FIN3702
WORKING CAPITAL MANAGEMENT
NOTES, QUESTIONS AND ANSWERS
FOR FURTHER CLARIFICATION PLEASE
EMAIL
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Answer all the questions in both section A and B
SHOW ALL CALCULATIONS
Section A. (Multiple Choice Questions)
Choose the correct alternative from the following questions, please write only the letter of
the correct alternative in each question.
1. ________ statements are projected financial statements.
A) Pro forma
B) Income
C) Cash
D) Balance sheet
Answer A. REVISIT Topic: Proforma financial statements (profit – planning)
2. The key inputs for preparing pro forma income statements using the simplified
approaches are the
A) sales forecast for the preceding year and financial statements for the coming
year.
B) sales forecast for the coming year and the cash budget for the preceding year.
C) sales forecast for the coming year and financial statements for the preceding
year.
D) cash budget for the coming year and sales forecast for the preceding year.
Answer C. REVISIT Topic: Proforma statement of comprehensive income
3. Under the judgmental approach for developing a pro forma balance sheet, the "plug"
figure required to bring the statement into balance may be called the
A) cash balance.
B) retained earnings.
C) external financing required.
D) accounts receivable.
Answer C. REVISIT Topic: Pro Forma statement of financial position
4. The ________ method of developing a pro forma income statement forecasts sales and
values for the cost of goods sold, operating expenses, and interest expense that are
expressed as a ratio of projected sales.
A) percent-of-sales
B) accrual
C) judgmental
D) cash
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Answer A. REVISIT Topic: Proforma statement of comprehensive income
5. The primary purpose in preparing pro forma financial statements is
A) for cash planning.
B) to ensure the ability to pay dividends.
C) for risk analysis.
D) for profit planning.
Answer D. REVISIT Topic: Proforma financial statements (profit – planning)
Questions 6 to 9 are based on the information provided below (calculations SEE
annexure 1 below)
The financial analyst for Dzivha Inc. has compiled sales and disbursement estimates for
the coming months of January through May. Historically, 75 percent of sales are for cash
with the remaining 25 percent collected in the following month. The ending cash balance
in January is R3, 000. Prepare a cash budget for the months of February through May to
answer the following multiple choice questions.
Table 1
Month Dzivha Inc. sales Disbursements
January R 5,000 R 6,000
February R 6,000 R 7,000
March R 10,000 R 4,000
April R 10,000 R 5,000
May R 10,000 R 5,000
6. The total cash receipts for April are (See Table 1)
A) R5,000.
B) R7,500.
C) R9,250.
D) R10,000.
Answer D. REVISIT Topic: Cash budget – Cash planning
7. The net cash flow for February is (See Table 1)
A) -R1,250.
B) -R1,000.
C) R5,750.
D) R750.
Answer A. REVISIT Topic: Cash budget – Cash planning
, lOMoARcPSD|48928813
8. The ending cash balance for March is (See Table 1)
A) R 250.
B) R6,750.
C) R2,500.
D) R 500.
Answer B. REVISIT Topic: Cash budget – Cash planning
9. The firm has a negative net cash flow in the month(s) of (See Table 1)
A) January, February, and March.
B) February and March.
C) January and February.
D) February.
Answer D. REVISIT Topic: Cash budget – Cash planning
10. A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure
in a preliminary statement called the external financing required of R230, 000. The firm
should prepare to
A) repurchase common stock totalling R230,000.
B) arrange for a loan of R230,000.
C) do nothing; the balance sheet balances.
D) invest in marketable securities totaling R230,000.
Answer B REVISIT Topic: Pro Forma statement of financial position
WORKING CAPITAL MANAGEMENT
NOTES, QUESTIONS AND ANSWERS
FOR FURTHER CLARIFICATION PLEASE
, lOMoARcPSD|48928813
Answer all the questions in both section A and B
SHOW ALL CALCULATIONS
Section A. (Multiple Choice Questions)
Choose the correct alternative from the following questions, please write only the letter of
the correct alternative in each question.
1. ________ statements are projected financial statements.
A) Pro forma
B) Income
C) Cash
D) Balance sheet
Answer A. REVISIT Topic: Proforma financial statements (profit – planning)
2. The key inputs for preparing pro forma income statements using the simplified
approaches are the
A) sales forecast for the preceding year and financial statements for the coming
year.
B) sales forecast for the coming year and the cash budget for the preceding year.
C) sales forecast for the coming year and financial statements for the preceding
year.
D) cash budget for the coming year and sales forecast for the preceding year.
Answer C. REVISIT Topic: Proforma statement of comprehensive income
3. Under the judgmental approach for developing a pro forma balance sheet, the "plug"
figure required to bring the statement into balance may be called the
A) cash balance.
B) retained earnings.
C) external financing required.
D) accounts receivable.
Answer C. REVISIT Topic: Pro Forma statement of financial position
4. The ________ method of developing a pro forma income statement forecasts sales and
values for the cost of goods sold, operating expenses, and interest expense that are
expressed as a ratio of projected sales.
A) percent-of-sales
B) accrual
C) judgmental
D) cash
, lOMoARcPSD|48928813
Answer A. REVISIT Topic: Proforma statement of comprehensive income
5. The primary purpose in preparing pro forma financial statements is
A) for cash planning.
B) to ensure the ability to pay dividends.
C) for risk analysis.
D) for profit planning.
Answer D. REVISIT Topic: Proforma financial statements (profit – planning)
Questions 6 to 9 are based on the information provided below (calculations SEE
annexure 1 below)
The financial analyst for Dzivha Inc. has compiled sales and disbursement estimates for
the coming months of January through May. Historically, 75 percent of sales are for cash
with the remaining 25 percent collected in the following month. The ending cash balance
in January is R3, 000. Prepare a cash budget for the months of February through May to
answer the following multiple choice questions.
Table 1
Month Dzivha Inc. sales Disbursements
January R 5,000 R 6,000
February R 6,000 R 7,000
March R 10,000 R 4,000
April R 10,000 R 5,000
May R 10,000 R 5,000
6. The total cash receipts for April are (See Table 1)
A) R5,000.
B) R7,500.
C) R9,250.
D) R10,000.
Answer D. REVISIT Topic: Cash budget – Cash planning
7. The net cash flow for February is (See Table 1)
A) -R1,250.
B) -R1,000.
C) R5,750.
D) R750.
Answer A. REVISIT Topic: Cash budget – Cash planning
, lOMoARcPSD|48928813
8. The ending cash balance for March is (See Table 1)
A) R 250.
B) R6,750.
C) R2,500.
D) R 500.
Answer B. REVISIT Topic: Cash budget – Cash planning
9. The firm has a negative net cash flow in the month(s) of (See Table 1)
A) January, February, and March.
B) February and March.
C) January and February.
D) February.
Answer D. REVISIT Topic: Cash budget – Cash planning
10. A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure
in a preliminary statement called the external financing required of R230, 000. The firm
should prepare to
A) repurchase common stock totalling R230,000.
B) arrange for a loan of R230,000.
C) do nothing; the balance sheet balances.
D) invest in marketable securities totaling R230,000.
Answer B REVISIT Topic: Pro Forma statement of financial position
