Final Review

2.

MC

1.

(TCO A) An advantage of the corporate form

of business is _____.
Instructor Explanation: Chapter 1

Question 3.

MC

1.

(TCO A) A disadvantage of the

corporate form of business is _____.

Instructor Explanation: Chapter 1

Question 4.

MC

1.

(TCO A) A corporation has which of

the following advantages?

Question 5.

MC

1.

(TCO A) When deciding what form

business to create, an advantage of
selecting the corporate form of
business is____________.

Instructor
Explanation:

Question 8.

MC

2.

Place answer
reference here
(ex: Textbook
chapter 1 page
6) 01/2015

(TCO A) Dividends flow through

Final Review

which one of the following

statements?
Points :

The Balance
Sheet
The Statement
of Retained
Earnings
The Income
Statement
None of the
above

CORRECT
ANSWER

Instructor
Explanation:
Edit
Question 9.

MC

2.

Chapter
10

Delete

(TCO A) Which one of the following

statements is correct with regard to
dividends?
Points :

Dividends are
increased by
credits.
Dividends are
subtracted on the
income statement.
Common stock
dividends are
required to be paid.
Dividends reduce
CORRECT
stockholders
ANSWER
equity.
Instructor
Chapter
Explanation:
10

Question
10.

MC

2.

(TCO A) Preferred stock _____.

Points :

provides voting
rights
is an asset account
is very common

Final Review

provides preferred
shareholders with
a priority claim on CORRECT
assets versus
ANSWER
common
stockholders
Instructor
Chapter
Explanation:
10

Question
11.

MC

2.

(TCO A) The Statement of Cash

Flows is composed of the following
classes of cash flow.
Points :

Balance Sheet,
Income
statement,
Statement of
Equity
Operating,
Investing,
Financing

CORRECT
ANSWER

Cash Account,
Accounts
Receivable
Account, Revenue
account
None of the above
Instructor
Explanation:

MC

3.

Textbook Chapter
1 page 20.
01/2015

(TCOs A and B) Below is a partial list

of account balances for LBJ
Company.

Cash
Prepaid rent
Accounts receivable
Accounts payable
Notes payable
Common stock
Dividends

$30, 000
1,000
5,500
3,800
4,200
14,000
1,700

Final Review

Revenues
Expenses

25,000
15,500

What did LBJ Company show as total

credits?
Points :

$47,000

CORRECT
ANSWER

$100,700
$48,700
$64,200
Instructor
Explanation:

MC

3.

Chapters 2
and 3

(TCOs A and B) Below is a partial list

of account balances for LBJ
Company.

Cash
Prepaid rent
Accounts receivable
Accounts payable
Notes payable
Common stock
Dividends
Revenues
Expenses

$15,000
1,000
3,500
3,000
6,000
100,000
1,500
75,000
45,500

What did LBJ Company show as total

credits?
Points :

$185,500
$250,500
$66,000
$184,000
Instructor
Explanation:

Question

MC

3.

CORRECT
ANSWER

Chapters 2
and 3

(TCOs A and B) Below is a partial list

Final Review

16.

of account balances for LBJ

Company.

Cash
Prepaid rent
Accounts receivable
Accounts payable
Notes payable
Common stock
Dividends
Revenues
Expenses

$12,000
1,300
7,000
5,000
9,000
22,000
2,000
45,000
35,000

What did LBJ Company show as total

debits?
Points :

$57,300

CORRECT
ANSWER

$81,000
$55,300
$56,000
Instructor
Explanation:

Question
17.

M 3.
C

Chapters 2
and 3

(TCO A, B)
Below are some of the account
balances for PNK Company:
Cash

$7,000

Accounts Receivable
Prepaid Insurance

$12,00
0
$2,000

Accounts Payable

$4,000

Wages Payable

$1,500

Notes Payable

$500

Common Stock

$50,00
0
$2,500

Dividends
Revenues
Expenses

$35,00
0
$25,00
0

Final Review

What will PNK Company show for

total debits?
5

Points :

$48,500

CORRECT
ANSWER

$46,500
$21,000
$23,500
Instructor
Explanation:

Question
20.

MC

4.

Textbook
chapter 2
pages 55-71)
01/2015

(TCOs B and E) Which of the

following statements is incorrect with
regard to accrual accounting?
Points :

Accrual accounting
is consistent with
the matching
principle.
Accrual
accounting does
CORRECT
not record
ANSWER
expenses until
they are paid.
Accrual accounting
is more complex
than cash basis
accounting.
Accrual accounting
is required by
GAAP.
Instructor Explanation: Chapter 3

Question
21.

MC

4.

(TCOs B and E) Which of the

following statements is correct with
regard to accrual accounting?

Final Review

Points :

Accrual
accounting is
CORRECT
consistent with
ANSWER
the matching
principle.
Accrual accounting
is less complex
than the cashbasis method.
Accrual accounting
does not record
expenses until
paid.
Accrual accounting
does not record
revenue until
payment is
received.
Instructor Explanation: Chapter 3

Question
22.

MC

4.

(TCOs B and E) Which of the

following statements is correct with
regard to cash-basis accounting?
Points :

Cash-basis
accounting is
required by GAAP.
Cash-basis
accounting does
CORRECT
not record any
ANSWER
expenses until
they are paid.
Cash-basis is
never allowed by
the IRS.
Cash-basis
accounting records
revenue when the
product is shipped.

Instructor Explanation: Chapter 3

Question

MC

4.

(TCO B and E) Under cash-basis

Final Review

23.

accounting, which of the following

transactions would not be recorded?
Points :

Cash sales to
customers
Payments to
vendors
Sales on
CORRECT
account
ANSWER
Payroll payments
to employees
Instructor
Chapter 3, page
Explanation:
137 09/2014

Question
24.

MC

5.

(TCO D) Two different companies

utilize a different inventory costing
method. If the price of goods has
decreased during the period, then the
company using _____.
Points :

LIFO will have the

highest cost of
goods sold
average cost will
have the highest
cost of goods sold
FIFO will have the
highest ending
inventory
LIFO will have
CORRECT
the highest
ANSWER
ending inventory
Instructor Explanation: Chapter 6
Edit
Question
28.

MC

5.

Delete

(TCO D) Three different companies

each utilize a different inventory

row
pag
e

Final Review

costing method. If the price of goods

has increased during the period, then
the company using _____.
Points :

FIFO will have

CORRECT
the highest
ANSWER
ending inventory
FIFO will have the
highest cost of
goods sold
LIFO will have the
lowest cost of
goods sold
LIFO will have the
highest ending
inventory
Instructor Explanation: Chapter 6

Question
29.

MC

5.

(TCO D) Which inventory method will

result in the lowest income taxes
when prices are decreasing?
Points :

The average cost

method
LIFO
CORRECT
ANSWER

FIFO
Income tax
expense will be
the same.

Instructor Explanation: Chapter 6

Question
30.

MC

5.

(TCO D) If ending inventory of the

current year is understated
Points :

Cost of goods sold

for the current year
will be understated
Gross profit for the
current year will be
unaffected
Gross profit for

CORRECT
ANSWER

Final Review

the current year

will be
understated
Net income for the
current year will be
overstated
Instructor
Chapter 6
Explanation:
09/2014

MC

5.

(TCO D) Which inventory method

reports the most up-to-date cost on
the balance sheet?
Points :

LIFO
FIFO

CORRECT
ANSWER

Weighted
Average
None of the
above
Instructor
FIFO reflects the
Explanation: most up-to-date
costs because LIFO
can reflect inventory
values at very old
costs because LIFO
leaves the oldest
prices in ending
inventory. (Chapter 6
page 350) 01/2015

M 6.
C

(TCOs A and E) Equipment was

purchased for $85,000. Freight
charges amounted to $2,550 and
there was a cost of $10,000 for
building a foundation and installing
the equipment. It is estimated that the
equipment will have a $5,000 salvage
value at the end of its 6-year useful
life. Depreciation expense each year
using the straight-line method will be
_____.

Final Review

Points :

$13,333
$16,258
$15,425 CORRECT ANSWER
$13,578
Instructor
Chapter 7.
Explanation ((85000+2550+10000)
:
-5000)/6 = $15,425.

MC

6.

(TCO A and E) Equipment was

purchased for $27,000. Freight
charges amounted to $1,000 and
there was a cost of $5,000 for
building a foundation and installing
the equipment. It is estimated that the
equipment will have a $5,000 salvage
value at the end of its 7-year useful
life. Depreciation expense each year
using the straight-line method will be
_____.
Points :

$4,714
$4,000 CORRECT ANSWER
$3,857
$3,285
Instructor
Chapter 7.
Explanation: ((27000+1000+5000)-

5000)/7 = $4,000

MC

6.

(TCOs A and E) Equipment was

purchased for $200,000. Freight
charges amounted to $10,000 and
there was a cost of $15,000 for
building a foundation and installing the
equipment. It is estimated that the
equipment will have a $20,000
salvage value at the end of its 5-year
useful life. Depreciation expense each
year using the straight-line method will
be _____.

Final Review

Points :

$41,000 CORRECT ANSWER

$38,000
$45,000
$40,000

Instructor
Explanatio
n:

Question
37.

MC

6.

Chapter 7.
((200000+10000+1500
0)-20000)/5 = $41,000

(TCO A, E) Johnson Company, a

calendar year company, purchased a
delivery vehicle for $21,000 on
1/1/14. License and insurance costs
for the vehicle will be $700 per year.
The salvage value is $3,500 and it
has an estimated useful life of 5
years. The vehicle will be depreciated
using the double declining balance
method of depreciation. What will the
depreciation expense be in year one?
Points :

$8,400 CORRECT ANSWER

$7,000
$4,200
$3,500
Instructor
Explanation:

Question
38.

MC

6.

Textbook chapter
7, page 401
09/2014

(TCO A) ABC Company purchased a

piece of land with a preexisting
building on it for a price of
$250,000. In order to prepare the
land for future construction, the old
building was demolished at a cost of
$15,000. The amount of scrap
material that resulted from the

Final Review

demolition was sold for $2,000. As a

result of the above purchase, the
land and the building will be
recorded in ABCs books at
Points :

$200,000 and
$50,000,
respectively
$250,000 and
$15,000,
respectively
$263,000 and
CORRECT
$0, respectively ANSWER
$250,000 and
$13,000,
respectively
Instructor
Explanation:

Question
41.

MC

7.

$250,000 + 15,000
2,000 = $263,000
(ex: Textbook
chapter 7 page 403)
01/2015

(TCOs D and G) When the market

rate of interest exceeds the stated
rate of interest on the bond, the bond
will require _____.
Points :

a debit to
CORRECT
Discount on
ANSWER
Bonds Payable
a credit to
Premium on
Bonds Payable
a debit to Loss on
Bonds Payable
a credit to Gain
on Bonds
Payable
Instructor Explanation: Chapter 9

Question

MC

7.

(TCOs D and G) When the market

Final Review

42.

rate of interest is less than the stated

rate of interest on the bond, the bond
will require _____.
Points :

a debit to
Discount on
Bonds Payable
a credit to
CORRECT
Premium on
ANSWER
Bonds Payable
a credit to Loss
on Bonds
Payable
a debit to Gain on
Bonds Payable
Instructor Explanation: Chapter 9

Question
43.

MC

7.

(TCOs D and G) When the market

rate of interest is equal to the stated
rate of interest on the bond, the bond
will require _____.
Points :

a debit to
Discount on
Bonds Payable
a credit to
Discount on
Bonds Payable
a credit to
CORRECT
Bonds Payable ANSWER
a debit to Bonds
Payable

Instructor Explanation: Chapter 9

Question
46.

MC

8.

(TCO C) Accounts receivable arising

from sales to customers amounted to
$90,000 and $80,000 at the beginning
and end of the year, respectively.

Final Review

Income reported on the income

statement for the year was $200,000.
Based on these transactions, the
cash flows from operating activities to
be reported on the statement of cash
flows would be _____.
Points :

$280,000
$250,000
$210,000 CORRECT ANSWER
$190,000
Instructor
Explanation:

Question
47.

MC

8.

Chapter
12

(TCO C) Accounts receivable arising

from sales to customers amounted to
$75,000 and $90,000 at the beginning
and end of the year, respectively.
Income reported on the income
statement for the year was $100,000.
Based on these transactions, the
cash flows from operating activities to
be reported on the statement of cash
flows would be _____.
Points :

$115,000
$85,000 CORRECT ANSWER
$175,000
$190,000
Instructor
Explanation:

Question
48.

MC

8.

Chapter
12

(TCO C) Accounts receivable arising

from sales to customers amounted to
$50,000 and $45,000 at the beginning
and end of the year, respectively.
Income reported on the income
statement for the year was $150,000.
Based on these transactions, the

Final Review

cash flows from operating activities to

be reported on the statement of cash
flows would be _____.
Points :

$195,000
$145,000
$115,000
$155,000
CORRECT ANSWER
Instructor
Explanation:

Question
49.

MC

8.

Chapter
12

(TCO C) Which inventory accounting

system does not require a physical
count of the inventory at the year
end?
Points :

Periodic
inventory system
Perpetual
inventory system
Specific
Identification
None of the
CORRECT
above
ANSWER
Instructor
Chapter 6, p.342
Explanation:
09/2014

50.

Question
52.

MC

9.

(TCO F) Which one of the following

tools uses the percentage change
formula to make year-over-year
comparisons of sales growth?
Points :

Horizontal

CORRECT

row
pag
e

Final Review

analysis
Common-size
analysis

ANSWER

Vertical analysis
Ratio analysis
Instructor
Explanation:
Edit
Question
53.

MC

9.

Chapter
13

Delete

(TCO F) Horizontal analysis is also

known as _____.
Points :

row
pag
e

ratio analysis
vertical
analysis
common-size
analysis
trend analysis
Instructor
Explanation:
Edit
Question
54.

MC

9.

CORRECT
ANSWER

Chapter
13

Delete

(TCO F) If you are calculating the

percentage change between 2 years
worth of sales data, you are
conducting a _____.
Points :

common-size
analysis
vertical analysis
horizontal
analysis
ratio analysis

Instructor
Explanation:
Edit

Delete

CORRECT
ANSWER

Chapter
13

row
pag
e

Final Review

Question
55.

MC

9.

(TCO F) Which of the following tools

should you use to perform a trend
analysis of operating expenses?
Points :

row
pag
e

Ratio analysis
common-size
analysis
vertical analysis
horizontal
analysis
Instructor
Explanation:

Edit
Question
56.

MC

9.

CORRECT
ANSWER
Textbook Chapter
13 page 777
01/2015

Delete

(TCO F) A company has Preferred

stock, 8%, $10 par, 30,000 shares
authorized and issued. The balance
in the Preferred Stock account is
$300,000. This means that:
Points :

Preferred
stockholders
receive dividends CORRECT
before the
ANSWER
common
stockholders.
Dividends on
preferred stock are
always paid even if
the board of
directors does not
declare the
dividend.
Preferred stock
provides voting
rights.
All corporations
issue preferred
stock.
Instructor
Textbook chapter
Explanation:
10 page 587
09/2014
Edit

Delete

row
pag
e

Final Review

57.
Question
58.
Question
59.

MC

10.

(TCO F) When performing a commonsize balance sheet, the 100% figure is

_____.
Points :

row
pag
e

net sales
total
liabilities
total assets

CORRECT
ANSWER

total equity
Instructor
Explanation:
Edit
Question
60.

MC

10.

Chapter
13

Delete

(TCO F) Vertical analysis is also

known as _____.
Points :

row
pag
e

ratio analysis
linear analysis
common-size
analysis

CORRECT
ANSWER

linear analysis
Instructor
Explanation:
Edit
Question
61.

MC

10.

Chapter
13

Delete

(TCO F) When performing a commonsize income statement, the 100%

figure is _____.
Points :

net sales
total liabilities plus
stockholders

CORRECT
ANSWER

row
pag
e

Final Review

equity
net income
total assets
Instructor
Explanation:
Edit
Question
62.

MC

10.

Chapter
13

Delete

(TCO F) Horizontal analysis

Points :

involves calculating
a percentage
change from one
period to the next
can be the basis of
comparative
analysis or trend
analysis
is useful in
studying the
growth or decline
of a company over
time
all of the above
CORRECT
are correct
ANSWER
Instructor
Chapter 13
Explanation:
09/2014
Edit

row
pag
e

Delete

63.

Question
65.

MC

11.

(TCO F) In vertical analysis, the base

amount for cost of goods sold
expense is generally _____.
Points :

net income
operating
profit
gross profit
net sales

CORRECT
ANSWER

row
pag
e

Final Review

Instructor
Explanation:
Edit
Question
66.

MC

11.

Chapter
13

Delete

(TCO F) Ratios are most useful in

expressing _____.
Points :

row
pag
e

cause-and-effect
relationships
the relationships
CORRECT
between
ANSWER
numbers
the delta between
numbers
the root cause of
the problem
Instructor
Chapter
Explanation:
13
Edit
Question
67.

MC

11.

Delete

(TCO F) Which one of the following is

typically analyzed via financial
statement ratio analysis?
Points :

row
pag
e

The design of a
new product
The internal
control failure rate
The leverage of CORRECT
the firm
ANSWER
The effectiveness
of a marketing
campaign

Instructor
Explanation:
Edit
Question
68.

MC

11.

Chapter
13

Delete

(TCO F) One advantage of the

accrual method is
Points :

row
pag
e

Final Review

Revenues may be
recorded on the
income statement
before the cash is CORRECT
received for the
ANSWER
service provided
or the product
sold.
Revenues are only
recorded when
cash is received.
The accrual method
saves taxes for a
company.
The accrual method
increases a
companys cash
reserve.
Instructor
Textbook
Explanation:
Chapter 3
09/2014
Edit

Question
71.

MC

12.

Delete

(TCO F) Creditors are usually most

concerned with analyzing _____.
Points :

row
pag
e

the company
stock price
turnover
liquidity

CORRECT
ANSWER

profitability
Instructor
Explanation:
Edit
Question
72.

MC

12.

Chapter
13

Delete

(TCO F) A common ratio to measure

profitability is the _____.
Points :

quick ratio

row
pag
e

Final Review

inventory
turnover
days sales in
receivables
asset turnover
Instructor
Explanation:
Edit
Question
73.

MC

12.

CORRECT
ANSWER

Chapter
13

Delete

(TCO F) A common ratio to measure

liquidity is the _____.
Points :

row
pag
e

rate of return on
stockholders
equity
debt ratio
quick (acid-test) CORRECT
ratio
ANSWER
times-interestearned ratio

Instructor
Explanation:
Edit

Chapter
13

Delete

74.
Question
75.
Question
76.

MC

13.

(TCO F) DuPont analysis measures

which of the following?
Points :

pag
e

Liquidity
Leverage
Turnover
Profitability
Instructor

row

CORRECT
ANSWER

Chapter

Final Review

Explanation:
Edit
Question
77.

MC

13.

13

Delete

(TCO F) Shareholders are usually

most interested in evaluating _____.
Points :

profitability

CORRECT
ANSWER

row
pag
e

leverage
turnover
the ability to pay
debts as they
come due
Instructor
Explanation:
Edit
Question
78.

MC

13.

Chapter
13

Delete

(TCO F) The rate of return on

common stockholder's equity ratio is
NOT affected by _____.
Points :

dividends paid to
preferred
stockholders
net income
dividends paid to
CORRECT
common
ANSWER
stockholders
average common
stockholders
equity

Instructor
Explanation:
Edit
79.
Question

Delete

Chapter
13

row
pag
e

Final Review

80.
Question
81.

MC

14.

(TCO G) To calculate the market

value of a bond, we need to _____.
Points :

row
pag
e

multiply the stated

rate times the
bonds face value
calculate the
present value of
the principal only
calculate the
present value of CORRECT
both the principal ANSWER
and the interest
calculate the
present value of
the interest only
Instructor Explanation: Chapter 9
Edit
Question
82.

MC

14.

Delete

(TCO G) Which factors below impact

the present value of a bond?
Points :

pag
e

The dollar
amounts to be
received
The market
interest rate
The time to
maturity of the
bond
All of the above

CORRECT
ANSWER

Instructor Explanation: Chapter 9

Edit
Question
83.

MC

14.

Delete

(TCO G) To calculate the market

value of a bond, we need to use the
time-value-of-money concept called
_____.
Points :

row

Final Review

interpolation
future value
compounding
discounting
CORRECT
ANSWER
Instructor Explanation: Chapter 9

EQ

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

Final Review

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 the Current Ratio and
Return on common stockholders equity.

EQ

2.

(TCO B) The following selected data was retrieved from the Walmart, 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 Expense
Membership Revenues
Net Sales
Operating, Selling and
Administrative Expenses
Retained Earnings

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

Required: 1: Using the information provided above, 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 and results.

EQ

3.

45. (TCO C) Please review the following real-world Hewlett Packard Statement of Cash
flows and address the two questions below.
Cash flow from operating

In millions

In millions

Final Review
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
stock-based competition
Other, net
Accounts and financing
receivables
Inventory
Accounts payable
Taxes on earnings
Restructuring
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-forsale 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

For the year ended 2012

$(12,650)

For the year ended 2011

$7,074

5,095

4,984

18,035

885

635

685

142

81

277
2,266
(711)

217
645
166

(12)

(163)

265

(46)

1,269

(227)

890
(1,414)
(320)
(840)
(2,356)

(1,252)
275
610
(1,002)
(293)

10,571

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)

11,942
(2,336)

716

896

(1,619)

(10,117)

12

163

Final Review
stock-based 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

(1,015)

(844)

(3,860)

(1,566)

3,258

(2,886)

8,043

10,929

$11,301

$8,043

Required: 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

EQ

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 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: 1: Goforit carries significant electronics inventory in a competitive environment
in which prices are actually falling. Which inventory valuation method would you
chooseLIFO, FIFO, or average cost? Assume that unit purchases exceed unit sales.
2: 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)?

EQ

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
Profit margin
Inventory turnover
ratio
Average collection
period
Cash debt coverage
ratio
Debt to Total assets

Johnson & Johnson

16.1%
3.1

Pfizer
24.7%
1.7

59.4 days

69.1 days

.27

.16

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.

Final Review
Good Luck