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This paper has two sections.

Answer ALL questions from Section A. Answer ALL questions from Section B.

Approved calculators are permitted.

Section A (30 Marks)
Please answer ALL multiple-choice questions below. You are required to provide an explanation for each question and show workings of calculation. A correct answer without showing workings will be marked zero. (5 Marks each)

Question 1.
The following is selected information from Kiel Plc for the 2021 fiscal year ending October 31, 2021.
Cash received from customers
$300,000
Revenue recognized
400,000
Cash paid for expenses
180,000
Cash paid for computers on November 1, 2019 that will be used for 3 years (annual depreciation is $15,000)
45,000
Expenses incurred, including interest, but excluding any depreciation 200,000
Proceeds from a bank loan, part of which was used to pay for the computers 100,000
Based on the accrual basis of accounting, what is Motley Corporation’s net income for the year ending October 31, 2021?
A) $200,000.
B) $100,000.
C) $185,000.
D) $175,000.

Question 2.
On May 1, 2020, Jubilee Company had beginning inventory consisting of 200 units with a unit cost of $8. During May, the company purchased inventory as follows:
200 units at $7 200 units at $6

The company sold 1,000 units during the month for $12 per unit. Jubilee uses the average cost method. What is the Jubilee’s gross profit for the month of May?

A) $12,000.
B) $16,000.
C) $4,000.
D) $5,000

Question 3.
Jasper Company purchased a tow truck for $200,000 on January 1, 2017. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $30,000. On December 31, 2019, before adjusting entries had been made, the company decided to change the remaining estimated life to 5 years (including 2019) and the salvage value to $1,000. What was the depreciation expense for 2019? A) $6,600.
B) $20,000.
C) $33,000.
D) $34,000

Question 4.
In Holly Company, Treasury Stock increased $22,000 from a cash purchase, and Retained Earnings increased $80,000 as a result of net income of $120,000 and cash dividends paid of $45,000. Net cash used by financing activities is:
A) $57,000.
B) $65,000.
C) $177,000.
D) $97,000.

Question 5.
In 2021, Jack Company had net credit sales of $1,000,000. On January 1, 2021, Allowance for Doubtful Accounts had a credit balance of $20,000. During 2021,
$40,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance on December 31 was

$300,000, what is the required adjustment to the Allowance for Doubtful Accounts on December 31, 2021?
A) $50,000.
B) $340,000.
C) $280,000.
D) $300,000.

Question 6.
The following data are available for Lynne Corporation.

Net income $250,000
Depreciation expense 60,000
Dividends received 90,000
Loss on sale 20,000
Decrease in accounts receivable 40,000
Decrease in accounts payable 50,000
Net cash provided by operating activities is: A) $70,000.
B) $80,000.
C) $230,000.
D) $320,000.

Section B (70 Marks)
Please answer ALL questions from Section B

Q1. (40 Marks)
Pingan Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of July that is correct on the basis of information considered.
PINGAN INSURANCE AGENCY
Income Statement
For the Month Ended July 31
—————————————————————————————————————
Revenues
Sales revenue ……………………………………………………………. $26,000
Expenses
Salaries and wages expense ……………………………………….. $6,200
Rent expense …………………………………………………………….. 3,000
Depreciation expense………………………………………………….. 2,000
Advertising expense ……………………………………………………. 600
Total expenses…………………………………………………………… 11,800
Net income ……………………………………………………………………….. $14,200
Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information:
1.A utility bill for $3,000 was received on the last day of the month for electric and gas service for the month of July.
2.A company insurance salesman sold a life insurance policy to a client for a premium of $20,000. The agency billed the client for the policy and is entitled to a commission of 20%.
3.Supplies on hand at the beginning of the month were $2,000. The agency purchased additional supplies during the month for $3,000 in cash and $1,000 of supplies were on hand at July 31.
4.The agency purchased a new car at the beginning of the month for $22,000 cash. The car will depreciate $6,000 per year.
5.Salaries owed to employees at the end of the month total $4,800. The salaries will be paid on August 5.

a)Prepare a correct income statement.
(12 marks)

b)As a financial analyst, other than Pingan PLC, you have more one company to consider for investment, which is Jeff PLC. Those two companies are from the same industry and having similar company size. Some financial data for those two companies have been extracted from their annual report in 2021. You are expected to evaluate those two companies by utilizing DuPont analysis.

Pingan PLC Jeff PLC
Net income $2,000 $2,500
Revenue $8,000 $20,000
Average assets $5,000 $8,000
Average equity $2,000 $1,000

1)What is DuPont analysis? Explain it by expressing its framework
(3 marks)
Note: your answer should not contain copious amount of material copied from any third-party sources.

2)Use the DuPont method to analyze those organization, what does this ROE mean to investors and analysts following the DuPont calculation? Which company would you invest in and why?
(10 marks)

c)Discuss the importance of accounting analysis for financial analysts. List four examples of managerial discretion and explain why managerial discretion can affect the real financial situation of the company? Support your answer with detailed explanations and facts.
(15 marks)
Note: your answer should not contain copious amount of material copied from any third-party sources.

Q2. (30 Marks)
Judy Company reported net income of $200,000 for the financial year 2021. Depreciation recorded on buildings and equipment amounted to $50,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year
Cash $20,000 $15,000
Accounts receivable 25,000 30,000
Inventories 40,000 50,000
Prepaid expenses 9,000 5,000
Accounts payable 12,000 17,000
Income taxes payable 1,800 1,200

a)Prepare the cash flows from the operating activities section of the statement of cash flows in 2021 using the indirect method.
(12 marks)

b)Discuss how cash flow from operating activities (CFO) can be manipulated with examples.

(10 marks) Note: your answer should not contain copious amount of material copied from any third-party sources.

c)Identify the impact on the annual balance sheet in 2021 if the following four information is not used to adjust the accounts in Judy Company.
(8 marks)

1.Supplies consumed totaled $2,000 in March 2021.
2.Interest accrues on notes payable at the rate of $600 per annual, Judy Company intends to pay it in 2022.
3.Annual insurance cost for 2021 was $400, it has been paid in Jan. 2021.
4.Plant and equipment are depreciated at the rate of $1,000 per annual.