ACCT 504 Final Exam – (TCO A) An advantage of the corporate form of business

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)


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)

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)



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)


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)

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:

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)

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


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.

3. (TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the 2 questions below:


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.

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.


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)?

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.


2) Please state which company performed better for each ratio.

Here’s the SOLUTION

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