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Question;ACCT504 FINAL;EXAM 100% Correct Answers;General Questions -;General General Questions;1. (TCO A) Which of the following is an advantage of the sole;proprietorship relative to the corporate form of business organization? (Points;5);Limited liability of investor;Transferability of ownership;Simple to establish;Unlimited life;2. (TCO A) Dividends _____. (Points: 5);represent an expense and are an operating activity;represent an obligation and are an operating activity;represent a distribution of earnings and are a financing;activity;represent an asset and are an investing activity;3. (TCOs A, B) Below is a partial list of account balances for;LBJ Company;Cash $15,000;Prepaid insurance 5,000;Accounts receivable 2,500;Accounts payable 3,000;Notes payable 6,000;Common stock 10,000;Dividends 500;Revenues 15,000;Expenses 13,000;What did LBJ Company show as total debits?;(Points: 5);$34,000;$36,000;$70,000;$31,000;4. (TCOs B, E) Why is the accrual basis of accounting preferred;by GAAP? (Points: 5);The Accrual basis is easier to use.;The Accrual basis is also preferred by the Internal Revenue;Service.;The Accrual basis complies with the revenue recognition and;matching principles.;The Accrual basis requires fewer accounting resources.;5. (TCO D) In a period of increasing prices, which inventory;cost flow assumption will result in the highest amount of net income?(Points;5);LIFO;The average cost method;FIFO;Income tax expense for the period will be the same under all;assumptions.;6. (TCOs A, E) Equipment was purchased for $75,000 on January 1;2011. Freight charges of $3,200 were incurred and there was a cost of $6,000;for installation. It is estimated the equipment will have a $12,000 salvage;value at the end of its 5-year useful life. Depreciation expense for 2011 using;the straight-line method will be _____. (Points: 5);$13,800;$14,440;$12,600;$13,240;7. (TCO D,G) Payne Corporation issues 100 twenty-year, 6%;$1,000 bonds dated July 1, 2010, at 94. The journal entry to record the;issuance will show a _____. (Points: 5);debit to Cash of $100,000;credit to Bonds Payable of $94,000;credit to Premium on Bonds Payable of $4,000;debit to Discount on Bonds Payable of $6,000;8. (TCO C) Accounts receivable arising from sales to customers;amounted to $80,000 and $100,000 at the beginning and end of the year;respectively. Income reported on the income statement for the year was;$1,000,000. 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);$20,000;$1,020,000;$1,000,000;$980,000;9. (TCO F) If you are making comparisons within a company to;detect changes in financial relationships and significant trends, you are;performing what type of analysis? (Points: 5);Industry averages analysis;Intercompany analysis;Common-size analysis;Intracompany analysis;10. (TCO F) The formula for performing horizontal analysis is;(Points: 5);(Current Year Amount minus Base Year Amount) divided by Current;Year Amount;Base Year Amount divided by Current Year Amount;Current Year Amount minus Base Year Amount;(Current Year Amount minus Base Year Amount) divided by Base;Year Amount;11. (TCO F) Horizontal analysis is a technique for evaluating a;series of financial statement data over a period of time _____.(Points: 5);that has been arranged from the highest number to the lowest;number;that has been arranged from the lowest number to the highest;number;to determine which numbers are in error;to determine the amount and/or percentage increase or decrease;that has taken place;12. (TCO F) A common measure of liquidity is _____. (Points: 5);debt-to-total-assets ratio;cash debt coverage;free cash flow;working capital;13. (TCO F) Short-term creditors would be most interested in;which of the following ratios? (Points: 5);Average collection period;Times interest earned;Cash debt coverage;Free cash flow;14. (TCO G) To calculate the market value of a bond, we need to;(Points: 5);multiply the bond price times the interest rate;calculate the present value of the principal only;calculate the present value of the interest only;calculate the present value of both the principal and;1. (TCO A) Use the following partial financial statement;information below to calculate the liquidity and profitability ratios. This;information can be used to correctly solve each of the ratios below.;Average common shares outstanding 35,000 Current;liabilities $25,000;Capital expenditures $20,000 Net income;$50,000;Cash provided by operations $77,000 Net sales;$100,000;Preferred stock dividends paid $30,000 Total;liabilities $50,000;Current assets $20,000 Total assets $80,000;Instructions: Compute the following.;a) Current ratio;b) Working capital;c) Earnings per share;d) Debt-to-total-assets ratio;e) Free cash flow;To earn full credit, you must show the formula you are using;show your computations, and explain the meaning of each of your ratio results.;(Points: 30);Metric Formula Used Figure Indication;Current Ratio (Current Assets)/(Current Liabilities);0.8x This means that the firm will have a hard time paying off its;current liabilities if the need arises.;Working Capital Current Assets-Current Liabilities;-$5,000 This means that the firm cannot continue its operations without facing;many obligations.;Earnings per share (Net Income-Preferred;Dividends)/(Number of Common Shares) $0.57 a share This means that;investors are earning $0.57 per share owned.;Debt to total assets ratio ((Total Debt))/(Total;Assets) 0.625 This means the company?s capital structure relies so;much on debt;FCF Cash by operations-Capital Exp. $57,000;This tells us that the company has $57,000 cash to be used.;2. (TCO D) The Oxford Company has budgeted sales revenues as;follows.;Oct Nov Dec;Credit sales $120,000 $96,000 $72,000;Cash sales 72,000 204,000 156,000;Total sales 192,000 300,000 228,000;Past experience indicates that 60% of the credit sales will be;collected in the month of sale and the remaining 40% will be collected in the following;month. Purchases of inventory are all on credit, with 60% paid in the month of;purchase and 40% in the month following purchase. Budgeted inventory purchases;are $260,000 in October, $180,000 in November, and $84,000 in December.;Other budgeted cash receipts include (a) the sale of plant;assets for $49,400 in November and (b) the sale of new common stock for $67,400;in December. Other budgeted cash disbursements include (a) operating expenses;of $27,000 each month, (b) selling and administrative expenses of $50,000 each;month, (c) dividends of $76,000 to be paid in November, and (d) purchase of;equipment for $24,000 cash in December.;The company has a cash balance of $40,000 at the beginning of;December and wishes to maintain a minimum cash balance of $40,000 at the end of;each month. An open line of credit is available at the bank and carries an;annual interest rate of 12%. Assume that all borrowing is done on the first day;of the month in which financing is needed and that all repayments are made on;the last day of the month in which excess cash is available. Also assume that;$14,000 of financing was obtained on November 1.;Requirements: Use this information to prepare a schedule of;expected cash payments for purchases of inventory for the months of November;and December only.;This question does not require creation of an entire cash budget;so please only create the schedule that is asked for in the question because;otherwise you will be wasting valuable time.;(Points: 30);Nov Dec;Beginning Cash Balance $32,000 $40,000;Cash Receipts;Cash sales $204,000 $156,000;Collection of Sales $105,600 $81,600;Sale of Plant $49,400 $0;Sale of Stocks $0 $67,400;Cash Disbursements;Payment of Purchases ($212,000) ($122,400);Operating Expenses ($27,000) ($27,000);S&A Expenses ($50,000) ($50,000);Dividends ($76,000) $0;Equipment Purchase $0 ($24,000);Interest Payments $0 ($1,680);Borrowing $14,000 $0;Ending Balance $40,000 $119,920;3. (TCOs B, E) The following items are taken from the financial;statements of Lansing Company for 2010.;Accounts payable $16,500;Accounts receivable 25,500;Accumulated depreciation 12,600;Bonds payable 35,000;Cash 55,000;Common stock 75,000;Cost of goods sold 53,000;Depreciation expense 6,300;Dividends 5,300;Equipment 35,000;Interest expense 4,300;Patents 6,500;Retained earnings, January 1 80,000;Salaries expense 42,000;Sales revenue 115,000;Supplies 3,500;Instructions: Prepare an income statement and a retained;earnings statement for Lansing Company. (Points: 30);Lansing Company;Income Statement;Sales Revenue $115,000;Cost of Goods Sold ($53,000);Gross Margin $62,000;Salaries Expense ($42,000);Depreciation Expense ($6,300);Interest Expense ($4,300);Net Income $9,400;Lansing Company;Statement of Retained Earnings;Beginning Retained Earnings $80,000;Add: Net Income $9,400;Less: Dividends Paid ($5,300);Ending Retained Earnings $89,400;4. (TCO D) Your friend James has hired you to evaluate the;following internal control procedures.;a) Explain to your friend whether each of the numbered items;below is an internal control strength or weakness. You must also state which;principle relates to each of the internal controls.;b) For the weaknesses, you also need to state a recommendation;for improvement.;Everyone has access to the petty cash fund.;Cash register codes are assigned to each cashier.;The treasurer is the only one allowed to sign checks.;Supervisors count cash receipts daily.;The treasurer approves of the purchases and makes the payment;because he is familiar with the purchases.;(Points: 30);Control Principle Type;Everyone has access to the petty cash fund Proper;authorization Weakness;Cash register codes are assigned to each cashier.;Segregation of duties Strength;The treasurer is the only one allowed to sign checks. Proper;Authorization Strength;Supervisors count cash receipts daily. Independent;checks Strength;The treasurer approves of the purchases and makes the payment;because he is familiar with the purchases. Proper Authorization;Weakness;b.) For the weaknesses, it is wise to limit the access to the;petty cash funds, and instead designate a number of authorized people to have;access into it. If everyone has access to the petty cash fund, then there is a;high risk of running into fraud or theft. Also, it is not an adequate reason to;let the treasurer approve the purchases just because he is familiar with them.;A thorough analysis should be taken into consideration, and the treasurer;should be accompanied with another authorized employee with regards to making;approvals of this kind.;5. (TCOs D, E) Please prepare the following journal entries.;Indicate which account should be debited with the abbreviation DR in front of;the account name and which account should be credited with the abbreviation CR;in front of the account name along with the dollar amount of the debit and;credit.;a) Investors invested $150,000 in exchange for 10,000 shares of;common stock.;b) Company made payment on account for $10,000;c) Company received $15,000 for services not yet performed;d) Company purchased $7,500 worth of equipment;e) Company billed $5,000 for services performed (Points: 30);Cash DR $150,000;Common Stock CR $150,000;Accounts Payable DR $10,000;Cash CR $10,000;Cash DR $15,000;Unearned Revenue CR $15,000;Equipment DR $7,500;Cash CR $7,500;Accounts Receivables DR $5,000;Service Revenue CR $5,000;6. (TCO C) Please indicate which section of the statement of;cash flows should contain each of the following items and whether each item;would result in an inflow or outflow of cash. The sections are Operating;Investing, and Financing.;a) Depreciation of equipment;b) Increase in accounts payable;c) Sold a building at book value;d) Payment of dividends;e) Increase in inventory (Points: 30);Event Section Result;Depreciation of equipment Operating Inflow;Increase in accounts payable Operating Inflow;Sold a building at book value Investing Inflow;Payment of dividends Financing Outflow;Increase in inventory Operating;Outflow


Paper#40666 | Written in 18-Jul-2015

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