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DeVry ACCT 504 Final Exam

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(TCO A) Which one of the following is an advantage of corporations relative to partnerships and sole
proprietorships? (Points : 5)
Reduced legal liability for investors
Harder to transfer ownership
Lower taxes
Most common form of organization
2. (TCO A) The Dividends account _____. (Points : 5)

is increased with a debit


is decreased with a credit
is not an expense account
All of the above
3. (TCOs A, B) Below is a partial list of account balances for Kerner Company:

Cash

$10,000

Prepaid insurance

1,000

Accounts receivable

5,000

Accounts payable

4,000

Notes payable

6,000

Common stock

2,000

Dividends

1,000

Revenues

30,000

Expenses

25,000

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


$43,000
41,000
$42,000
$44,000
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 with a cost of $192,000 has an estimated salvage value of $18,000 and an

estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is
the amount of depreciation for the first full year, during which the equipment was used 3,300
hours? (Points : 5)
$48,000
$52,500
$49,500
$43,500

7. (TCOs D, G) Joyce Corporation issues 1,000 ten-year, 8%, $1,000 bonds dated January 1, 2007,
at 102. The journal entry to record the issuance will show a _____. (Points : 5)

debit to Cash of $1,020,000


debit to Discount on Bonds Payable for $20,000
credit to Bonds Payable for $1,020,000
credit to Cash for $1,000,000
8. (TCO C) Accounts receivable arising from sales to customers amounted to $40,000 and $35,000 at

the beginning and end of the year, respectively. Income reported on the income statement for the year
was $110,000. 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)
$110,000
$105,000
$115,000
$150,000
9. (TCO F) If you are comparing the 2010 income statement numbers with the income statement
numbers from 2009 and 2008, you are conducting a _____. (Points : 5)

common-size analysis
horizontal analysis
vertical analysis
ratio analysis
10. (TCO F) Vertical analysis is also known as _____. (Points : 5)

perpendicular analysis
common-size analysis
trend analysis
straight-line analysis
11. (TCO F) Which one of the following is not a characteristic generally evaluated in ratio analysis?
(Points : 5)

Liquidity
Profitability
Marketability of the product

Solvency
12. (TCO F) Short-term creditors are usually most interested in assessing _____. (Points : 5)

solvency
liidity
marketability
profitability
13. (TCO F) Long-term creditors are usually most interested in evaluating _____. (Points : 5)

liquidity
marketability
profitability
solvency
14. (TCO G) The present value of a bond is a function of which factors below? (Points : 5)

The market interest rate


he length of time until the amounts are received
The dollar amounts to be received
All of the above
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

Profit margin
16.1%
Inventory turnover ratio
3.1
Average collection period
59.4 days
Cash debt coverage ratio
.27
Debt to Total assets
46.6%
Required:
1) Please explain the meaning of each of the Pfizer ratios above.
2) Please state which company performed better for each ratio.
A

Pfizer
24.7%
1.7
69.1 days
.16
127.5%

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 companys 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 chooseLIFO,
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)?

. (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
Net (loss) earnings
Depreciation and amortization
Impairment of goodwill and
purchased intangible assets
Stock-based compensation
expense
Provision for doubtful accounts
Provision for inventory
Restructuring charges
Deferred taxes on earnings
Excess tax benefit from stockbased competition
Other, net
Accounts and financing
receivables
Inventory
Accounts payable
Taxes on earnings
Restructuring

In millions
For the year ended 2012
$(12,650)
5,095
18,035

In millions
For the year ended 2011
$7,074
4,984
885

635

685

142
277
2,266
(711)
(12)

81
217
645
166
(163)

265
1,269

(46)
(227)

890
(1,414)
(320)
(840)

(1,252)
275
610
(1,002)

Other assets and liabilities


Net cash provided by
operating activities
Cash flows from investing
activities:
Investment in property, plant,
and equipment
Proceeds from sale of property,
plant, and equipment
Purchases of available-for-sale
securities and other
investments
Maturities and sales of
available-for-sale securities
and other investment
Payments in connection with
business acquisitions, net of
cash acquired
Proceeds from business
divestiture, net
Net cash used in
investing
activities
Cash flow from financing
activities:
(Payments) issuance of
commercial paper and notes
payable, net
Issuance of debt
Payment of debt
Issuance of common stock
under employee stock plans
Repurchase of common stock
Excess tax benefit from stockbased compensation
Cash dividends paid
Net cash used in financing
activities
Increase (decrease) in cash
and cash equivalents
Cash and cash equivalents at
beginning of period
Cash and cash equivalents at
end of period
Required:

(2,356)
10,571

(293)
12,639

(3,706)

(4,539)

617

999

(972)

(96)

662

68

(141)

(10,480)

87

89

(3,453)

(13,959)

(2,775)

(1,270)

5,154
(4,333)
716

11,942
(2,336)
896

(1,619)
12

(10,117)
163

(1,015)
(3,860)

(844)
(1,566)

3,258

(2,886)

8,043

10,929

$11,301

$8,043

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.

(TCO B) The following selected data was retrieved from the Wal-Mart, Inc. financial statements for the
year ending January 31, 2013:
Accounts Payable
Accounts Receivable
Cash
Common Stock
Cost of Goods Sold
Income Tax Expense
Interest Expenses
Membership Revenues
Net Sales
Operating, Selling and Administrative
Expenses
Retained Earnings
Required:

$38,080
6,768
7,781
3,952
352,488
7,981
2,064
3,048
466,114
88,873
72,978

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)

DeVry ACCT 504 Final Exam 1

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