midterm_f2003

midterm_f2003 - UNIVERSITY OF WATERLOO School of...

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UNIVERSITY OF WATERLOO School of Accountancy ACC 121 Mid-Term Examination Fall 2003 Pages: 17, including cover Professor: R.J. Sproule Jerry Sun NAME: ____________________________________ID#: ___________________ Please circle the section you are registered in: S01 8:30am-10:00am T/Th S02 11:30am-1:00pm T/Th S03 1:00pm-2:30pm T/Th Instructions: 1) Non-programmable calculators may be used. 2) Answer all questions in the space provided in the exam, except the multiple choice questions. 3) Hand in the entire examination paper. 4) Show details of all calculations you perform. 5) Please verify that this examination paper has the appropriate number of pages. Question Maximum Marks Mark Awarded 1 10 2 12 3 10 4 11 5 12 6 10 7 30 Total 95
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Ratio Sheet : Net profit margin Net Income (Earnings) Net Sales Asset turnover Sales Average Total Assets Financial leverage Average Total Assets Average Shareholders’ Equity Return on equity Net Income (Earnings) Average Shareholders’ Equity Quality of income Cash Flow From Operating Activities Net Income (Earnings) Capital acquisition ratio Cash Flow From Operating Activities Cash Paid for Property, Plant, & Equipment 2
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Question 1 (10 marks, 12 minutes) Answer the following short questions: a) What is cash basis accounting? What kinds of business may use cash basis accounting? Records revenues when cash received and expenses when cash paid regardless of when revenue earned or expenses incurred. Small retailers / medical offices/farmers or fishermen b) What is accrual basis accounting? Why do generally accepted accounting principles require accrual basis accounting for financial reporting purposes? Records revenues when earned and expenses when incurred regardless of the timing of cash receipts or payments. Accrual based accounting provides more relevant financial information to decision makers. c) If a company uses cash basis accounting, do you think that earnings from operations (=revenues – expenses) is equivalent to cash flows from operations? Justify your answer. Yes. Revenues are cash inflows and expenses are cash outflows. DO NOT WRITE BELOW THIS LINE 3
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Question 2 (12 marks, 15 minutes) Below are the parts of the cash flow statements for three companies. A B C Operating Net income (loss) $ 9,993 $ 14,742 $ (69,334) Items not involving cash Amortization 1,439 15,189 74,478 (Gain) Loss on investments 1,756 (111) (10,666) Increase in future income taxes 1,712 10,524 4, 700 Decrease in non-cash working capital 897 30,169 (17,029) 15,797 70,513 (17,851) Financing Common shares issued 2,120 1,796 12,733 Common shares redeemed (6,486) (6,929) Dividends paid (857) Increase in debt 116,699 Repayment of debt (13,475) _______ _______ _______ (5,223) 105,020 5,804 Investing Additions to property and equipment (891) (146,512) (25,659) Sale of property and equipment 95 10,757 Purchase of investments (90,684) (8,816) Sale of investments 84,362 25,273 _______ ________ _______ (7213) (146,417) 1,555 Net increase (decrease) in cash $ 3,361 $ 29,116 $(10,492) 4
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a) Which company has the highest free cash flow? A
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This note was uploaded on 01/30/2011 for the course ACC 121 taught by Professor R.jsproule during the Spring '10 term at Waterloo.

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midterm_f2003 - UNIVERSITY OF WATERLOO School of...

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