Devry ACCT504 week 8 final exam set 4

1. (TCO A) Which of
the following is an advantage of the sole proprietorship relative to the
corporate form of business organization? (Points : 5)
Limited liability of investor
Transferability of ownership
Simple to establish
Unlimited life

2. (TCO A) Dividends
_____. (Points : 5)
represent an expense and are an operating
activity
represent an obligation and are an
operating activity
represent a distribution of earnings
and are a financing activity
represent an asset and are an investing
activity

3. (TCOs A, B) Below
is a partial list of account balances for LBJ Company:

Cash $15,000
Prepaid
insurance 5,000
Accounts
receivable 2,500
Accounts payable 3,000
Notes payable 6,000
Common stock 10,000
Dividends 500
Revenues 15,000
Expenses 13,000

What did LBJ Company
show as total debits?
(Points : 5)
$34,000
$36,000
$70,000
$31,000

4. (TCOs B, E) Why is
the accrual basis of accounting preferred by GAAP? (Points : 5)
The Accrual basis is easier to use.
The Accrual basis is also preferred by
the Internal Revenue Service.
The Accrual basis complies with the
revenue recognition and matching principles.
The Accrual basis requires fewer
accounting resources.

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

6. (TCOs A, E)
Equipment was purchased for $75,000 on January 1, 2011. Freight charges of
$3,200 were incurred and there was a cost of $6,000 for installation. It is
estimated the equipment will have a $12,000 salvage value at the end of its
5-year useful life. Depreciation expense for 2011 using the straight-line
method will be _____. (Points : 5)
$13,800
$14,440
$12,600
$13,240

7. (TCO D,G) Payne
Corporation issues 100 twenty-year, 6%, $1,000 bonds dated July 1, 2010, at 94.
The journal entry to record the issuance will show a _____. (Points : 5)
debit to Cash of $100,000
credit to Bonds Payable of $94,000
credit to Premium on Bonds Payable of
$4,000
debit to Discount on Bonds Payable of
$6,000

8. (TCO C) Accounts
receivable arising from sales to customers amounted to $80,000 and $100,000 at
the beginning and end of the year, respectively. Income reported on the income
statement for the year was $1,000,000. 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)
$20,000
$1,020,000
$1,000,000
$980,000

9. (TCO F) If you are
making comparisons within a company to detect changes in financial
relationships and significant trends, you are performing what type of analysis?
(Points : 5)
Industry averages analysis
Intercompany analysis
Common-size analysis
Intracompany analysis

10. (TCO F) The
formula for performing horizontal analysis is _____. (Points : 5)
(Current Year Amount minus Base Year
Amount) divided by Current Year Amount
Base Year Amount divided by Current
Year Amount
Current Year Amount minus Base Year
Amount
(Current Year Amount minus Base Year
Amount) divided by Base Year Amount

11. (TCO F)
Horizontal analysis is a technique for evaluating a series of financial
statement data over a period of time _____.(Points : 5)
that has been arranged from the highest
number to the lowest number
that has been arranged from the lowest
number to the highest number
to determine which numbers are in error
to determine the amount and/or
percentage increase or decrease that has taken place

12. (TCO F) A common
measure of liquidity is _____. (Points : 5)
debt-to-total-assets ratio
cash debt coverage
free cash flow
working capital

13. (TCO F)
Short-term creditors would be most interested in which of the following ratios?
(Points : 5)
Average collection period
Times interest earned
Cash debt coverage
Free cash flow

14. (TCO G) To
calculate the market value of a bond, we need to _____. (Points : 5)
multiply the bond price times the
interest rate
calculate the present value of the
principal only
calculate the present value of the
interest only
calculate the present value of both the
principal and

1. (TCO A) Use the
following partial financial statement information below to calculate the
liquidity and profitability ratios. This information can be used to correctly
solve each of the ratios below.

Average common shares
outstanding 35,000 Current liabilities $25,000
Capital
expenditures
$20,000 Net income $50,000
Cash provided by
operations $77,000 Net sales $100,000
Preferred stock
dividends paid
$30,000 Total liabilities $50,000
Current assets
$20,000 Total assets $80,000

Instructions: Compute
the following.
a) Current ratio
b) Working capital
c) Earnings per share
d)
Debt-to-total-assets ratio
e) Free cash flow

To earn full credit,
you must show the formula you are using, show your computations, and explain
the meaning of each of your ratio results. (Points : 30)

2. (TCO D) The Oxford
Company has budgeted sales revenues as follows.

Oct Nov Dec
Credit sales $120,000 $96,000 $72,000
Cash sales 72,000 204,000 156,000
Total sales 192,000 300,000 228,000

Past experience
indicates that 60% of the credit sales will be collected in the month of sale
and the remaining 40% will be collected in the following month. Purchases of
inventory are all on credit, with 60% paid in the month of purchase and 40% in
the month following purchase. Budgeted inventory purchases are $260,000 in
October, $180,000 in November, and $84,000 in December.

Other budgeted cash
receipts include (a) the sale of plant assets for $49,400 in November and (b)
the sale of new common stock for $67,400 in December. Other budgeted cash
disbursements include (a) operating expenses of $27,000 each month, (b) selling
and administrative expenses of $50,000 each month, (c) dividends of $76,000 to
be paid in November, and (d) purchase of equipment for $24,000 cash in
December.

The company has a
cash balance of $40,000 at the beginning of December and wishes to maintain a
minimum cash balance of $40,000 at the end of each month. An open line of
credit is available at the bank and carries an annual interest rate of 12%.
Assume that all borrowing is done on the first day of the month in which
financing is needed and that all repayments are made on the last day of the
month in which excess cash is available. Also assume that $14,000 of financing
was obtained on November 1.

Requirements: Use
this information to prepare a schedule of expected cash payments for purchases
of inventory for the months of November and December only.

This question does
not require creation of an entire cash budget so please only create the
schedule that is asked for in the question because otherwise you will be
wasting valuable time.

(Points : 30)

3. (TCOs B, E) The
following items are taken from the financial statements of Lansing Company for
2010.

Accounts payable $16,500
Accounts
receivable 25,500
Accumulated
depreciation 12,600
Bonds payable 35,000
Cash
55,000
Common stock 75,000
Cost of goods
sold 53,000
Depreciation
expense 6,300
Dividends 5,300
Equipment 35,000
Interest expense 4,300
Patents
6,500
Retained earnings,
January 1 80,000
Salaries expense 42,000
Sales revenue 115,000
Supplies 3,500

Instructions: Prepare
an income statement and a retained earnings statement for Lansing Company.
(Points : 30)

4. (TCO D) Your
friend James has hired you to evaluate the following internal control procedures.

a) Explain to your
friend whether each of the numbered items below is an internal control strength
or weakness. You must also state which principle relates to each of the
internal controls.
b) For the
weaknesses, you also need to state a recommendation for improvement.

Everyone has access
to the petty cash fund.
Cash register codes
are assigned to each cashier.
The treasurer is the
only one allowed to sign checks.
Supervisors count
cash receipts daily.
The treasurer
approves of the purchases and makes the payment because he is familiar with the
purchases.
(Points : 30)

5. (TCOs D, E) Please
prepare the following journal entries. Indicate which account should be debited
with the abbreviation DR in front of the account name and which account should
be credited with the abbreviation CR in front of the account name along with
the dollar amount of the debit and credit.

a) Investors invested
$150,000 in exchange for 10,000 shares of common stock.
b) Company made
payment on account for $10,000
c) Company received
$15,000 for services not yet performed
d) Company purchased
$7,500 worth of equipment
e) Company billed
$5,000 for services performed (Points : 30)

6. (TCO C) Please
indicate which section of the statement of cash flows should contain each of
the following items and whether each item would result in an inflow or outflow
of cash. The sections are Operating, Investing, and Financing.

a) Depreciation of
equipment
b) Increase in
accounts payable
c) Sold a building at
book value
d) Payment of
dividends
e) Increase in
inventory (Points : 30)