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ACCT 504 Final Exam (Keller)




Question;uestion 1.1.(TCO A) An advantage of the corporate form of business is _____. (Points: 5) it is simple to establishthe corporate tax rate is less than the personal tax ratecorporations must pay dividendsthe shareholders are not responsible for the corporation?s debtsQuestion 2.2.(TCO A) Dividends flow through which one of the following statements? (Points: 5) The Balance SheetThe Statement of Retained EarningsThe Income StatementNone of the aboveQuestion 3.3.(TCOs A, B) Below is a partial list of account balances for LBJ Company:Cash $15,000Prepaid insurance1,000Accounts receivable3,500Accounts payable 3,000Notes payable 6,000Common stock100,000Dividends 1,500Revenues 75,000Expenses 45,500What did LBJ Company show as total credits? (Points: 5) $185,500$250,500$66,000$184,000Question 4.4.(TCOs B, E) Which of the following statements is correct with regard to accrual accounting?(Points: 5) 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.Question 5.5.(TCO D) Which inventory method will result in the lowest income taxes when prices are decreasing? (Points: 5) The average cost methodLIFOFIFOIncome tax expense will be the same.Question 6.6.(TCO A, 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: 5) $4,714$4,000$3,857$3,285Question 7.7.(TCOs D, G) When the market rate of interest is equal to the stated rate of interest on the bond, the bond will require _____. (Points: 5) a debit to Discount on Bonds Payablea credit to Discount on Bonds Payablea credit to Bonds Payablea debit to Bonds PayableQuestion 8.8.(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 cash flows from operating activities to be reported on the statement of cash flows would be _____. (Points: 5) $195,000$145,000$115,000$155,000Question 9.9.(TCO F) If you are calculating the percentage change between 2 years worth of sales data, you are conducting a _____. (Points: 5) common-size analysisvertical analysishorizontal analysisratio analysisQuestion 10.10.(TCO F) When performing a common-size Income Statement, the 100% figure is _____. (Points: 5) net salestotal liabilities plus stockholders? equitynet incometotal assetsQuestion 11.11.(TCO F) Ratios are most useful in expressing _____. (Points: 5) cause-and-effect relationshipsthe relationships between numbersthe delta between numbersthe root cause of the problemQuestion 12.12.(TCO F) Creditors are usually most concerned with analyzing _____. (Points: 5) the company stock priceturnoverliquidityprofitabilityQuestion 13.13.(TCO F) Shareholders are usually most interested in evaluating _____. (Points: 5) profitabilityleverageturnoverthe ability to pay debts as they come dueQuestion 14.14.(TCO G) To calculate the market value of a bond, we need to use the time-value-of-money concept called _____. (Points: 5) interpolationfuture valuecompoundingdiscounting(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 Securities8,109Cash8,442Other non-current Liabilities10,449Common Stock1,760Receivables4,812Other Current Assets2,973Long-term Investments10,448Other Non-current Assets3,585Property, Plant and Equipment23,486Trademarks6,527Other Intangible Assets20,810Allowance for Doubtful Accounts53Accumulated Depreciation9,010Accounts Payable8,680Short Term Notes Payable17,874Prepaid Expenses2,781Other Current Liabilities796Long-Term Liabilities14,736Paid-in-Capital in Excess of Par Value11,379Retained Earnings55,038Inventories3,264Treasury Stock35,009Other 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 Ratio and Return on common stockholders? equity ratio. (Make sure to show all your work).(Points: 36) Question 2.2.(TCO B) The following selected data was retrieved from the Walmart, Inc. financial statements for the year ending January 31, 2013:Accounts Payable$38,080Accounts Receivable6,768Cash7,781Common Stock3,952Cost of Goods Sold352,488Income Tax Expense7,981Interest Expenses2,064Membership Revenues3,048Net Sales466,114Operating, Selling and Administrative Expenses88,873Retained Earnings72,978Required:Using the information provided above:1. Prepare a multiple-step income statement2. Calculate the Profit Margin, and Gross profit rate for the company. Be sure to provide the formula you are using, show your calculations, and discuss your findings/results.(Points: 36) Question 3.3.(TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the two questions below:Cash flow from operating activitiesIn millionsIn millionsFor the year ended 2012For the year ended 2011Net (loss) earnings$(12,650)$7,074Depreciation and amortization5,0954,984Impairment of goodwill and purchased intangible assets18,035885Stock-based compensation expense635685Provision for doubtful accounts14281Provision for inventory277217Restructuring charges2,266645Deferred taxes on earnings(711)166Excess tax benefit from stock-based competition(12)(163)Other, net265(46)Accounts and financing receivables1,269(227)Inventory890(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 activities10,57112,639Cash flows from investing activities:Investment in property, plant, and equipment(3,706)(4,539)Proceeds from sale of property, plant, and equipment617999Purchases of available-for-sale securities and other investments(972)(96)Maturities and sales of available-for-sale securities and other investment66268Payments in connection with business acquisitions, net of cash acquired(141)(10,480)Proceeds from business divestiture, net8789Net 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 debt5,15411,942Payment of debt(4,333)(2,336)Issuance of common stock under employee stock plans716896Repurchase of common stock(1,619)(10,117)Excess tax benefit from stock-based compensation12163Cash dividends paid(1,015)(844)Net cash used in financing activities(3,860)(1,566)Increase (decrease) in cash and cash equivalents3,258(2,886)Cash and cash equivalents at beginning of period8,04310,929Cash 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.(Points: 36) Question 4.4.(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) Question 5.5.(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 NameJohnson & JohnsonPfizerProfit margin16.1%24.7%Inventory turnover ratio3.11.7Average collection period59.4 days69.1 daysCash debt coverage ratio.27.16Debt to Total assets46.6%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.(Points: 36)


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