DeVry ACCT 504 Week 8 FINAL EXAM SOLUTION

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(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

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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

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

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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

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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.

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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

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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

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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

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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

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10. (TCO F) Vertical analysis is also known as _____. (Points : 5)

      perpendicular analysis
      
common-size analysis
       
trend analysis
      
straight-line analysis

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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

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12. (TCO F) Short-term creditors are usually most interested in assessing _____. (Points : 5)

      solvency
      
liidity
      
marketability
      
profitability

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13. (TCO F) Long-term creditors are usually most interested in evaluating _____. (Points : 5)

      liquidity
      
marketability
      
profitability
      
solvency

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14. (TCO G) The present value of a bond is a function of which factors below? (Points : 5)

      The market interest rate
       
he 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.

A

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)?

 

 

 

 

 

 

 

. (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 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 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)

 

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