1 FINANCIAL DATA AND DECISION MAKING TEST STUDENT NAME: ………………………………… I.D: ………………………………………………….. Time Allowed: 60 Minutes Total Marks: 20 One question to be completed. 3 parts. Answer questions in the space provided.2 Question The Riverlea Company profit and loss statement for 19X1 appears below: RIVERLEA COMPANY Profit and Loss Statement for the Year Ended 31 December 19X1 $000 Sales 160,000 Cost of goods sold (96,000) Gross Profit on Sales 64,000 Operating Expenses: Rent Expense 20,000 Depreciation Expense 15,000 Other Operating Expense 18,000 Total Operating Expense (53,000) Net Income 11,000 The following information from Riverlea Company’s balance sheet is available. Balance Balance Account Title January 1 December 31 $ $ Accounts Receivable 10,000 12,000 Inventory 3,000 10,000 Prepaid Rent 5,000 8,000 Accounts Payable 26,000 28,0003 REQUIRED: (a) Determine the cash flow from operating activities for Riverlea. Prepare an appropriately classified statement. (6 marks) (b) The sales level for the year ended Dec 19X1 was similar to the previous year. What questions would you ask before deriving a financial plan for cash flow from operations for next year and what changes would lead to an improved cash flow? (8 marks) (c) The completed balance sheet as at Jan 1 19X1 and Dec 31 19X1 showed a fixed asset level of $100,000 and $85000, thereby creating total assets of $118000and $115000respectively for each year. The other operating expenses included an interest expense of $5,000. (i) What is the return on assets (based on average assets for the entity for the year ended Dec 31 19X1. (ii) Calculate the profit margin and the total asset turnover ratio for the year ended Dec 31 19X1 (iii) What strategies may be investigated to improve the return on total assets next period. (6 marks)4 REQUIREMENT (a) Cash Flow From Operations5 REQUIREMENT (b) Cash Flow Theory Answer6 REQUIREMENT (c) Analysis (Ratio) Question