Devry ACCT504 week 8 final exam set 1

1. (TCO A) An advantage of the corporate form of business is
that _____. (Points : 5)

it has limited life
its owner’s personal resources are at stake
its ownership is easily transferable via the sale of shares
of stock
it is simple to establish

2. (TCO A) When a corporation distributes a dividend, _____.
(Points : 5)
the most common form of distribution is a cash dividend
the Dividends account will be increased with a credit
the Retained Earnings account will be directly increased
with a debit
the Dividends account will be decreased with a debit
3. (TCOs A, B) Below is a partial list of account balances
for Denton Company:

Cash $7,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 1,400
Dividends 700
Revenues 21,000
Expenses 17,500

What did Denton Company show as total credits? (Points : 5)

$30,100
$29,400
$28,700
$30,800

4. (TCOs B, E) A small and private company may be able to
justify using a cash basis of accounting if it has _____. (Points : 5)
sales under $1,000,000
no accountants on staff
insignificant receivables and payables
all sales and purchases on account

5. (TCO D) In a period of increasing prices, which inventory
cost flow assumption will result in the lowest amount of income tax expense?
(Points : 5)
FIFO
LIFO
The average cost method
Income tax expense for the period will be the same under all
assumptions.

6. (TCOs A, E) Equipment was purchased for $60,000. Freight
charges amounted to $2,800 and there was a cost of $8,000 for building a
foundation and installing the equipment. It is estimated that the equipment
will have a $12,000 salvage value at the end of its 5-year useful life.
Depreciation expense each year using the straight-line method will be _____.
(Points : 5)
$14,160
$11,760
$9,840
$9,600

7. (TCOs D, G) Lopez Corporation issues 500 ten-year, 8%,
$1,000 bonds dated January 1, 2007, at 96. The journal entry to record the
issuance will show a _____. (Points : 5)
debit to Cash of $500,000
credit to Discount on Bonds Payable for $20,000
credit to Bonds Payable for $480,000
debit to Cash for $480,000

8. (TCO C) Accounts receivable arising from sales to customers
amounted to $35,000 and $40,000 at the beginning and end of the year,
respectively. Income reported on the income statement for the year was
$120,000. Exclusive of the effect of other adjustments, the cash flows from
operating activities to be reported on the statement of cash flows is _____.
(Points : 5)
$120,000
$125,000
$155,000
$115,000

9. (TCO F) Which one of the following is not a tool in
financial statement analysis? (Points : 5)
Horizontal analysis
Circular analysis
Vertical analysis
Ratio analysis

10. (TCO F) In vertical analysis, the base amount for
studying salary and wages expense is generally _____. (Points : 5)
net sales
salary and wages expense in a previous year
gross profit
net income
11. (TCO F) Ratios are most useful in identifying _____.
(Points : 5)
trends
differences
causes
relationships among different numbers

12. (TCO F) A common measure of liquidity is _____. (Points
: 5)
return on assets
current ratio
profit margin
debt to equity
13. (TCO F) Return-on-assets ratio is most closely related
to _____. (Points : 5)
profit margin and debt-to-total-assets ratio
profit margin and asset-turnover ratio
times interest earned and debt-to-stockholders equity ratio
profit margin and free cash flow

14. (TCO G) To calculate the market value of a bond, we need
to _____. (Points : 5)
find out the present value of all of the future cash
payments promised by the bond
calculate the present value of the principal only
calculate the present value of the interest only
multiply the bond price by the interest rate

1. (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;
Current Ratio, Days in Inventory, Average Collection Period, Return on Assets
Ratio, Debt to Total Assets and Return on common stockholders’ equity ratio.
(Make sure to show all your work)

(Points : 36)

2. (TCO B) The following selected data was retrieved from
the Wal-Mart, 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 Expenses

2,064

Membership Revenues

3,048

Net Sales

466,114

Operating, Selling and Administrative Expenses

88,873

Retained Earnings

72,978

Required:

Using the information provided above:
1. 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/results.

(Points : 36)

3. (TCO C) Please review the following real-world Hewlett
Packard Statement of Cash flows and address the 2 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 operating, investing, and financing sections 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.

(Points : 36)

4. (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:
a. Goforit carries significant electronics inventory in a
competitive environment where prices are actually falling. Which inventory
valuation method would you choose—LIFO, FIFO, or average cost? Assume that unit
purchases exceed unit sales.

b. 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)?

(Points : 36)

5. (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.

(Points : 36)