DeVry ACCT 504 Final Exam 2

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Product Description
(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 forKerner 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 companys net income can vary widely depending
on which accounting choices are made from the GAAP menu.
Assuming the goal is tomaximizenet 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
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

In millions

In millions

For the year ended 2012

For the year ended 2011

Net (loss) earnings

$(12,650)

$7,074

Depreciation and

5,095

4,984

18,035

885

635

685

142

81

Provision for inventory

277

217

Restructuring charges

2,266

645

Deferred taxes on earnings

(711)

166

Excess tax benefit from

(12)

(163)

Other, net

265

(46)

Accounts and financing

1,269

(227)

activities

amortization
Impairment of goodwill and
purchased intangible assets
Stock-based compensation
expense
Provision for doubtful
accounts

stock-based competition

receivables
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 10,571

12,639

operating activities
Cash flows from investing

activities:
Investment in property, plant, (3,706)

(4,539)

and equipment
Proceeds from sale of

617

999

(972)

(96)

662

68

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 (141)
business acquisitions, net of

(10,480)

cash acquired
Proceeds from business

87

89

(3,453)

(13,959)

(2,775)

(1,270)

Issuance of debt

5,154

11,942

Payment of debt

(4,333)

(2,336)

Issuance of common stock

716

896

(1,619)

(10,117)

12

163

(1,015)

(844)

divestiture, net
Net cash used in
investing activities
Cash flow from financing
activities:
(Payments) issuance of
commercial paper and notes
payable, net

under employee stock plans

Repurchase of common
stock
Excess tax benefit from
stock-based compensation
Cash dividends paid

Net cash used in financing (3,860)

(1,566)

activities
Increase (decrease) in cash 3,258
and cash equivalents

(2,886)

Cash and cash equivalents at 8,043

10,929

beginning of period
Cash and cash equivalents at $11,301

$8,043

end of period

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

88,873

Administrative Expenses
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)

DeVry ACCT 504 Final Exam 2

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http://devryfinalexams.com/products/acct-504-final-exam-2/