Devry ACCT504 week 8 final exam set 5 20 mcq and problems

Multiple Choice – (2 points each) select the ONE best answer

1. Under the
definition of accounting, which of the following is not one of the activities
performed on the transactions of a business entity?
A. Summarizing.
B. Interpreting.
C. Classifying.
D. Forecasting.

2. Which of
the following is a measure of solvency?
A. Current
ratio
B. Price
earnings ratio
C. Earnings
per share
D. Debt to
total assets ratio

3. Working
capital is
A. Available
to meet the growth needs and non-current obligations of a company.
B. Nearly
always the same as net income.
C. used to
evaluate a company’s solvency and long-term debt paying ability.
D. calculated
by subtracting current assets from current liabilities.

4. Which of
the following is not an example of conservatism in accounting?
A. Expensing
tires when purchased even though they last two years.
B. Recording
gains in market value of short term investments.
C. Recording
depreciation on equipment during its useful life rather than waiting to record
the loss at the time it is sold.
D. Estimating
and recording the estimated expense of defending a lawsuit when it is filed.

5. A
corporation has which of the following set of characteristics?
A. Shared control, tax advantages, increased management
skills and resources
B. Simple to
set up and maintains control with founder
C. Easier to
transfer ownership and raise funds, no personal liability
D. Harder to
raise funds and gives owner control

6. Retained
earnings is the amount of
A. cash that
stockholders may withdraw as dividends when needed
B. cash left
over after all liabilities for the period have been satisfied.
C. cash
invested by the owners of the business
D. earnings
reinvested in the business which the board of directors has not paid out as
dividends

7. The
statement of cash flows would disclose the payment of a dividend
A. nowhere
on the statement.
B. in the
operating activities section.
C. in the
investing activities section.
D. in the
financing activities section.
8. Which of
the following financial statements usually prepared first?
A. Balance
sheet.
B. Income
statement.
C. Retained
Earnings statement.
D. Statement
of cash flows.

9. Which of
the following is a cash flow from investing activities?
A. Purchase
of merchandise for resale.
B. Sale of
inventory to customers.
C. Sale of a
franchise or a copyright.
D. Payment
of a note payable.

10. On the
Statement of Cash Flows paying a dividend to owners is an example of
A. operating
activities.
B. investing
activities.
C. financing
activities.
D. shareholder
activities.

11. The price
earnings ratio is unique among financial ratios because
A. The lower
the ratio, the better the performance of a company
B. It is an
indication of expectations rather than historical financial statement
information
C. It is
required to be shown on the face of the income statement of a public company
D. It is an
outstanding indicator of liquidity

12. Which of
the following is a transaction which should be recorded in an accounting
system?
A. Signing a
contract to purchase a parcel of land
B. Termination
of an employee without pay
C. Pledging
to give 10% of your Company’s annual income to a charity
D. Receiving
cash of $5,000 for services to be performed in the future.

13. If total
assets increased by $25000 during a period of time and stockholders’ equity
increased by $5000 during the same period, then the amount and direction
(increase or decrease) of the period’s change in total liabilities is a(n):
A. $20,000
decrease
B. $20,000
increase
C. $25,000
increase
D. $30,000
increase

14. Which of
the following components of an financial statement is an application of the
full disclosure principle which clarifies information presented in the financial
statements, as well as provides additional detail:
A. Auditor’s
report.
B. Notes to
financial statements
C. Management
discussion and analysis section.
D. President’s
state of the company report.

15. In the
annual report, where would a financial statement reader find out if the
company’s financial statements give a
fair depiction of its financial position and operating results?
A. Notes to
the financial statements.
B. Management
discussion and analysis section.
C. Balance
sheet.
D. Auditor’s
report.

16. The going
concern assumption underlies the
A. Monetary
unit assumption
B. The cost
principle
C. The
materiality constraint
D. Time
period assumption

17. A good accountant must have integrity, follow the rules,
have basic math skills, and objectively document reality. These characteristics are most like those of
A A
scorekeeper in a football game
B A
politician in Washington
C A lawyer
in a courtroom
D A
construction worker after the hurricane

18. On a balance sheet, assets are listed in the order of
A. Dollar amount (largest first).
B. Date of acquisition (earliest
first).
C. Ease of conversion to cash.
D. Importance to the operation of the
business.

19. Primary responsibility for the information in a
corporation’s financial statements rests with
A. The shareholders of the corporation.

B. The managers of the corporation.
C. The Securities and Exchange
Commission.
D. The certified public accountant who
audited the financial statements.

20. A business’s balance sheet cannot be used to accurately
predict what the business might be sold for because
A. it
identifies all the revenues and expenses of the business.
B. Assets
are generally listed on the balance sheet at their historical cost, not their
current value.
C. it gives
the results of operations for the current period.
D. some of
the assets and liabilities on the balance sheet may actually be those of
another entity.

Problem I – Financial Statements (30 points)

You are provided with the following information for Number
Crunchers, Inc, effective as of its December 31, 2004 year end.

Accrued
income taxes $ 135
Accounts payable 553
Accounts receivable 810
Accumulated depreciation 1,460
Cash 570
Common stock (900 shares) 900
Cost of goods sold 20,820
Current portion of long-term debt 640
Depreciation expense 435
Dividends paid during the year 225
Equipment 5,060
Income tax expense 105
Industrial development bonds 6,000
Interest expense 400
Inventories 2,052
Land 15,400
Land Held for future expansion 9,240
Long term lease obligation 800
Pension expense 81
Prepaid expenses 12
Retained earnings, beginning 1,400
Sales 46,000
Supplies 150
Short term investments 1,800
Trademark 210
Unearned Revenue 400
Wages expense 1,140
Wages payable 222

Instructions:

a) Prepare
an income statement and a retained earnings statement for Number Crunchers, Inc
for the year ended December 31, 2004.
b) Prepare a
classified balance sheet for Number Crunchers, Inc. as of December 31, 2004.

Problem II (20 points)

The following information is available from the 2004 annual
reports of Price Company and Stockton Company. .Both companies manufacture cash
registers
(Amounts
in millions)
Price Stockton
Sales $26,510 $34,512
Cost of
sales 6,610 8,887
Net
income 565 1,271
Current
assets 11,712 28,447
Beginning
total assets 17,102 33,130
Ending
total assets 22,088 36,167
Current
liabilities 7,966 14,950
Total
liabilities 16,136 31,222
Average
common shares outstanding 125 240
Year-end
share price 50 65
Preferred
stock dividends paid -0- -0-

The following are the averages for the cash register
industry

1. Current ratio (Industry 2.00:1) CA/CL 11712/7966= 28447/14950=
2. Debt to total assets ratio Debt/Total Amt 16136/22088 = .73 31222/36167 = 86%
(Industry
average 60%)
3. Earnings per share (average $3.00) EPS=Net income/number of shares
4. Price-earnings ratio (average 15) 50/4.52=11 65/530=12 565/125=4.52 1271/240=5.30

Required:

1. Based on
the above information, evaluate Price’s solvency compared to Stockton. Defend your answer by calculating the most
relevant ratio for both companies and comparing it to the industry
average.

Short Answer – Question III
(10 points)

Under accounting principles generally accepted in the United
States of America, research and development costs to come up with new
inventions, technology or creative works are recorded as an expense when
incurred. Several international students
visiting your campus comment that such costs are recorded as assets and
depreciated over 5 to 10 years in their country. Indicate whether you agree with the United
States accounting principle and select one of the following principles,
assumptions or constraints to concisely defend your answer (cost, materiality,
relevance, consistency, comparability, conservatism, and going concern) .