WEEK8 Final Exam Part 1 and Part 2

WEEK8 Final
Exam Part 1 and Part 2

1. (TCO A) An
advantage of the corporate form of business is
it is simple to establish
the corporate
tax rate is less than the personal tax rate
corporations
must pay dividends
the
shareholders are not responsible for the corporation’s debts

2.(TCO A) Dividends flow
through which one of the following statements?
The Balance Sheet
The Statement of Retained
Earnings
The Income Statement
None of the above

3.(TCOs A, B) Below is a
partial list of account balances for LBJ Company:

Cash

$30,000

Prepaid rent

1,000

Accounts receivable

5,500

Accounts payable

3,800

Notes payable

4,200

Common stock

14,000

Dividends

1,700

Revenues

25,000

Expenses

15,500

What did LBJ Company show as
total credits?
$47,000
$100,700
$48,700
$64,200

4. (TCOs B, E) Which of the
following statements is correct with regard to accrual accounting?
Accrual accounting is consistent
with the matching principle.
Accrual accounting is less
complex than the cash-basis method.
Accrual accounting does not
record expenses until paid.
Accrual accounting does not
record revenue until payment is received.

5.(TCO D) Three
different companies each utilize a different inventory costing method. If the
price of goods has increased during the period, then the company using _____.

FIFO will have the highest 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

6.(TCOs A, 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 _____.
$13,333
$16,258
$15,425
$13,578

7.(TCOs D, G) When the
market rate of interest is equal to the stated rate of interest on the bond,
the bond will require _____.

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

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. 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 _____
$280,000
$250,000
$210,000
$190,000

9.(TCO F) Which one of
the following tools uses the percentage change formula to make year-over-year
comparisons of sales growth?
Horizontal analysis
Common-size analysis
Vertical analysis
Ratio analysis

10.(TCO F) Vertical
analysis is also known as _____.
ratio analysis
linear analysis
common-size analysis
linear analysis

11.(TCO F) Which one of the
following is typically analyzed via financial statement ratio analysis?

The design of a new product
The internal control failure rate

The leverage of the firm
The effectiveness of a marketing
campaign

12.(TCO F) A common ratio
to measure liquidity is the _____.
rate of return on stockholders’
equity
debt ratio
quick (acid-test) ratio
times-interest-earned ratio

13.(TCO F) The rate of
return on common stockholder’s equity ratio is NOT affected by
dividends paid to preferred
stockholders
net income
dividends paid to common
stockholders
average common stockholders’
equity

14.(TCO G) To calculate
the market value of a bond, we need to (Points : 5)
multiply the stated rate times
the bond’s face value
calculate the present value of
the principal only
calculate the present value of
both the principal and the interest
calculate the present value of
the interest onlyPage 21.(TCO A) Below you will find selected
information (in millions) from Coca-Cola Co.’s 2012 Annual Report:Income Taxes Payable $471Short-term Investments and
Marketable Securities 8,109Cash 8,442Other non-current Liabilities 10,449Common Stock 1,760Receivables 4,812Other Current Asset 2,973Long-term Investments 10,448Other Non-current Assets 3,585Property, Plant and Equipment 23,486Trademarks 6,527Other Intangible Assets 20,810Allowance for Doubtful Accounts 53Accumulated Depreciation 9,010Accounts Payable 8,680Short Term Notes Payable 17,874Prepaid Expenses 2,781Other Current Liabilities 796Long-Term Liabilities 14,736Paid-in-Capital in Excess of Par
Value 11,379Retained Earnings 55,038Inventories 3,264Treasury Stock 35,009Other information taken from the
Annual Report:Sales Revenue for 2012 $48,017Cost of Goods Sold for 2012 19,053Net Income for 2012 9,019Inventory Balance on 12/31/11 3,092Net Accounts Receivable Balance
on 12/31/11 4,920Total Assets on 12/31/11 79,974Equity Balance on 12/31/11 31,921Required:
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 Ratioand Return on common
stockholders’ equity ratio. (Make sure to show all your work).2 (TCO B) The following selected data was retrieved from the Walmart,
Inc. financial statements for the year ending January 31, 2013:Accounts Payable $38,080Accounts Receivable 6,768Cash 7,781Common Stock 3,952Cost of Goods Sold 352,488Income Tax Expense 7,981Interest Expenses 2,064Membership Revenues 3,048Net Sales 466,114Operating, Selling and
Administrative Expenses 88,873Retained Earnings 72,978Required:
Using the information provided above:1. Prepare a multiple-step income
statement2. 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.Question 3(TCO C) Please review the following real-world
Hewlett Packard Statement of Cash flows and address the two questions below:Cash flow from operating
activities In
millions In millionsFor the
year ended 2012For the year ended 2011Net (loss) earnings $(12,650) $7,074Depreciation and amortization 5,095 4,984Impairment of goodwill and
purchased intangible assets 18,035 885Stock-based compensation expense 635 685Provision for doubtful accounts 142 81Provision for inventory 277 217Restructuring charges 2,266 645Deferred taxes on earnings (711) 166Excess 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) 275Taxes on earnings (320) 610Restructuring (840) (1,002)Other assets and liabilities (2,356) (293)Net cash provided by operating
activities 10,571 12,639Cash flows from investing
activities:Investment in property, plant,
and equipment (3,706) (4,539)Proceeds from sale of property,
plant, and equipment 617 999Purchases of available-for-sale
securities and other investments (972) (96)Maturities and sales of
available-for-sale securities and other investment 662 68Payments in connection with
business acquisitions, net of cash acquired (141) (10,480)Proceeds from business
divestiture, net 87 89Net 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 11,942Payment of debt (4,333) (2,336) Issuance of common stock under
employee stock plans 716 896Repurchase of common stock (1,619) (10,117) Excess tax benefit from
stock-based compensation 12 163Cash 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 10,929Cash and cash equivalents at end
of period $11,301 $8,043Required: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.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 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: a. Goforit carries significant
electronics inventory in a competitive environment in which 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)? (Points : 36)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 PfizerProfit margin 16.1% 24.7%Inventory turnover ratio 3.1 1.7Average collection period 59.4 days 69.1 daysCash debt coverage ratio .27 .16Debt 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.Ratio Name Johnson
& Johnson Pfizer CommentProfit margin 16.1% 24.7%Inventory turnover ratio 3.1 1.7 Average collection period 59.4 days 69.1 daysCash debt coverage ratio .27 .16
Debt to Total assets 46.6% 127.5%

 

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