FIN621 Final Term Subjective

FIN621 Final Term Subjective

Q49. If a company uses Rs.20, 000 to buy merchandise for inventory. What do you think would be the effect on working capital? Give reason. (3 marks)

If company purchase inventory on cash current assets of company increase and on the other hand cash is decrease. So there is no effect in working capital.

Q50. Ahmad Incorporation has Owner’s Equity of amount Rs.75, 000 as an opening balance. During the period, three major transactions occurred: (3 marks)

Issuance of stock: Rs.22, 000 Dividend distribution: Rs.10, 000 Net Loss: Rs.6, 000.

Based on these transactions, what would be the Ahmad’s ending balance of Owner’s Equity?

Answer · Owner's Equity (beg) 75000 · Add; Stocks Issued 22000 · Less; Dividend distribution 10000 · Less; Net Loss 6000 · Owner's Equity (end) 81000

Q51. ABC Company is famous for its automobiles. The business has undergone the following changes in the month of March. Prepare the journal entries for the transactions. (5 marks)

1. Mar. 1 Owner deposited Rs. 50,000 cash in a bank account in the name of the business.
2. Mar. 5 Purchased land for Rs. 160,000, of which Rs. 40,000 was paid in cash. A short-term note payable was issued for the balance of Rs. 120,000
3. Mar. 6 An arrangement was made with the XYZ Company to provide parking privileges for its customers. XYZ Company agreed to pay Rs. 1,200 monthly, payable in advance. Cash was collected for the month of March.
4. Mar. 7 Arranges with Times Printing Company for a regular advertisement in the Times at a monthly cost of Rs. 390. Paid for advertisement during March by check, Rs. 390
5. Mar. 15 Parking receipts for the first half of the month were Rs. 1,836, exclusive of the monthly fee from XYZ Company

1. bank 50,000 · cash 50,000 · 2. land 160,000 · cash 40,000 · 3. Cash 1200 · Unearned parking revenue 1200 · 4. Advertisement cost 390 · bank 390 · 5. cash 636 · Unearned parking revenue 1200 · Parking revenue 1836

Q52. Following data is taken from the ABC Corporation. (5 marks)

1999 (Rs.)

2000 (Rs.)

400,000 300,000 Total liabilities 300,000 180,000 Share capital (Rs. 10 par 100,000 90,000 Total debt 120,000 140,000

Calculate the following. a) Debt ratio (2.5) b) Debt to total asset ratio (2.5)

Debt ratio = total debt / total assets · = 120000/ 400000 · = .3 · Debt ratio = total debt / total assets · = 140,000/300,000 · = .46 · Debt to total assets ratio = total debt / total assets · = 120000/400000 · = .3 · Debt to total assets ratio = total debt / total assets · = 140000/300000 · = .46

Q53. Assume that you wish to invest in the stocks of a high-tech corporation and that one of your investments goals is to receive dividend income from the stocks that you purchase. You begin your research by examining Microsoft, one of the world’s most successful software corporations. You quickly discover that, as of 1997, Microsoft had never paid a dividend. Furthermore, the company’s 1997 balance sheet reported holdings of nearly Rs. 9 billion in cash and highly liquid securities. With all of these liquid resources available, why do you suppose that Microsoft has never paid a cash dividend to its stockholders? (5 marks)

As the cash balance as well as liquid securities of the company are on high side which depicts that the company has never paid cash dividend but paid stock dividend instead of cash dividend. if the company had paid cash dividend , its cash balance and liquid securities would have been reduced.

Paper#2

Q43. If the retained earnings account has a debit balance, how is it presented in the balance sheet and what is it called? (3 marks)

If a corporation has experienced significant net losses since it was formed, it could have negative retained earnings (reported as a debit balance instead of the normal credit balance in its Retained Earnings account). When this is the case, the account is described as " Deficit" or " Accumulated Deficit" on the corporation's balance sheet.

Q44. Using the following information, compute the dividend yield to the nearest tenth. Income Rs. 130,000 (3 marks)

Beginning shares outstanding 250,000 Ending shares outstanding 270,000 Current price per share Rs. 7.50 Dividend per share Rs. 1.20

Dividend yield = divi per share / market price · = 1.20/7.50 · = 0.16