ACC231 Exam 4 Fall 2017
Student Name Student ID Number
Course Abbreviation and Number: ACC 231
Course Title: Uses of Accounting Information
Class #: 17543
Professor: Mindy Wolfe
Date of Exam Monday, April 26, 2017
Time Period Start time: 2:05 End time: 2:45
Number of Exam Pages 10 (including this cover sheet)
Additional Materials Allowed Cordless calculators may be used. The calculator must be standalone
with no communication or data storage features.
Ratios are on page 10
Both the examination paper and multiple choice scantron must be submitted.
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ACC231 Exam 4 Fall 2017
1) Predictions about a company's future earnings can best be inferred from the Income Statement's:
A) discontinued operations section.
B) continuing operations section.
C) other income (expense) section.
D) earnings per share data.
2) The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the
year. The company's net income earned during the year is $3.5 million. What is the amount of dividends
Lambert Inc. declared and paid?
A) $2.0 million.
B) $1.5 million.
C) $5.0 million.
D) $3.5 million.
3) The par value of common shares issued is normally recorded in the:
A) Retained Earnings account.
B) Common Stock account.
C) Additional Paid-in Capital account.
D) Treasury Stock account.
4) If a company issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect
on the accounting equation?
A) Increase assets and increase liabilities.
B) Increase assets and decrease stockholders' equity.
C) Increase assets and increase revenue.
D) Increase assets and increase stockholders' equity.
5) The following is a common-sized Income Statement for Sydney and Caesar Companies.
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ACC231 Exam 4 Fall 2017
(in thousands) Sydney % Caesar%
Net Sales 100.0% 100.0%
Cost of Goods Sold 64.6% 60.8%
Gross Profit 35.4% 39.2%
Operating Expenses
Selling, General and Adm. 15.4% 15.3%
Other 1.4% 1.5%
Income Before Income Tax 18.7% 22.4%
Income Tax Expense 2.7% 3.1%
Net Income 16.0% 19.3%
Which company has the best cost of goods sold percentage?
A) Not enough information is given to assess the question.
B) Caesar Company
C) Sydney Company
D) Too close to make a solid determination.
6) In which section of the Statement of Cash Flows would you add or subtract a change in Accounts Payable,
and why?
A) The operating section, in order to recognize that not all expenses are cash expenses.
B) The financing section, in order to correctly compute the amount that the company has re-invested through
purchases.
C) The operating section, in order to make things balance and provide up-to-date information for investors.
D) The financing section, in order to recognize amounts paid through third party financing.
7) Which of the following is subtracted from net income as an adjustment under the indirect method of
preparing the statement of cash flows?
A) Inventory decrease.
B) Gain on the sale of land.
C) Accounts receivable decrease.
D) Salaries payable increase.
8) The net working capital for a company with current assets of $77,000, quick assets of $46,000, total assets of
$187,000 current liabilities of $65,000 and net sales of $91,000 would be:
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ACC231 Exam 4 Fall 2017
A) $26,000.
B) $122,000.
C) $58,000.
D) $12,000.
9) In the operating activities section of the statement of cash flows, we start with net income when using:
A) Both the direct and the indirect method.
B) The direct method.
C) The indirect method.
D) Neither the direct nor the indirect method.
10) You have exam D. Please fill in the D bubble on your scantron
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ACC231 Exam 4 Fall 2017
11) A partial balance sheet for Captain D's Sportswear is shown below.
(dollars in thousands)
Assets: Liabilities:
Cash $60 Accounts payable $240
Accounts receivable (net) 170 Other liabilities 80
Investments 50 Total current liabilities 320
Inventory 200 Long-term liabilities 110
Prepaid rent 25 Total liabilities 430
Total current assets 505 Stockholders’ equity:
Property & Equipment, (net) 255 Common stock 150
Retained earnings 180
Total stockholders’ equity 330
Total assets $760 Total liabilities and equity $760
The current ratio is (rounded to two decimal places):
A) 1.17.
B) 1.98.
C) 0.66.
D) 1.58.
12) The disadvantages of the corporate form of business include:
A) Double taxation.
B) Ability to raise capital.
C) Ability to transfer ownership.
D) Limited liability.
13) When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for
this issuance would include:
A) A credit to Common Stock for $25,000.
B) A credit to Additional Paid-in Capital for $250,000.
C) A debit to Additional Paid-in Capital for $25,000.
D) A debit to Cash for $25,000.
14) Cersei's Cutlery has net sales of $1,200,000, net income of $88,000, average current assets of $48,000,
average fixed assets of $186,000, and average total assets of $234,000. Cersei's return on assets is: (Round your
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ACC231 Exam 4 Fall 2017
final answer to the nearest percentage.)
A) 183%.
B) 7%.
C) 47%.
D) 38%.
15) Which of the following transactions would generally result in an investing cash inflow?
A) Receive cash from customers.
B) Receive cash from stockholders for the issuance of common stock.
C) Receive cash from the sale of land.
D) Receive cash from borrowing at the bank.
16) Treasury Stock:
A) Decreases stockholders' equity.
B) Has a normal credit balance.
C) Increases stockholders' equity.
D) Is recorded as an investment.
17) The issuance of notes payable to borrow cash is classified in the statement of cash flows as a(n):
A) Operating activity.
B) Noncash activity.
C) Investing activity.
D) Financing activity.
18) The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2017. All
remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay
dividends of $18,000 in 2018. Assuming the preferred stock is cumulative, how much of the $18,000 dividend
will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?
A) $6,000 to preferred stockholders and $12,000 to common stockholders.
B) $12,000 to preferred stockholders and $6,000 to common stockholders.
C) $18,000 to preferred stockholders and $0 to common stockholders.
D) $9,000 to preferred stockholders and $9,000 to common stockholders.
19) For vertical analysis purposes, the base item on the Income Statement is:
A) gross profit.
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ACC231 Exam 4 Fall 2017
B) total expenses.
C) net income.
D) net sales.
20) A 2-for-1 stock split will:
A) double the number of shares of stock and double the par value per share.
B) halve the number of shares of stock and halve the par value per share.
C) halve the number of shares of stock and double the par value per share.
D) double the number of shares of stock and halve the par value per share.
21) A business's economic environment describes how a business:
A) creates a competitive advantage.
B) is affected by the overall economy.
C) compares to similar companies in industry.
D) competes for critical resources.
22) The Statement of Cash Flows:
A) Has two methods for investing cash flows - direct and indirect.
B) Breaks down all cash transactions into investing and financing cash flows.
C) Shows that the change in total cash from one year to the next is equal to the net operating, investing, and
financing cash flows.
D) Lists all cash flows over the life of a company.
23) A common-size comparative statement shows:
A) dollar increases and decreases.
B) percents only.
C) dollars only.
D) dollars and percents.
24) What is the return on equity if sales are $130,000, net income is $25,700, beginning Stockholders' Equity is
$93,000, and ending common Stockholders' Equity is $87,000?
A) 28.56%
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ACC231 Exam 4 Fall 2017
B) 29.54%
C) 72.22%
D) 27.63%
25) Butterfly Tours has a cash balance of $75,000; short-term investments of $19,000; net receivables of
$60,000; and inventory of $400,000. Current liabilities total $170,000. The quick ratio is: (Round your final
answer to two decimal places.)
A) 0.91
B) 3.26
C) 0.79
D) 2.91
26) Which of the following statements is TRUE regarding the results of financial statement analysis?
A) They can be found in the management discussion and analysis section of the financial statements.
B) They have limited value without a point of reference.
C) They identify whether or not fraud has taken place.
D) They are most meaningful when compared to competitors in diverse industries.
27) Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?
A) Treasury Stock.
B) Common Stock.
C) Sales Revenue.
D) Retained Earnings.
28) Mockingjay, Inc. reported the following for 2016:
Net sales: $335,000
Net income: $34,600
Market price per share of common stock: $37.50
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ACC231 Exam 4 Fall 2017
Dividends: $18,500
Average number of shares of common stock
outstanding: 121,000
What are the earnings per share for Mockinjay, Inc.?: (Round your final answer to the nearest cent.)
A) $0.13/share
B) $0.07/share
C) $0.15/share
D) $0.29/share
29) When an analyst compares a business with a similar business it is referred to as:
A) comparative analysis.
B) idolizing.
C) mentoring.
D) benchmarking.
30) Which of the following is an example of horizontal analysis?
A) Comparing assets with equity.
B) Comparing gross profit with operating expenses.
C) Comparing gross profit across companies.
D) Comparing the change in sales over time.
31) Management discussion and analysis (MD&A) is:
A) part of a business's annual report.
B) prepared by the external auditors.
C) a summary of all the business's press releases for the year.
D) both A and B.
32) Curry Footwear reports net income of $500,000, earnings per share of $1.50, and has a stock price of $45.00
at the end of the year. What is Curry Footwear's price-earnings ratio?
A) 67.5
B) 11,111.1
C) 46.5
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ACC231 Exam 4 Fall 2017
D) 30.0
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ACC231 Exam 4 Fall 2017
Ratios
Net Working Capital = Current Assets - Current Liabilities
Return on Assets = Net Income
Average Total Assets
Current Ratio = Current Assets
Current Liabilities
Quick Ratio =
Cash + Short Term Investments +
Accounts Receivable
Current Liabilities
Earnings per Share (EPS) =
Net Income
Average Number of Common
Shares Outstanding
Return on Equity (ROE) = Net Income
Average Stockholders’ Equity
Price Earnings Ratio (PE) = Current Price per Share
Current EPS
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ACC231 Exam 4 Fall 2017
1) B
2) A
3) B
4) D
5) B
6) A
7) B
8) D
9) C
10) D
11) D
12) A
13) A
14) D
15) C
16) A
17) D
18) B
19) D
20) D
21) B
22) C
23) B
24) A
25) A
26) B
27) C
28) D
29) D
30) D
31) A
32) D
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