The University of Hong Kong Midterm Examination

1314 Words Dec 24th, 2012 6 Pages
THE UNIVERSITY OF HONG KONG
School of Economics and Finance

FINA1001: Financial Statement Analysis
Second Semester 2009-2010
Dr. Kam-Ming Wan

Midterm Examination (90 minutes)

April 1, 2010 10:40a.m.(12:10p.m.

Candidates may use any self-contained, silent, battery-operated and pocket-sized calculator. The calculator should have numeral-display facilities only and should be used only for the purposes of calculation. It is the candidate’s responsibility to ensure that his calculator operates satisfactorily.

Candidates must record the name and type of their calculators on the front page of their examination scripts.

Name: _______________________

University ID: _______________________
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2. (20 points) Cash Flow Analysis

JEM Company 's comparative balance sheets for 2004 and 2005 appear below.
[pic]

The following additional information is available: net income for the year 2005 (as reported on the income statement) was $50,000; dividends of $40,000 were declared and paid; and equipment that cost $8,000 and had a book value of $1,000 was sold during the year for $2,500.

Based on the information provided, answer the following:

a. (5 points) What was cash provided by operations?

b. (5 points) What was cash provided by investing activity?

c. (5 points) How much was cash provided by financing activity?

d. (5 points) An analyst argues that the net income of the firm in 2005 could be inflated. Justify the validity of this statement. [Hint: Let us presume that JEM uses the LIFO inventory costing method.]
3. (20 points) Classification of Investment Securities

Brandon Ltd. is an investment company and has no debt outstanding. The only investment for Brandon Ltd is ABC security. Imagine the company bought 100 shares of ABC at $100/share on January 1, 2001, the company sold 30 shares of ABC a year later at $60/share, and another 30 shares of ABC two years later at $50/share. Suppose the market price per share of ABC was $70, $80, and $90, respectively, by the end of

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