ACCT 504 Final Exam 2

(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 liquidity 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 The 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	Pfizer
Profit margin	16.1%	24.7%
Inventory turnover ratio	3.1	1.7
Average collection period	59.4 days	69.1 days
Cash debt coverage ratio	.27	.16
Debt to Total assets	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.

 

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.

Required:

1. Goforit carries significant electronics inventory in a competitive environment where prices are actually falling.   Which inventory valuation method would you choose—LIFO, 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	In millions	In millions
	For the year ended 2012	For the year ended 2011
Net (loss) earnings	$(12,650)	$7,074
Depreciation and amortization	5,095	4,984
Impairment of goodwill and purchased intangible assets	18,035	885
Stock-based compensation expense	635	685
Provision for doubtful accounts	142	81
Provision for inventory	277	217
Restructuring charges	2,266	645
Deferred taxes on earnings	(711)	166
Excess tax benefit from stock-based competition	(12)	(163)
Other, net	265	(46)
Accounts and financing receivables	1,269	(227)
Inventory	890	(1,252)
Accounts payable	(1,414)	275
Taxes on earnings	(320)	610
Restructuring	(840)	(1,002)
Other assets and liabilities	(2,356)	(293)
Net cash provided by            operating activities	10,571	12,639
Cash flows from investing activities:
Investment in property, plant, and equipment	(3,706)	(4,539)
Proceeds from sale of property, plant, and equipment	617	999
Purchases of available-for-sale securities and other investments	(972)	(96)
Maturities and sales of available-for-sale securities and other investment	662	68
Payments in connection with business acquisitions, net of cash acquired	(141)	(10,480)
Proceeds from business divestiture, net	87	89
Net cash used in investing        activities	(3,453)	(13,959)
Cash flow from financing activities:
(Payments) issuance of commercial paper and notes payable, net	(2,775)	(1,270)
Issuance of debt	5,154	11,942
Payment of debt	(4,333)	(2,336)
Issuance of common stock under employee stock plans	716	896
Repurchase of common stock	(1,619)	(10,117)
Excess tax benefit from stock-based compensation	12	163
Cash dividends paid	(1,015)	(844)
Net cash used in financing activities	(3,860)	(1,566)
Increase (decrease) in cash and cash equivalents	3,258	(2,886)
Cash and cash equivalents at beginning of period	8,043	10,929
Cash and cash equivalents at end of period	$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.

 

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

 

Accounts Payable	$38,080
Accounts Receivable	6,768
Cash	7,781
Common Stock	3,952
Cost of Goods Sold	352,488
Income Tax Expense	7,981
Interest Expenses	2,064
Membership Revenues	3,048
Net Sales	466,114
Operating, Selling and Administrative Expenses	88,873
Retained Earnings	72,978

Required:

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)