Just a reminder that tomorrow, Oct 11, we kick off our 10-day FSA review marathon on AF. Bring your questions, comments and witty repartees, as always. The schedule is as follows: SS7 (Oct 11 and 12) SS8 (Oct 13 and 14) SS9 (Oct 15, 16, and 17) SS10 (Oct 18, 19 and 20) More info on this thread: http://www.analystforum.com/phorums/read.php?11,612961,615126#msg-615126 Let’s crush FSA on Dec 1!
What a great idea, lola! I’ve been looking forward to the FSA review!
It was actually your idea 
I think it’s a really good way to drill on concepts and reinforce learning. So there.
Topline Construction was recently awarded the contract to construct a new Olympic-quality equestrian cross-country course just outside of La Crosse, Wisconsin. According to the project manager, projected revenues over the three years are $5.0 million and estimated costs are 3.5 million. The project has created an intra-company disagreement about what revenue recognition method to use. The company president believes that ultimate payment is assured and that the project manager’s cost estimates are reliable. The CFO agrees that ultimate payment is assured; he also knows that the project manager obtained his cost estimates from an unreliable source and thus would account for the contract revenue differently. The table below provides information on amount billed, cash received, and cost incurred for each year of the three year project (data are in millions). Year 1 Year 2 Year 3 Amounts Billed 3.0 1.3 0.7 Cash Received 2.0 1.7 1.3 Cost Incurred 2.0 0.9 0.6 The following statements all relate to the cumulative balance sheets at year-end. Which of the statements is INCORRECT? A) Using either revenue recognition method, the balance in the construction-in-progress account at the end of years 1 and 2 will be zero. B) If the CFO’s viewpoint prevails, total assets at the end of year 2 will be $1.4 million. C) If the president’s viewpoint prevails, the balance in the advance billings account at the end of year 1 will equal approximately $1.40 million. D) If the President’s viewpoint prevails, the cash balance at the end of year 2 will be the same as if the CFO’s viewpoint prevails.
President’s viewpoint: % Completion CFO --> is Completed Contract method. Choice C is the incorrect one President CFO Rev 2.86 4.15 5.00 0 0 5.0 Cost 2.00 2.90 3.50 0 0 3.5 -------------------------------------------------- --------------------------------------- Income 0.86 1.25 1.50 0 0 1.5 -------------------------------------------------- --------------------------------------- AR Billed 3 4.3 5.0 Cash Rec 2 3.7 5.0 ------------------------------------------------ AR 1 0.6 0 ------------------------------------------------ AR is same under both methods. Cash position Cash Rec 2 3.7 5.0 Cost inc. 2 2.9 3.5 ------------------------------------------------ Cash 0 0.8 1.5 ------------------------------------------------ Cash position is also same under both methods Finding Net Adv Billing / Construction in Progress (Inv) Cost Inc. 2 2.9 3.5 2 2.9 3.5 Income .86 1.25 1.5 0 0 1.5 ------------------------------------------------- ----------------------------------------- Total 2.86 4.15 5.0 2 2.9 5.0 Adv Bill 3.00 4.30 5.0 3 4.3 5.0 ------------------------------------------------ ----------------------------------------- Net AB 0.14 0.15 0 1 1.4 0 ------------------------------------------------ ------------------------------------------ Balance Sheet Cash 0 0.8 1.5 0 0.8 1.5 AR 1 0.6 0 1 0.6 0 Net CIP 0 0 0 0 0 0 ----------------------------------------------- -------------------------------------- TA 1 1.4 1.5 1 1.4 1.5 ------------------------------------------------ --------------------------------------- Net AB 0.14 0.15 0 1 1.4 0 Income(RE)0.86 1.25 1.5 0 0 1.5 ------------------------------------------------ --------------------------------------- TL 1.00 1.40 1.50 1 1.4 1.5 ------------------------------------------------ --------------------------------------- Based on this A is right B is right D is right
This looked good when I previewed the post but is messed up on posting. Can send solution that I have by mail if that will help any one.
Judy Picoo, CFA, a portfolio manager for Hillcrest Mutual Funds, was evaluating Maui Macadamia Corporation for possible inclusion into her portfolio. During an analyst conference call, the management of the company publicly announced the following information for the year ended December 31, 2004: Revenues for 2004 were expected to be up 44% for the year. Net Income was expected to be up 50%. Costs of revenues were up 36% and general expenses were up 20%. Interest expenses were down because interest rates have dropped from 5.5% to 4.5%. Maui Macadamia had been paying interest only on its long-term debt of $1,000,000, but it was delinquent on one monthly payment at year end. Maui Macadamia had depreciation expenses of $100,000 per year. Maui Macadamia uses the straight-line method to depreciate its fixed assets. Income taxes were fully paid during the year. Maui Macadamia wrote down the value of its inventory by $20,000 for 2004. Maui Macadamia paid dividends on its 10% preferred stock during the year. There were 1,000 preferred shares outstanding at a par value of $100. Maui Macadamia’s net working capital increased by $200,000. Since Maui Macadamia did not yet issue the financial statements for the 2004 year, Picoo had to use the results for the year ended 2003 for her analysis so that she could develop a reasonable basis for her investment in Maui Macadamia. Using the following template, compute and prepare a projected income and cash flow statement for 2004 (using the indirect method) based on the information publicly disclosed by Maui Macadamia and the information from Maui Macadamia’s income statement for 2003. Use the results from the template to answer the questions below: 12/31/2003 12/31/2004 Revenues 10,000,000 Cost of revenues 3,500,000 Gross profit 6,500,000 General expenses 1,200,000 Depreciation 100,000 Inventory adjustment 50,000 Interest expenses 55,000 Pretax income 5,095,000 Income taxes 1,834,000 Net income 3,261,000 Maui Macadamia Corporation is expected to report respective estimated 2004 revenues and gross profits of: Revenues Gross Profits A) $14,400,000 $9,640,000 B) $14,400,000 $4,891,500 C) $10,000,000 $9,640,000 D) $10,000,000 $4,891,500 -------------------------------------------------------------------------------- Maui Macadamia is expected to report respective estimated 2004 cash flow from operations and net income available to common shareholders of: Cash Flow from Operations Net Income Available to Common A) $4,805,250 $4,881,500 B) $4,815,250 $4,881,500 C) $4,815,250 $4,891,500 D) $5,215,250 $4,891,500 -------------------------------------------------------------------------------- If there were no further changes in cash flow for 2004, the expected net change in cash would be: A) $5,805,250. B) $4,802,000. C) $4,785,250. D) $4,805,250. -------------------------------------------------------------------------------- Assuming that Maui Macadamia had a cash balance at the end of December 31, 2003, of $1,000,000, the estimated cash balance at the end of December 31, 2004, would be: A) $4,805,250. B) $5,805,250. C) $4,802,000. D) $4,785,250. -------------------------------------------------------------------------------- Assuming that on January 1, 2005, (one day after the close of the 2004 year), Maui Macadamia does not conduct any business other than retire (pay-off) its debt in entirety, the expected net change in cash would be: A) $3,805,250. B) $3,821,500. C) $3,801,500. D) $3,825,250. -------------------------------------------------------------------------------- Assuming the cash balance at the end of December 31, 2004 was $5,805,250 and Maui Macadamia subsequently redeemed its preferred stock at face value (assuming no accrued dividends to be paid) along with the retirement of its debt, the estimated new cash balance would be: A) $2,801,500. B) $3,805,250. C) $3,701,500. D) $4,701,500.
On December 1st, 2006, Delhirocks Corp. leased office space for 10 years at a monthly rental of $10,000. On that date Delhirocks paid the landlord the following amount Rental Deposit: $10,000 1st Month’s rent: $10,000 Last month’s rent: $10,000 Installation of new walls & cubes: $54,000 Total: $84,000 The entire amount of $84,000 was charged to rent for the fiscal year 2006. What amount should Delhirocks have charged for 2006 A: $10,000 B: $10,450 C: $20,450 D: $55,000
delhirocks – is the answer to your question 10450 – B 10000 Rent + 54000/120 (expense the amount over 120 months) = 450
Thats correct…Answer is B
Maratikus – Judy Picoo Problem Answers: 1. A. 14,400,000 9,640,000 2. C 4,812,250 4,891,500 3. D 4,805,250 4. B 5,805,250 5 C 3,801,500 6. D 4,701,500
Looks like you guys are ploughing through SS7. Good stuff!! I’ll be able to chime in later today. AM is pretty hectic today.
cpk123, your answer to the first problem was correct. i will get back to you on the second one a little later. FSA seems to be very easy for you … how did you study?
one time failure, then studying again now. One thing I have seen though – it requires a lot of practice. And believe me, it is not easy for me.
cpk123, could you explain the cash flow part of the question?
yea…I’m stuck in the C/F part as well… any help on the breakdown would be much appreciated… thanks
maratikus Wrote: ------------------------------------------------------- > cpk123, could you explain the cash flow part of > the question? Actually, for part 2), the answer should be B) $4,815,250 $4,881,500, here is the calculation, CFO = NI + delinquent interest payment + depreciation + drop in inventory - increase in net working capital CFO = 4891500 + 3750 + 100000 + 20000 - 200000 = 4815250 NI to common equity = 4891500 - 10000 = 4881500 I got the same answers for the other parts as cpk123
Thanks, liaaba. That’s exactly what I was looking for …
Thanks – I had a typo while typing up the answer to 2 for the CF part, and had miscalculated the cash to the Common Shareholders. Soln. key 1. New Rev: 10000*1.44=14400 New Cost: 3500*1.36 = 4760 New Gross Profit: 9640 2. NI = 3261 * 1.5 = 4891.5 +Depr 100 - Delta WC (200) Non Cash Inv Write 20 Int exp delinquent 3.75 ----------------------------------- CFO 4815.25 ----------------------------------- NI = 4891.5 Pref Div = 10 ------------------------------- CFO to Common: 4881.5 ------------------------------- 3. Net change in cash: 4815.25 - 10 (Pref Div) = 4805.25 4. Start Cash: 1000 + Delta Cash 4805.25 = 5805.25 5. 4805.25 - 1000 (pay off debt) - 3.75 (Int Exp delinquent) = 3801.5 6. Start Cash = 5805.25 - Pref Stock= 100 - Debt = 1000 ---------------------------- Final Cash = 4701.5 ----------------------------
cpk123 Wrote: ------------------------------------------------------- > Thanks – I had a typo while typing up the answer > to 2 for the CF part, and had miscalculated the > cash to the Common Shareholders. > > Soln. key > 1. New Rev: 10000*1.44=14400 > New Cost: 3500*1.36 = 4760 > New Gross Profit: 9640 > > 2. NI = 3261 * 1.5 = 4891.5 > +Depr 100 > - Delta WC (200) > Non Cash Inv Write 20 > Int exp delinquent 3.75 > ----------------------------------- > CFO 4815.25 > ----------------------------------- > > NI = 4891.5 > Pref Div = 10 > ------------------------------- > CFO to Common: 4881.5 > ------------------------------- > > 3. Net change in cash: 4815.25 - 10 (Pref Div) = > 4805.25 > > 4. Start Cash: 1000 + Delta Cash 4805.25 = > 5805.25 > > 5. 4805.25 - 1000 (pay off debt) - 3.75 (Int Exp > delinquent) = 3801.5 > > 6. Start Cash = 5805.25 > - Pref Stock= 100 > - Debt = 1000 - Int Exp = 3.75 ---------------------------- > Final Cash = 4701.5 > ----------------------------