BEAM032 Investment Analysis I 2022
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BEAM032
January 2022
Investment Analysis I
Section A (30 Marks)
Please answer ALL multiple-choice questions below. You are required to provide an explanation for each question and show workings. A correct answer without explanation will be marked zero. (5 Marks each)
Question 1.
Lin Company issued common stock for proceeds of $500,000 during 2017. The company paid dividends of $80,000 and issued a long-term note payable for $90,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $20,000. The financing section of the statement of cash flows will report net cash inflows of
A) $410,000.
B) $420,000.
C) $310,000.
D) $400,000.
Question 2.
Miya Company collected $18,200 in May of 2018 for 5 months of service which would take place from October of 2018 through February of 2019. The revenue reported from this transaction during 2018 would be
A) $0.
B) $7,280.
C) $10,920.
D) $18,200.
Question 3.
Allen Corporation purchased a one-year insurance policy in January 2018 for $49,500. The insurance policy is in effect from March 2018 through February 2019. If the company neglects to make the proper year-end adjustment for the expired insurance A) Net income and assets will be understated by $41,250.
B) Net income and assets will be overstated by $41,250.
C) Net income and assets will be understated by $8,250.
D) Net income and assets will be overstated by $8,250
Question 4.
A company shows the following balances:
Sales Revenue $2,500,000
Sales Returns and Allowances 450,000
Sales Discounts 50,000
Cost of Goods Sold 1,400,000
What is the gross profit rate?
A) 30%
B) 44%
C) 56%
D) 70%
Question 5.
At the beginning of the year, LG Company had beginning inventory of $750,000. During the year, the company purchased goods costing $2,400,000. If LG Company reported ending inventory of $900,000 and sales of $3,750,000, the company’s cost of goods sold and gross profit rate must be
A) $1,500,000 and 66.7%.
B) $2,250,000 and 40%.
C) $1,500,000 and 40%.
D) $2,250,000 and 60%.
Question 6.
Equipment was purchased for $600,000. Transaction fee charges amounted to $20,000 and there was a cost of $30,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $70,000 salvage value at the end of its 4-year useful life. Depreciation expense each year using the straight-line method will be
A) $150,000.
B) $110,000.
C) $132,500.
D) $145,000.
Section B (70 Marks)
Please answer ALL questions from Section B
Q1. (40 Marks)
On November 1, 2021, the balance sheet of NPC Company (a service business) was:
Assets: |
|
|
Liabilities: |
|
|
Cash |
£4,500 |
|
Accounts Payable |
£1,340 |
|
Accounts Receivable |
3,410 |
|
Unearned Revenue |
1,400 |
|
Supplies |
2,620 |
|
Salaries Payable |
790 |
|
Equipment - at cost |
15,000 |
|
|
|
|
Less: depreciation |
Accum. |
(5,000) |
|
Total liabilities: |
3,530 |
|
|
|
|
|
|
Total assets: |
20,530 |
|
Equity: |
|
|
|
|
|
Share capital |
£14,000 |
|
|
|
|
Retained earnings |
3,000 |
|
|
|
|
Total equity: |
17,000 |
During November, the following transactions occurred:
Nov 2nd : Received £2,300 cash from customers for services performed in November. Nov 4th : Paid £1,000 cash for salaries due to employees. Of this amount, £600 was for November and £400 was for salaries payable from October.
Nov 10th : Purchased store equipment on credit for £2,000.
Nov 11th : Received £1,520 cash due from customers, paying outstanding amounts due.
Nov 15th : Purchased supplies on credit for £1,800.
Nov 17th : Paid creditors £1,500 of accounts payable.
Nov 20th : Paid November rent of £680 in cash.
Nov 25th : Paid £1,800 for salaries to employees for work done from November 9-25.
Nov 27th : Performed services for customers and billed them for the fees of £1,000, to be paid in December.
Nov 28th : Received £700 from customers for services to be provided in the future. Nov 29th : Paid £500 for various selling and administrative costs incurred during the month of November.
At the end of November, the NPC Company needed to make accruals (adjustments to the accounts), using the following information:
- Depreciation for the month is £180.
- Supplies on hand (unused) are valued at £3,420. All other available supplies have been used up.
- Of the unearned revenue at the beginning of the month, £1,100 has been earned in November.
- Salaries due to employees for work done from November 25-30 equal £600.
a) Prepare a worksheet showing the November transactions and the November accruals for NPC Company. (15 Marks)
b) Prepare NPC Company’s income statement and retained earnings statement for November, and its balance sheet on November 30. (15 Marks)
c) What would the earnings of the company be if a more realistic estimate of supplies on hand were £4,000? Show your working with calculation and explanation. (10 Marks)
Q2. (30 Marks)
Below are the financial statements for ABC Inc. (all figures are in £):
Income Statement for the years ending 31/12/2021 & 31/21/2020
2021 2020
Revenues 142,341 150,772
Cost of sales (52,654) (56,710)
Gross profit 89,687 94,062
Operating expenses (50,566) (52,737)
Profit before interest 39,121 41,325
Interest income 500 1000
Interest expense (2000) (2500)
Profit before tax 37,621 39,825
Tax expense (10,908) (11,598)
Profit for the year 26,713 28,227
Balance sheet for 31/12/2021, 31/12/2020, & 31/12/2019
Balance sheet as at
Non-current assets
PPE
Intangible assets
Current assets
Inventory
Accounts receivable
Financial assets
Cash
Total assets
Non-current liabilities
Borrowing (loans due in 2028)
Lease payable
Current liabilities
Borrowing (loans due in 2020)
Lease payable
Provisions
Accounts payable
Tax payable
Unearned revenues
31/12/21
14,562 21,000 |
31/12/20
18,470 15,000 |
31/12/19
23,177 13,000 |
35,562 |
33,470 |
36,177 |
10,531 |
11,342 |
9,825 |
7,117 |
7,539 |
6,567 |
3040 |
4050 |
3968 |
211,069 |
239,550 |
183,715 |
231,757 |
262,481 |
204,075 |
267,319 |
295,951 |
240,252 |
25,000 5,000 |
25,000 0 |
24,000 0 |
30,000 |
25,000 |
24,000 |
1,045 |
5,743 |
5,831 |
332 |
108 |
123 |
683 |
712 |
804 |
1983 |
1822 |
1799 |
85 |
57 |
48 |
1137 2229 2307 5,265 10,671 10,912
6
Turn over
Total liabilities 35,265 34,912
Equity
Total liabilities and equity
232,054 260,280 205,340
267,319 295,951 240,252
Required:
1) Calculate the following ratios for 2021 and 2020, showing detailed calculations as to how you arrive at each number. You may round up to three decimal places.
a. ROA
b. Gross profit margin
c. Accounts receivable turnover
d. Fixed assets turnover
e. Cash ratio
f. Debt-to-equity
g. Interest coverage ratio
(14 Marks = 7 x 2)
2) Using the financial statements and the ratios calculated above (and any other ratios you like to calculate), comparatively discuss the performance of ABC Inc. in 2021 relative to the previous year. (16 Marks)
2022-08-11