FOUNDATION OF FINANCE (BWFF1013)FIRST SEMESTER 2012/2013 (A121)

CHAPTER 2-FINANCIAL STATEMENT AND CASH FLOWS

Section A

Please circle TRUE or FALSE to the following statements.

1) An income statement reports a firm's cumulative revenues and expenses from the inception of the firm through the income statement date. Answer: TRUE/FALSE

2) A firm's income statement reports the results from operating the business for a period of time, while the firm's balance sheet provides a snapshot of the firm's financial position at a specific point in time. Answer: TRUE/FALSE

3) Financial ratios are useful for evaluating performance but should not be used for making financial projections. Answer: TRUE/FALSE

4) The current ratio and the acid test ratio both measure financial leverage. Answer: TRUE/FALSE

Section B

Please circle the correct answer.

1) The basic format of an income statement is

A) Sales - Expenses = ProfitsB) Income - Expenses = EBITC) Sales - Liabilities = ProfitsD) Assets - Liabilities = Profits

2) JJ Rlooing reported the following items for the current year: Sales = RM3,000,000; Cost of Goods Sold = RM1,500,000; Depreciation Expense = RM170,000; Administrative Expenses = RM150,000; Interest Expense = RM30,000; Marketing Expenses = RM80,000; and Taxes = RM300,000. JJ’s operating income is equal to

A) $770,000.B) $1,070,000.C) $1,100,000.D) $1,500,000.

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3) JJ’s net profit margin is equal to

A) 25.67%.B) 35.67%.C) 36.67%.D) 50.00%.

4) Net working capital is equal to

A) total assets minus total liabilities.B) current assets minus total liabilities.C) total operating capital minus net income.D) current assets minus current liabilities.

5) A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations. These are examples of

A) cash flow from financing and cash flow from operations.B) cash flow from investing and cash flow from operations.C) cash flow from financing and cash flow from investing.D) cash flow from investing and cash flow from financing.

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Section C

Complete the balance sheet for Waya Inc. Corporation based on the following financial data. (20 marks)

Balance SheetWaya Inc. Corporation as at 31 December 2011

RMASSETS:Current Asset:Cash 8,005Marketable securities ?Accounts receivables ? Inventory 73,620 Total current assets 159,565

=========Gross fixed assets ?(Less) Accumulated depreciation 50,000

==========Net fixed assets ? TOTAL ASSETS ?

==========

Liabilities and Stock holders’ equity Current Liabilities:Account payable 28,800Notes payable ?Accruals 18,800 Total current liabilities ? =========Long term liabilities ?

Total Liabilities ? =========

Stockholders’ Equity:Preferred stock 2,451Common stock at par 30,000Paid in capital in excess of par 6,400Retained earnings 90,800 Total stockholders’ equity ?

========TOTAL LIABILITIES AND STOCK ?HOLDERS’ EQUITY ========

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Additional Information:Total sales RM720,000Gross profits margin 38.7%There are 360 days in a year.Average collection period was 31 days Current ratio 2.35 Total asset turnover 2.81 timesDebt ratio 49.4 %Total current assets was RM159,565

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