ACCT 504 Final Exam 1

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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

  1. (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

  1. (TCOs A, B) Below is a partial list of account balances for Kerner Company:Cash                          $10,000Prepaid insurance           1,000Accounts receivable        5,000Accounts 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)





  1. (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

  1. (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.

  1. (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)





  1. (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

  1. (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)





  1. (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

  1. (TCO F) Vertical analysis is also known as _____.(Points : 5)

perpendicular analysis

common-size analysis

trend analysis

straight-line analysis

  1. (TCO F) Which one of the following is not a characteristic generally evaluated in ratio analysis?(Points : 5)



Marketability of the product


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





  1. (TCO F) Long-term creditors are usually most interested in evaluating _____.(Points : 5)





  1. (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

  1. (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%


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.


  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


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


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)


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