November 2006 - SURNAME OF CANDIDATE FIRST NAME OF...

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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 November 2006 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 this booklet. 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 PART A: (4 MARKS) The following diagram depicts a typical pattern of cash flows and income for a firm over its lifecycle. Required: (a) Which line in the above graph best represents financing cash flows over the firm’s lifecycle? Justify your answer. (3 marks) DO NOT WRITE BEYOND THIS LINE QUESTION 1 CONTINUES ON PAGE 3 3 4 1 2 Time $ 0 5 2 This page has intentionally been left blank. You can use this page for workings. Please note that any writing on this page will not be marked. 3 (b) State one of the factors which may explain the difference between net income and CFO (cash flows from operating activities) of a firm. (1 mark) DO NOT WRITE BEYOND THIS LINE 4 PART B: (6 MARKS) John Smith is the CEO and majority shareholder of Speed Buy Ltd. Recently, John submitted a loan application for Speed Buy Ltd to Sydney Commercial Bank. It called for a $200,000, 11%, ten-year loan to help finance the construction of a new building and the purchase of store equipment, costing a total of $250,000. Land costing $40,000 was acquired last year for this purpose. It was financed by the issuance of shares in the company. The bank’s loan officer has requested that John submit a cash flow statement, the most recent income statement, and balance sheets for the last two years with the loan application. You are the chief accountant of Speed Buy Ltd, and have prepared the following cash flow statement for the purpose of the loan application: Speed Buy Ltd. Cash Flow Statement For the Year Ended 31 December 2005 Cash flows from operating activities: Net income $86,400 Add: Depreciation $31,000 Decrease in accounts receivable 11,500 42,500 $128,900 Deduct: Increase in inventory $12,000 Increase in prepaid expenses 15,000 Decrease in accounts payable 13,000 Gain on sale of investments 85,000 125,000 Net cash flow from operating activities $3,900 Cash flows from investing activities: Cash received from investments sold $130,000 Less: Cash paid for purchase of store equipment 51,000 Net cash flow from investing activities 79,000 Cash flows from financing activities: Cash paid for dividends $40,000 Net cash flow used for financing activities (40,000) Increase in cash $42,900 Cash at beginning of the year 27,500 Cash at end of the year $70,400 After reviewing the cash flow statement, John was puzzled and telephoned you to seek help. John raised the following three questions and concerns: 1. “Issuing shares for the land is not listed in the statement. Wouldn’t this “Issuing shares for the land is not listed in the statement....
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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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November 2006 - SURNAME OF CANDIDATE FIRST NAME OF...

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