ACCT 504 WEEK 8 FINAL EXAM

Question 1.      Question :        (TCO A) A corporation has which of the following advantages?

                          Reduced taxes

                          Simple to set up

                          Limited liability for stockholders

                          Owner maintains control

Question 2.      Question :        (TCO A) Dividends flow through which one of the following statements?

                          The Balance Sheet

                          The Statement of Retained Earnings

                          The Income Statement

                          None of the above

Question 3.      Question :        (TCO A, B)

Below are some of the account balances for PNK Company:

Cash    $7,000

Accounts Receivable  $12,000

Prepaid Insurance       $2,000

Accounts Payable       $4,000

Wages Payable            $1,500

Notes Payable $500

Common Stock           $50,000

Dividends       $2,500

Revenues         $35,000

Expenses         $25,000

What will PNK Company show for total debits?

                          $48,500

                          $46,500

                          $21,000

                          $23,500

Question 4.      Question :        (TCOs B and E) Biggs service company uses accrual accounting, revenue should be recorded and reported when

                          Biggs receives cash from the customer after the services are performed

                          Biggs receives cash from the customer before the services are performed

                          when Biggs performs the services without regard to when cash is received

                          when Biggs receives cash without regard to when the services are performed

Question 5.      Question :        (TCO D) Two different companies utilize a different inventory costing method. If the price of goods has decreased during the period, then the company using _____.

                          LIFO will have the highest cost of goods sold

                          average cost will have the highest cost of goods sold

                          FIFO will have the highest ending inventory

                          LIFO will have the highest ending inventory

Question 6.      Question :        (TCO A) ABC Company purchased a piece of land with a preexisting building on it for a price of $250,000. In order to prepare the land for future construction, the old building was demolished at a cost of $15,000. The amount of scrap material that resulted from the demolition was sold for $2,000. As a result of the above purchase, the land and the building will be recorded in ABC’s books at

                          $200,000 and $50,000, respectively

                          $250,000 and $15,000, respectively

                          $263,000 and $0, respectively

                          $250,000 and $13,000, respectively

Question 7.      Question :        (TCOs D and G) When the market rate of interest exceeds the stated rate of interest on the bond, the bond will require _____.

                          a debit to Discount on Bonds Payable

                          a credit to Premium on Bonds Payable

                          a debit to Loss on Bonds Payable

                          a credit to Gain on Bonds Payable

Question 8.      Question :        (TCO C) Accounts receivable arising from sales to customers amounted to $50,000 and $45,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $150,000. Based on these transactions, the cash flows from operating activities to be reported on the statement of cash flows would be _____.

                          $195,000

                          $145,000

                          $115,000

                          $155,000

Question 9.      Question :        (TCO F) A company has Preferred stock, 8%, $10 par, 30,000 shares authorized and issued. The balance in the Preferred Stock account is $300,000. This means that:

                          Preferred stockholders receive dividends before the common stockholders.

                          Dividends on preferred stock are always paid even if the board of directors does not declare the dividend.

                          Preferred stock provides voting rights.

                          All corporations issue preferred stock.

Question 10.    Question :        (TCO F) Vertical analysis is also known as _____.

                          ratio analysis

                          linear analysis

                          common-size analysis

                          linear analysis

Question 11.    Question :        (TCO F) Which one of the following is typically analyzed via financial statement ratio analysis?

                          The design of a new product

                          The internal control failure rate

                          The leverage of the firm

                          The effectiveness of a marketing campaign

Question 12.    Question :        (TCO F) A common ratio to measure profitability is the _____.

                          quick ratio

                          inventory turnover

                          days’ sales in receivables

                          asset turnover

Question 13.    Question :        (TCO F) DuPont analysis measures which of the following?

                          Liquidity

                          Leverage

                          Turnover

                          Profitability

Question 14.    Question :        (TCO G) To calculate the market value of a bond, we need to use the time-value-of-money concept called _____.

                          interpolation

                          future value

                          compounding

                          discounting

 1.        Question :        (TCO A) Below you will find selected information (in millions) from Coca-Cola Co.’s 2012 Annual Report.

Income Taxes Payable            $471

Short-term Investments and Marketable Securities    8,109

Cash    8,442

Other non-current Liabilities   10,449

Common Stock           1,760

Receivables     4,812

Other Current Assets  2,973

Long-term Investments           10,448

Other Non-current Assets       3,585

Property, Plant and Equipment           23,486

Trademarks     6,527

Other Intangible Assets          20,810

Allowance for Doubtful Accounts     53

Accumulated Depreciation     9,010

Accounts Payable       8,680

Short Term Notes Payable      17,874

Prepaid Expenses        2,781

Other Current Liabilities         796

Long-Term Liabilities             14,736

Paid-in-Capital in Excess of Par Value           11,379

Retained Earnings       55,038

Inventories      3,264

Treasury Stock            35,009

 Other information taken from the Annual Report.

Sales Revenue for 2012          $48,017

Cost of Goods Sold for 2012 19,053

Net Income for 2012    9,019

Inventory Balance on 12/31/11             3,092

Net Accounts Receivable Balance on 12/31/11            4,920

Total Assets on 12/31/11        79,974

Equity Balance on 12/31/11    31,921

Required: 1:  Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also, separate the current liabilities from the non-current liabilities and provide a total for each.

2:  Using the Balance Sheet from your answer above, calculate the Current Ratio and Return on common stockholders’ equity.

Question 2.      Question :        (TCO B) The following selected data was retrieved from the Walmart, Inc. financial statements for the year ending January 31, 2013.

Accounts Payable       $38,080

Accounts Receivable  6,768

Cash    7,781

Common Stock           3,952

Cost of Goods Sold    352,488

Income Tax Expense   7,981

Interest Expense         2,064

Membership Revenues            3,048

Net Sales         466,114

Operating, Selling and Administrative Expenses       88,873

Retained Earnings       72,978

Required: 1: Using the information provided above, prepare a multiple-step income statement.

2: Calculate the Profit Margin, and Gross profit rate for the company. Be sure to provide the formula you are using, show your calculations, and discuss your findings and results.

Question 3.      Question :        45. (TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the two questions below.

Cash flow from operating activities    In millions       In millions

            For the year ended 2012         For the year ended 2011

Net (loss) earnings      $(12,650)         $7,074

Depreciation and amortization            5,095   4,984

Impairment of goodwill and purchased intangible assets       18,035 885

Stock-based compensation expense    635      685

Provision for doubtful accounts         142      81

Provision for inventory           277      217

Restructuring charges 2,266   645

Deferred taxes on earnings     (711)    166

Excess tax benefit from stock-based competition      (12)      (163)

Other, net        265      (46)

Accounts and financing receivables   1,269   (227)

Inventory        890      (1,252)

Accounts payable        (1,414) 275

Taxes on earnings        (320)    610

Restructuring  (840)    (1,002)

Other assets and liabilities      (2,356) (293)

Net cash provided by operating activities      10,571 12,639

Cash flows from investing activities:              

Investment in property, plant, and equipment            (3,706) (4,539)

Proceeds from sale of property, plant, and equipment           617      999

Purchases of available-for-sale securities and other investments        (972)    (96)

Maturities and sales of available-for-sale securities and other investment     662      68

Payments in connection with business acquisitions, net of cash acquired      (141)    (10,480)

Proceeds from business divestiture, net          87        89

Net cash used in investing activities   (3,453) (13,959)

Cash flow from financing activities:               

(Payments) issuance of commercial paper and notes payable, net      (2,775) (1,270)

Issuance of debt          5,154   11,942

Payment of debt         (4,333) (2,336)

Issuance of common stock under employee stock plans        716      896

Repurchase of common stock (1,619) (10,117)

Excess tax benefit from stock-based compensation   12        163

Cash dividends paid   (1,015) (844)

Net cash used in financing activities  (3,860) (1,566)

Increase (decrease) in cash and cash equivalents        3,258   (2,886)

Cash and cash equivalents at beginning of period      8,043   10,929

Cash and cash equivalents at end of period   $11,301           $8,043

Required: 1: Please calculate the percentage increase or decrease in cash for the total line of the operating, investing, and financing sections bolded above and explain the major reasons for the increase or decrease for each of these sections. 2: Please calculate the free cash flow for 2012 and explain the meaning of this ratio.

Question 4.      Question :        (TCO D) You are CFO of Goforit, Inc., a wholesale distribution company specializing in emerging technologies. Your CEO is a brilliant marketer, but relies on you to explain issues and choices in accounting and finance. She has heard from other members of a CEO organization to which she belongs that a company’s net income can vary widely depending on which accounting choices are made from the “GAAP menu.”  

Assuming the goal is to maximize net income, choose an accounting treatment from each of the following scenarios, and explain to your CEO why the choice will produce the desired effect on reported net income for the current year. Include in your answer the effect of the choice on both the income statement and balance sheet. 

Required: 1: Goforit carries significant electronics inventory in a competitive environment in which prices are actually falling. Which inventory valuation method would you choose—LIFO, FIFO, or average cost? Assume that unit purchases exceed unit sales.

2: Goforit has a large investment in warehouse equipment, including conveyor belts, forklifts, and automated packaging systems. Which depreciation method would you choose: straight line (SL) or double declining balance (DDB)?

 Question 5.     Question :        (TCO F) Please review the following real-world ratios for Johnson & Johnson and Pfizer for the year ended 2012 and address the 2 questions below.

Ratio Name     Johnson & Johnson     Pfizer               

Profit margin   16.1%  24.7%

Inventory turnover ratio          3.1       1.7

Average collection period       59.4 days         69.1 days

Cash debt coverage ratio        .27       .16

Debt to Total assets    46.6%  127.5%

Required: 1: Please explain the meaning of each of the Pfizer ratios above. 2: Please state which company performed better for each ratio.

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