June 2007 - SURNAME OF CANDIDATE: FIRST NAME OF CANDIDATE:...

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Unformatted text preview: SURNAME OF CANDIDATE: FIRST NAME OF CANDIDATE: STUDENT ID: SIGNATURE: SCHOOL OF ACCOUNTING ACCT 1511: Accounting and Financial Management 1B FINAL EXAMINATION June 2007 Time Allowed: 3 Hours Reading Time: 10 minutes Total Number of Questions: 6 Answer ALL questions. The questions are NOT of equal value. Answers to Questions 1 to 5 must be written in ink in spaces provided in this Booklet . Question 6 must be answered on the separate Generalised Answer Sheet provided using a 2B pencil. 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 (/80) 1 QUESTION 1 (10 MARKS): CASH FLOW STATEMENTS Brickman Corporation is a medium-sized wholesaler of building materials in the state of NSW. Its shareholders have been paid a total of $1 million in cash dividends for the last 8 consecutive years. The policy of the Board of Directors requires that in order for this dividend to be declared, net cash provided by operating activities in Brickmans current years Statement of Cash Flows must be in excess of $1 million. CEO Phil Luckys job is secure so long as he produces annual operating cash flows to support the usual dividend. At the end of the current year, financial controller Jack Black presents CEO Lucky with some disappointing news: the net cash provided by operating activities is calculated to be only $970,000. The CEO says to Jack, We must get that amount above $1 million. Arent there some ways to increase operating cash flows by another $30,000? Jack answers, These figures were prepared by my assistant. Ill go back to my office and see what I can do. The CEO replies, I know you wont let me down, Jack. After scrutinising the Statement of Cash Flows, Jack concludes that he can get the operating cash flows above $1 million by including a $60,000, 2-year Notes borrowed during the current year as part of the companys Accrued Expenses account, rather than as part of the Notes Payable account. He returns to the CEO saying, You can tell the Board to declare their usual dividend. Our net cash flow provided by operating activities is now $1,030,000. Good man, Jack! I knew I could count on you, exults the CEO. Required: (a) Explain why Jack thinks the reclassification of the $60,000, 2-year Notes Payable as Accrued Expenses can increase the net cash flow from operating activities. Use the concepts underlying: (i) the indirect method, and (ii) the direct method of calculating cash inflows and outflows from operating activities to support your answer. 2 (i) Indirect method ( 2 marks ) DO NOT WRITE BEYOND THIS LINE (ii) Direct method ( 2 marks ) DO NOT WRITE BEYOND THIS LINE (b) Assuming that the usual $1 million cash dividends can be declared and paid at the end of the current year, what would be the subsequent impact of this reclassification on the companys (i) operating, (ii) investing, (iii) financing, and...
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This note was uploaded on 01/31/2012 for the course ACCT acct taught by Professor A during the Three '11 term at University of New South Wales.

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June 2007 - SURNAME OF CANDIDATE: FIRST NAME OF CANDIDATE:...

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