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Degree Program: BSAF (6) Course: Financial Statements Analysis Total Marks: 30 Midterm Examination Time: 30m Instructions For The Exam

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Usman Baloch
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71 views2 pages

Degree Program: BSAF (6) Course: Financial Statements Analysis Total Marks: 30 Midterm Examination Time: 30m Instructions For The Exam

Uploaded by

Usman Baloch
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Degree Program: BSAF (6th) Course: Financial Statements Analysis

Total Marks: 30 Midterm Examination Time: 30m


Instructions for the exam
1. Please provide your answer as handwritten. Write name and roll number on top of each answer sheet
numbered(1/8).
2. Having finished exam, scan and send it by email at [email protected]; cc to [email protected]
3. Answer sheet should reach within 10-15 minutes after exam time is over, you will be awarded zero marks.
4. Students should also submit original answer scripts to the department, in person (to relevant program clerk) or
through registered post.
5.Students are advised to submit early; delay in submission may result in deduction of marks or re-examination.

Qustion-01:Fill in the blank or Choose most appropriate option, explain your answer with reasoning
[0.5*12=6] Marks
1) Financial statement analysis is useful to ______________________________
2) Liquidity ratios__________________________________

3) Stennett Corp.’s CFO has proposed that the company issue new debt and use the proceeds to buy back common
stock. Which of the following are likely to occur if this proposal is adopted?
a). ROA will decline. b). TIE ratio will increase. c). Taxes paid will decline.
d). Statements a & c are correct. e). None of the statements above is correct.

4) Van Buren firm has a current ratio = 1.9; which of following actions will increase company’s current ratio?
a). Use cash to reduce short-term notes payable b). Use cash to reduce accounts payable.
c). Issue long-term bonds to repay short-term notes payable.
d). All of the statements above are correct. e). Statements b and c are correct.

5) The examination of ratios over time is called ----------------------------------------:

6) The objectives of general-purpose external financial reporting are primarily to serve the needs of management.
Make a commentary on above statement.

7) Common-size analysis is a simple way to make financial statements of different firms comparable. What are
possible shortcomings of comparing two different firms using common-size analysis?

8) Disclosure of significant accounting policies results from application of the ____________________________

9) To apply a vertical analysis to the balance sheet, the base amount usually selected is -----------------------

10) IFRS standards require the presentation of comparative financial statements by most companies for the current
year as well as:

11) What ratios are an indicator of liquidity_______ __________ _______________ _____________

12) What is the relationship between the accounting equation and the double-entry system of recording transactions?

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Qustion-02: [7*2=14 Marks]
[A] What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively?

[B]The RRR Company has a target current ratio of 2.5. Presently, the current ratio is 3.4 based on current assets of
$6,902,000. If RRR expands its inventory using short-term liabilities (maturities less than one year), how much
additional funding can it obtain before its target current ratio is reached?

[C]AAA's inventory turnover ratio is 11.09 based on sales of $15,200,000. The firm's current ratio equals 3.22 with
current liabilities equal to $970,000. What is the firm's quick ratio?

[C]Explain the influence of the use of LIFO inventory on the inventory turnover.
[D] Some firms do not report the cost of goods sold separately on their income statements. In such a case, how should
you proceed to compute days’ sales in inventory? Will this procedure produce a realistic days’ sales in inventory?
[E]Why does LIFO result in a very unrealistic ending inventory figure in a period of rising prices?
[F] Gibson Company has gross receivables at the end of the year of $280,000 and net sales for the year of $2,158,000.
Compute the days’ sales in receivables at the end of the year.

[G])Gibson Company has net sales of $3,500,000 and average gross receivables of $324,000. Compute the accounts
receivable turnover.

Question N03: [03+03+04 Marks]

[A] Shaffer Company has an ending inventory of $360,500 and a cost of goods sold for the year of $2,100,000. It has
used LIFO inventory for a number of years because of persistent inflation.

Required (a). Compute the days’ sales in inventory. (b). Is J. Shaffer Company’s days’ sales in inventory as computed
realistic in comparison with the actual days’ sales in inventory? ©. Would the days’ sales in inventory computed for J.
Shaffer Company be a helpful guide?

[B] The cost of inventory at the close of the calendar year of the first year of operation is $40,000, using LIFO
inventory, resulting in a profit before tax of $100,000. If the FIFO inventory would have been $50,000, what would the
reported profit before tax have been? If the average cost method would have resulted in an inventory of $45,000,

what would the reported profit before tax have been? Should the inventory costing method be disclosed? Why?
[C] Cartwright's average daily sales are $10 million. Currently, Cartwright's day’s sale outstanding is well above the
industry average of 15. Cartwright is implementing a plan that is designed to reduce its DSO to 15 without reducing its
sales. If successful the plan will free up cash, half of which will be used to reduce notes payable and the other half will
be used to reduce accounts payable. What will be current ratio if Cartwright fully succeeds in implementing this
plan?

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