Professional Documents
Culture Documents
Mark
1
SCHOOL OF ACCOUNTING
2
3
ACCT 1511:
FINAL EXAMINATION
JUNE 2009
Time Allowed:
Reading Time:
Total Number of Questions:
Total Number of Pages
Total
(/40)
2 Hours
10 minutes
6
34
2008
$183,000
520,000
(10,000)
175,000
11,000
214,000
231,000
184,000
(65,000)
46,000
(33,000)
$1,456,000
2007
$38,000
430,000
(21,000)
325,000
5,000
203,000
168,000
225,000
(81,000)
103,000
(67,000)
$1,328,000
Accounts payable
Accrued expenses
Interest payable
Income tax payable
Final dividends payable
Short-term loan
Bonds payable
Share capital
Asset revaluation reserve
General reserve
Retained earnings
Total liabilities & shareholders' equity
$287,000
26,000
19,000
30,000
18,000
12,000
100,000
403,000
42,000
120,000
399,000
$1,456,000
$302,000
28,000
19,000
32,000
15,000
20,000
165,000
416,000
39,000
25,000
267,000
$1,328,000
Page 2 of 21
$1,485,000
16,000
3,000
$1,504,000
$(986,000)
(76,000)
(12,000)
(27,000)
(53,000)
(74,000)
(19,000)
(1,247,000)
$257,000
Page 3 of 21
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)
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)
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)
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale
agreements
Securities borrowed
Trading assets:
Debt and equity instruments
Derivative receivables
Securities
Loans
Allowance for loan losses
2008
$
Liabilities
Deposits
Federal funds purchased and securities loaned or sold under
repurchase agreements
Commercial paper and other borrowed funds
Trading liabilities:
Debt and equity instruments
Derivative payables
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt and trust preferred capital debt securities
40,144
11,466
203,115
124,000
170,897
84,184
347,357
162,626
205,943
744,898
(23,164)
414,273
77,136
85,450
519,374
(9,234)
721,734
60,987
48,027
14,984
121,245
510,140
24,823
45,270
14,731
83,633
$2,175,052 $1,562,147
$1,009,277 $ 740,728
Total liabilities
Stockholders equity
26,895 $
138,139
2007
192,546
170,245
154,398
78,431
45,274
121,604
187,978
10,561
270,683
89,162
68,705
94,476
14,016
199,010
2,008,168
166,884
1,438,926
123,221
$2,175,052 $1,562,147
Page 6 of 21
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 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)
Page 7 of 21
QUESTION 2 (CONT.):
Page 8 of 21
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.
Page 9 of 21
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
Page 10 of 21
$175,000
35,000
25,000
t 200,000
190,000
10,000
55,000
25,000
15,500
110,000
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:
Page 11 of 21
60,000 speakers
80,000 speakers
100,000 speakers
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. Deleted as no
longer 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.
Page 13 of 21
QUESTION 5 (CONT.):
1. Sales budget (2 marks):
Page 14 of 21
QUESTION 5 (CONT.):
3. Production budget (2 marks):
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
Page 17 of 21
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 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.
Page 18 of 21
8.
A
B
C
D
E
9.
A
B
C
D
E
10.
A
B
C
D
E
11.
A
B
C
D
E
Page 19 of 21
13.
A
B
C
D
E
14.
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
15.
A
B
C
D
Page 20 of 21
16.
A
B
C
D
E
17.
A
B
C
D
E
18.
A
B
C
D
E
19.
A
B
C
D
E
Marketing costs.
Administrative costs.
Research and development costs.
Indirect material costs.
Sales personnel salaries.
20.
A
B
C
D
---------------------------------END OF PAPER---------------------------------Page 21 of 21