creditors Turnover Cash Flow Cycle = Days in Inventory + Days in Receivables Days in Creditors Liquidity and Financial Structure Ratios Current Ratio = Current Assets / Current Liabilities Quick Ratio = (Current Assets Inventories) / Current Liabilities Interest Coverage = EBIT / Interest Expense (net) Debt to Equity Ratio = Total Liabilities / Total Equity Debt to Assets = Total Liabilities / Total Assets Leverage = Total Assets / Shareholders Equity
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Page 13 of 29
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Page 14 of 29
QUESTION 3 (6 MARKS): CORPORATE GOVERNANCE The following table presents information from the 2006 Corporate Governance Statement of Macquarie Bank.
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Page 15 of 29
QUESTION 3 (CONT.): Required: With reference to the ASX Corporate Governance Principles and Recommendations 2007, discuss THREE (3) corporate governance issues regarding the positions occupied by Mr David Clarke on the Board of Directors and any relevant Committees (6 marks): 1. 2. 3.
DO NOT WRITE OUTSIDE THE BOX
Audit and Corporate Standing Committee Membership Compliance Governance Nominating Remuneration Risk
Executive Voting Directors
David Clarke AO Chairman Member Chairman
Allan Moss AO Member
Mark Johnson Member Member
Laurie Cox AO Member
Independent Directors
John Allpass Member* Member Member
Peter Kirby Member Member
Audit and Corporate Standing Committee Membership Compliance Governance Nominating Remuneration Risk
Executive Voting Directors
David Clarke AO Chairman Member Chairman
Allan Moss AO Member
Mark Johnson Member Member
Laurie Cox AO Member
Independent Directors
John Allpass Member* Member Member
Peter Kirby Member Member
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Page 16 of 29
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 $25,000 Purchases 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 manufactured.
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Page 17 of 29
QUESTION 4 (CONT.): COSTING SYSTEMS Statement of cost of goods sold (6 marks):
DO NOT WRITE OUTSIDE THE BOX
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Page 18 of 29
QUESTION 5 (10 MARKS): BUDGETING FOR PLANNING AND CONTROL Echo Systems manufactures high-quality loudspeakers that are sold to manufacturers of stereo equipment. Assume the following:
a) Budgeted sales for the first 4 months of the year are:
January 60,000 speakers February 80,000 speakers March 100,000 speakers April 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 other half to be received in the month following sale.
c) On 1 January, 15,000 speakers are in finished goods inventory. The company wants the number of speakers in its beginning finished goods inventory each month 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.
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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Page 19 of 29
QUESTION 5 (CONT.): 1. Sales budget (2 marks):
DO NOT WRITE OUTSIDE THE BOX
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Page 21 of 29
QUESTION 5 (CONT.): 2. Cash receipts budget (2 marks):
DO NOT WRITE OUTSIDE THE BOX
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Page 23 of 29
QUESTION 5 (CONT.): 3. Production budget (2 marks):
DO NOT WRITE OUTSIDE THE BOX
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Page 25 of 29
QUESTION 5 (CONT.): 4. Raw materials purchases budget (4 marks):
DO NOT WRITE OUTSIDE THE BOX
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Page 26 of 29
SOLUTION GUIDE TO FINAL EXAM, JUNE 2009 QUESTION 1 1. Depreciation expense included in Other Expenses account
Accumulated depreciation - Buildings
81,000 o/bal
Disposal
45,000
29,000 Depn exp
65,000 c/bal
Accumulated depreciation - Equipment
67,000 o/bal
Disposal
43,000
9,000 Depn exp
33,000 c/bal
Total depreciation expense = 29,000 + 9,000 = 38,000
2. Operating cash flows for JNT Ltd. using indirect method
JNT Ltd. Operating Cash Flows for Year Ended 30 June 2008
Net profit
0.5
257,000 + Depreciation expense
0.5 38,000
+ Loss on disposal of buildings 0.5 19,000 - Gain on sale of equipment 0.5 (16,000)
41,000
298,000
Adjustment for changes in operating assets and liabilities:
- Accounts receivable
0.5 (90,000 ) - Allowance for doubtful debts 1 (11,000) + Inventory
0.5 150,000
- Prepaid insurance
0.5 (6,000 ) - Accounts payable
0.5 (15,000)
- Accrued expenses
0.5 (2,000 ) - Income tax payable
0.5 (2,000)
24,000
Cash from operations
322,000
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Page 27 of 29
QUESTION 2 (1) Three issues
Level 3 assets are potentially misstated, and at 6% of total assets, if it is worth nothing could almost wipe out shareholders equity.
The off-balance sheet assets of $160 billion, or 7% of total assets itself
approximates shareholders equity of $167 billion. The total derivative exposure of 380% of risk based capital, exceeds
shareholders equity. (2) Possible conclusion
There is significant risk of JPM insolvency as the losses from level 3 assets (6% of total assets, i.e., almost value of shareholders equity), and possible losses from derivatives (380% of shareholders equity) cumulatively exceed shareholders equity.
QUESTION 3 Any three from below or any other reasonable answer (marker to document). David Clarke is chairman of board despite being executive contrary to ASX recommendation which requires an independent chairman
The position of Chairman and CEO is separate which is in compliance for a
split role David Clarke is chairman of the nominations committee which is contrary to the
ASX recommendation for an independent chairman to prevent management cronies from being appointed to the Board
David Clarke is a member of the remuneration committee which is in
compliance as he is not chairman of the remuneration committee and there is a majority of independent members
David Clarke is not on the audit committee, which has 4 independent directors
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Page 28 of 29
QUESTION 4
Kang Company Statement of Cost of Goods Manufactured For the Year Ended December 31, 2008
Direct materials Beginning raw materials inventory $ 25,000 Purchases of raw materials Total raw materials available $225,000
200,000
Ending raw materials Raw materials used $190,000
35,000
Direct labour 175,000 Overhead Indirect labour $ 35,000 Indirect materials 10,000 Depreciation 55,000 Maintenance 25,000 Miscellaneous $140,500
15,500
Less: Underapplied overhead (10,500) Overhead applied
Total manufacturing costs added $495,000 130,000
Add: Beginning work in process Total manufacturing costs $605,000
110,000
Less: Ending work in process Cost of goods manufactured $524,750
80,250
Supporting calculation for under-applied overhead: Applied ($5.20 x 25,000) $130,000 Actual: Indirect labour $35,000 Indirect materials 10,000 Depreciation 55,000 Maintenance 25,000 Miscellaneous 15,500 $ 10,500 Under-applied overhead
140,500
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Page 29 of 29
QUESTION 5 Echo Systems
January
February
March
April Sales Budget
Budgeted sales (units) 60,000
80,000
100,000
80,000 Budgeted selling price per unit 70
70
70
70
Budgeted sales revenue 4,200,000
5,600,000
7,000,000
5,600,000
Cash Receipts Budget
Budgeted cash receipts:
From December sales 4,000,000
From January sales 2,100,000
2,100,000
From February sales
2,800,000
2,800,000
From March sales
3,500,000
3,500,000
From April sales
2,800,000
Total budgeted cash receipts 6,100,000
4,900,000
6,300,000
6,300,000
Production Budget Budgeted sales (units) 60,000
80,000
100,000
Add: Desired ending inventory of finished units 20,000
25,000
20,000
Total units required 80,000
105,000
120,000 Less: Beginning inventory of finished
units (15,000)
(20,000)
(25,000) Budgeted production (units) 65,000
85,000
95,000
Raw Materials Purchases Budget Budgeted production (speakers) 65,000
85,000
95,000
Expected usage of audio cable per speaker (units) 8
8
8
Audio cable usage requirements (units) 520,000
680,000
760,000
Add: Desired ending inventory of audio cable (units) 136,000
152,000
Total audio cable requirements (units) 656,000
832,000 Less: Beginning inventory of audio
cable (units) (104,000)
(136,000) Purchase requirement for audio cable
(units) 552,000
696,000 Price per unit 0.4
0.4
Purchase cost of audio cable 220,800
278,400
SCHOOL OF ACCOUNTING