ACC 504 final question- 1. (TCO A) Below you will find selected information (in millions) from Coca-Cola Co.’s 2012 Annual Report: Income Taxes Payable $471 Short-term Investments and Marketable Securities 8,109 Cash 8,442 Other non-current Liabilitie

 
1.
(TCO A) Below you will find selected information (in millions) from Coca-Cola Co.’s 2012 Annual Report:
Income Taxes Payable    $471
Short-term Investments and Marketable Securities     8,109
Cash    8,442
Other non-current Liabilities    10,449
Common Stock    1,760
Receivables    4,812
Other Current Assets    2,973
Long-term Investments    10,448
Other Non-current Assets    3,585
Property, Plant and Equipment    23,486
Trademarks    6,527
Other Intangible Assets    20,810
Allowance for Doubtful Accounts    53
Accumulated Depreciation    9,010
Accounts Payable    8,680
Short Term Notes Payable    17,874
Prepaid Expenses    2,781
Other Current Liabilities    796
Long-Term Liabilities     14,736
Paid-in-Capital in Excess of Par Value    11,379
Retained Earnings    55,038
Inventories    3,264
Treasury Stock     35,009
 
Other information taken from the Annual Report:
 
Sales Revenue for 2012    $48,017
Cost of Goods Sold for 2012     19,053
Net Income for 2012      9,019
Inventory Balance on 12/31/11      3,092
Net Accounts Receivable Balance on 12/31/11      4,920
Total Assets on 12/31/11     79,974
Equity Balance on 12/31/11     31,921

Required:
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; Current Ratio, Days in Inventory, Average Collection Period, Return on Assets Ratio, Debt to Total Assets and Return on common stockholders’ equity ratio. (Make sure to show all your work)
(Points : 36)
     
      


2.
(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
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)
     
      


3. (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
 Required:
1)     Please calculate the percentage increase or decrease in cash for the operating, investing, and financing sections 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)
     
      


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 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)?
(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    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.
(Points : 36)
     
      





Page 1


 
1. (TCO A) An advantage of the corporate form of business is that _____. (Points : 5)
        it has limited life
        its owner's personal resources are at stake
        its ownership is easily transferable via the sale of shares of stock
        it is simple to establish


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 for Cerner Company:
 
Cash                           $5,000
Prepaid insurance             500
Accounts receivable       2,500
Accounts payable          2,000
Notes payable               3,000
Common stock              1,000
Dividends                         500
Revenues                    15,000
Expenses                    12,500

What did Cerner Company show as total credits? (Points : 5)
        $21,500
        $21,000
        $20,500
        $22,000


4. (TCOs B, E) Under the accrual basis of accounting, _____. (Points : 5)
        cash must be received before revenue is recognized
        net income is calculated by matching cash outflows against cash inflows
        events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received
        the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles


5. (TCO D) Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)
        LIFO will have the highest ending inventory
        FIFO will have the highest cost of goods sold
        FIFO will have the highest ending inventory
        LIFO will have the lowest cost of goods sold


6. (TCO A, E) Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? (Points : 5)
        $6,680
        $3,340
        $2,860
        $5,720


7. (TCOs D, G) Lopez Corporation issues 500 ten-year, 8%, $1,000 bonds dated January 1, 2007, at 96. The journal entry to record the issuance will show a _____. (Points : 5)
        debit to Cash of $500,000
        credit to Discount on Bonds Payable for $20,000
        credit to Bonds Payable for $480,000
        debit to Cash for $480,000


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) One variation of the horizontal analysis is known as _____. (Points : 5)
        nonlinear analysis
        vertical analysis
        trend analysis
        common-size analysis


10. (TCO F) In a common-size balance sheet, the 100% figure is _____. (Points : 5)
        total current assets
        total property, plant, and equipment
        total liabilities
        total assets


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) A common measure of profitability is the _____. (Points : 5)
        current ratio
        current cash debt coverage ratio
        return on common stockholder's equity ratio
        debt to total assets


13. (TCO F) Return on common stockholder's equity ratio is affected by _____. (Points : 5)
        net income
        dividend paid to preferred stock, if any
        leverage (debt-to-assets ratio)
        All of the above


14. (TCO G) To calculate the market value of a bond, we need to _____. (Points : 5)
        find out the present value of all of the future cash payments promised by the bond
        calculate the present value of the principal only
        calculate the present value of the interest only
        multiply the bond price by the interest rate