6 - midterm test Fin 22

Esta é uma pré-visualização de arquivo. Entre para ver o arquivo original

Cover Sheet
					Name:___________________________
					Student Number:__________________
					Section: V_____
			Fairleigh Dickinson University - Vancouver
			MADS 6601 Financial Management
			Spring 2021
			Midterm #1 Examination
	 			Possible	Actual
				Marks	Marks
			Question 1	20
			Question 2	20
			Question 3	20
			Question 4	20
			Question 5	20
	 		Total Marks 	100
	ALL ANSWERS AND SUPPORTING CALCULATIONS ARE TO BE INCLUDED IN THIS BOOKLET ONLY!
Question #1
	From the information below for Flex Motors Company, prepare an Balance Sheet and Income Statement for the year ended December 31, 2020.
		Trial Balance		Balance Sheet			Income Statement
		Debits	Credits	Assets	Liabilites	Equity	Expenses	Revenue
	Cash	$ 27,000		$ 27,000
	Accounts payable		12,000		12,000
	Unearned royalty fees		11,000	11,000
	Selling expenses	37,000				37,000	37,000
	Dividends declared	3,000				3,000		3,000
	Interest payable		10,000		10,000
	Administrative expenses	30,000				30,000	30,000
	Accumulated depreciation - Buildings		60,000		60,000
	Cost of goods sold	130,000				130,000	130,000
	Depreciation expense	15,000				15,000	15,000
	Common shares		200,000			200,000		200,000
	Opening Retained earnings		65,000			65,000		65,000
	Motor revenues		304,000			304,000		304,000
	Buildings	400,000		400,000
	Accounts receivable	20,000		20,000
	 Unadjusted Trial Balance	$ 662,000	$ 662,000
	 Net Income							360,000
	 Adjusted Trial Balance	$ 662,000	$ 662,000
&A	
Question #2
	Required: Complete the Financial Staements below assuming Net Income for the year was $300,000
	Quartz Corporation				Quartz Corporation
	Balance Sheet				Statement of Cash Flows
	as at December 31, 20xx				for the Year ended December 31, 20xx
	Assets				Operating Activities
	 Cash				 Cash Received from Customers	$ 500,000
	 Accounts Receivable	50,000			 Cash Received from Investments
	 Inventories	10,000			 Cash Paid for Salaries	(250,000)
	 Land	125,000			 Cash Paid for Rent	(50,000)
	 Building (net)	400,000			 Cash Paid for Other Operating Expenses	(100,000)
	 Equipment (net)	300,000			 Cash Provided from Operating Activities	$ 100,000
	Other Assets	20,000
	Total Assets		$ 905,000		Investing Activites
					Sold Land	75,000
	Liabilities				Financing Activites
	 Accounts Payable	$ 50,000			 Payment of Dividends	(50,000)
	 Loans Payable	125,000			Increase/(Decrease) in Cash	$ 25,000
	Total Liabilities
					Beginning Cash January 1, 20xx	40,000
	Owners' Equity				Ending Cash December 31, 20xx	$ 195,000
	 Capital Stock
	 Retained Earnings 
	Total Owners' Equity	730,000
	Total Liabilities and Owners' Equity		$ 905,000
	Quartz Corporation
	Income Statement
	for the Year ended December 31, 20xx
	Revenues
	 Services to Customers	$ 750,000
	 Interest Revenue
	Total Revenues
	Expenses
	 Salaries	$ 275,000
	 Rent	50,000
	 Depreciation	75,000
	 Other Operating Expenses	100,000
	Total Expenses		500,000
	Net Income		$ 405,000
	Less: Dividends Declared and Paid
	Beginning Retained Earnings - January 1, 20xx		$ 335,000
	Ending Retained Earnings - December 31, 20xx		$ 740,000
&A	
Question #3
	Required:
	a) Using the Financial Statement information below, calculate the following Financial Statement Ratios for 2020.
	b) Evaluate the financial health of the firm compared to the Industry Averages as: Good, Okay, or Poor.
	c) For every Ratio evaluated as POOR, suggest strategies that management could undertake to improve Company performance.
		Numerator	Denominator	Ratio		Industry Average	Evaluation
	a)    Current Ratio	$ 740	$ 250	2.96		2.00
	b)    Acid Test Ratio	$ 390	$ 250	1.56		1.50
	c)    Gross Profit Margin	$ 1,075	$ 1,050	102%		48%
	d)    Operating Profit Margin	$ 382	$ 2,125	18%		24%
	e) Return on Sales	$ 382	$ 2,125	18%		15%
	f) Return on Total Assets	$ 575	$ 1,615	36%		30%
	g) Return on Equity	$ 382	$ 915	42%		50%
	h)    Earnings per Share	$ 232	21,000	$ 0.011		$ 20.00
	i) Price/Earnings Multiple					10.00
				c) Suggested Strategies
		2020	2019
		($'000)	($'000)
	Current Assets
	Cash	$ 200	$ 125
	Accounts Receivable	190	150
	Inventory	350	300
	Total Current Assets	740	575
	Property, Plant, and Equipment
	Land	150	150
	Buildings	500	400
	Equipment (net)	225	185
	Total Property, Plant, and Equipment	875	735
	Total Assets	$ 1,615	$ 1,310
	Current Liabilities
	Accounts Payable	$ 150	$ 150
	Dividends Payable	100	40
	Total Current Liabilities	250	190
	Long-term Liabilities
	Bonds Payable	250	250
	Mortgages Payable	200	200
	Total Long-term Liabilities	450	450
	Total Liabilities	700	640
	Shareholders' Equity
	Common Shares (21,000 shares issued and outstanding at a current market price of $150 per share.)	400	400
	Retained Earnings	515	270
	Total Shareholders' Equity	915	670
	Total Liabilities and Shareholders' Equity	$ 1,615	$ 1,310
	Income Statements
		2020	2019
		($'000)	($'000)
	Sales (all on credit)	$ 2,125	$ 2,000
	Less: Cost of Goods Sold
	Opening Inventory	300	250
	Purchases (all on credit)	1,100	1,000
	Goods Available for Sale	1,400	1,250
	Less: Closing Inventory	350	300
	Cost of Goods Sold	1,050	950
	Gross Profit	1,075	1,050
	Less: Operating Costs	500	500
	Earnings Before Interest and Taxes (EBIT)	575	550
	Less: Interest Expense	30	20
	Earnings Before Taxes (EBT)	545	530
	Taxes	164	159
	Net Income	$ 382	$ 371
&A	
Question #4
	Assume that:
	1) James and William invest $85,000 cash to acquire 40,000 shares each of Designer Dress Ltd. 
	2) $18,000 of the new capital is to be invested in new equipment that will depreciated over a three-year service life, with no salvage value. Depreciation expense is $788 per month or $4,700 for six months.
	3) Sales are collected in the month following the sale and credit card company charges 3% administration fee.
	4) Inventory purchases are $10,000 per month and are paid for in the month following purchase.
	5) Rent is $12,000 quarterly and is paid on January 1 and April 1.
	6) Other cash costs are $9,000 per month.
	7) Inventory as at June 30 was $38,000.
	8) Paid $13,000 dividends in June 15.
	9) Assume Income Tax Rate of 25% of Earnings Before Taxes
	Required
	1) Prepare a Cash Budget for the six months to June 30.
	2) Prepare a pro forma Income Statement for the six months ended June 30.
	3) Prepare a pro forma Balance Sheet s at June 30.
	4) What does each of these Statements tell management about the status of the business?
	1) Pro Forma Cash Budget						(in $ Thousands)
					January	February	March	April	May	June	Total	Accruals
	Sales				$ 20.0	$ 25.0	$ 25.0	$ 25.0	$ 25.0	$ 25.0	$ 145.0
	Collections
	Collection Fees
	Inventory Purchases
	Equipment
	Other Cash Costs
	Rent
	Paid Dividends
	Issuance of Shares
	Opening Cash Balance
	Ending Cash Balance
	2) Pro Forma Income Statement			(in $ Thousands)			3) Pro Forma Balance Sheet			(in $ Thousands)
	Sales						Assets
	Less: Cost of Goods Sold						Current Assets
	 Beginning Inventory						Cash
	 Add: Inventory Purchases						Accounts Receivable
	 Goods Available For Sale						Inventory
	 Less: Closing Inventory						Total Current Assets
	Cost of Goods Sold
	Gross Profit						Property, Plant, and Equipment
	 Less: Credit Card Expenses						Equipment
	 Rent Expense						Less: Accumulated Depreciation
	 Depreciation Expense						Total Property, Plant, and Equipment
	 Other Expenses						Total Assets
	Earnings Before Taxes (EBT)						Current Liabilities
	Less: Taxes						Accounts Payable
	Net Income After Taxes (NIAT)						Taxes payable
							Total Current Liabilities
							Owners' Equity
							Capital Stock
							Beginning Retained Earnings
							Add: Net Income After Taxes
							Less: Dividends Declared and Paid
							Ending Retained Earnings
							Total Owners' Equity
							Total Liabilities and Owners' Equity
&A	
Question #5
	Assume that:
	1) Sales are expected to decrease by 7.5% in 2021.
	2) Dividends declared and paid will be
set at $10,000.
	3) Corporate income taxes will be 15%.
	4) Property, Plant and Equipment ARE operating at full capacity
	5) Calculate using 1 decimal point.
	Required
	1) Prepare a pro forma Income Statement for the year-ended June 30.
	2) Prepare a pro forma Balance Sheet at June 30.
	3) What steps can management take to eliminate the Financing Gap?
	1) Pro Forma Income Statement (Percentage of Sales Method)
					(in $ Thousands)
					2020 Actual		Adjustment Percentage	2021 Proforma
	Sales					$ 950.0		$ 878.75
	Cost of Goods Sold					665.0		615.1
	Gross Profit					285.0		263.63
	 Less: Selling Expenses				76.0				$ 76
	 Rent Expense				38.0				$ 38
	 Other Expenses				57.0				$ 57
						171.0			171
	Earnings Before Taxes (EBT)					114.0			92.6
	 Less: Taxes					39.9			13.9
	Net Income After Taxes (NIAT)					$ 74.1			$ 78.7
	2) Pro Forma Balance Sheet (Percentage of Sales Method)
					(in $ Thousands)
	Assets				2020 Actual		Adjustment Percentage	2021 Proforma
	Current Assets
	Cash				$ 114.0			$ 105.5
	Accounts Receivable				190.0			175.8
	Inventory				285.0			263.6
	Total Current Assets					$ 589			$ 544.8
	Total Property, Plant, and Equipment					228.0			210.9
	Total Assets					$ 817.0			$ 755.7
	Current Liabilities
	Accounts Payable				$ 261.5			$ 261.5
	Taxes payable				39.90			13.9
	Financing Gap				- 0
	Total Current Liabilities					$ 301.4			$ 275.4
	Owners' Equity
	Capital Stock					$ 60.0			$ 60.0
	Beginning Retained Earnings				400.00				$ 456
	Add: Net Income After Taxes				74.10				$ 78.7
	Less: Dividends Declared and Paid				(18.53)			$ (10.00)
	Ending Retained Earnings					$ 455.6			524.3
	Total Owners' Equity					$ 515.6			$ 584.3
	Total Liabilities and Owners' Equity					$ 817.0			$ 859.7
&A