| SECTION I: MULTIPLE-CHOICE (30 possible points) |
| Please complete the following statements or questions by placing the appropriate letter in the blank adjacent |
| to the item number. The value of each correct answer is 2 points. |
| ____ 1. | For what reason would retailers like The Gap select an accounting period that ends on or near the end of |
| | January? |
| | A. The company originally started business operations on that date. |
| | B. Business activity has reached a slow period that is suited to the preparation of its financial statements |
| | at the end of the year. |
| | C. The company's CPAs are attempting to spread out the workload. |
| | D. The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year. |
| ____ 2. | Which one of the following types of inventory accounts would be used by a wholesaler or retailer? |
| | A. Merchandise inventory |
| | B. Raw materials inventory |
| | C. Work in process inventory |
| | D. Finished goods inventory |
| |
| ____ 3. | Which of the following accounts would not be found on an income statement? |
| | A. Accumulated Depreciation |
| | B. Depreciation Expense |
| | C. Amortization Expense |
| | D. Depletion Expense |
| |
| ____ 4. | Assets classified as property, plant, and equipment are reported at |
| | A. Each asset’s estimated market value at the balance sheet date. |
| | B. Each asset's estimated salvage value at the balance sheet date. |
| | C. The estimated depreciable cost at the balance sheet date. |
| | D. Each asset's original cost less depreciation since acquisition. |
| ____ 5. | Which of the following accounts is not classified as a current liability? |
| | A. Notes payable, due in 3 years |
| | B. Accounts payable |
| | C. Salaries payable |
| A. Notes payable, due in 3 years | D. Taxes payable |
| ____ 6. | The payment of accounts payable results in a(n) |
| | A. decrease in liabilities and a decrease in assets. |
| | B. decrease in liabilities and an increase in assets. |
| | C. increase in liabilities and a decrease in owners' equity. |
| | D. decrease in liabilities and an increase in owners' equity. |
| ____ 7. | When bonds are issued by a company, the effect of that transaction is to |
| | A. increase liabilities and decrease owners' equity. |
| | B. increase liabilities and increase owners' equity. |
| | C. increase assets and increase liabilities. |
| | D. increase assets and increase owners' equity. |
| BSC401 FINAL EXAM |
| Page 2 |
| SECTION I: MULTIPLE-CHOICE (Cont.) |
| ____ 8. | When will bonds sell at a discount? |
| | A. The credit standing of the issuing company is not as good as other companies in a similar line of |
| | business. |
| | B. The face rate of interest is less than the market rate of interest at the time of issue. |
| | C. The face rate of interest is more than the market rate of interest at the time of issue. |
| | D. The issuing company will be able to retire the bonds at less than face at maturity. |
| |
| ____ 9. | Authorized stock represents the |
| | A. maximum number of shares that can be issued. |
| | B. number of shares that have been sold. |
| | C. number of shares that are currently held by stockholders. |
| | D. number of shares that have been repurchased by the corporation. |
| ____ 10. | With regard to a corporation's stock, par value is |
| | A. the current market price of the stock. |
| | B. an arbitrary amount that exists to fulfill legal requirements. |
| | C. the amount at which the stock has been repurchased. |
| | D. the amount at which treasury stock can be sold. |
| ____11. | Cash flows from acquiring and selling products are classified as |
| | A. operating activities. |
| | B. investing activities. |
| | C. financing activities. |
| | D. distribution activities. |
| |
| ____12. | Cash flows from acquiring and disposing of long-term assets are classified as |
| | A. operating activities. |
| | B. investing activities. |
| | C. financing activities. |
| | D. distribution activities. |
| ____13. | Cash flows from issuing and repurchasing stock or issuing and repaying (retiring) debt are |
| | A. operating activities. |
| | B. investing activities. |
| | C. financing activities. |
| | D. distribution activities. |
| ____14. | Which of the following is considered a profitability ratio? |
| | A. earnings per share |
| | B. debt-to-equity ratio |
| | C. acid-test ratio |
| | D. inventory turnover ratio |
| ____15. | Which of the following is considered a liquidity analysis tool? |
| | A. return on assets ratio |
| | B. acid-test ratio |
| | C. dividend yield ratio |
| | D. gross profit ratio |
| BSC401 FINAL EXAM |
| Page 3 |
| SECTION II: MATCHING (15 possible points) |
| Please match the numbered terms with their definitions by placing the letter that identifies the best definition in the |
| blank space next to the term. The value of each correct answer is 1 point. |
| ____ 1. | Acid-Test or Quick Ratio | | | | ____ 9. | Periodic System |
| ____ 2. | Callable Bonds | | | | ____ 10. | Perpetual System |
| ____ 3. | Convertible Feature | | | | ____ 11. | Solvency |
| ____ 4. | Double-Declining-Balance Method | | | | ____ 12. | Statement of Cash Flows |
| ____ 5. | Face Value | | | | ____ 13. | Straight-Line Method |
| |
| ____ 6. | FIFO Method | | | | ____ 14. | Time Value of Money |
| |
| ____ 7. | LIFO Method | | | | ____ 15. | Treasury Stock |
| ____ 8. | Liquidity |
| A. The system in which the Inventory account is increased at the time of each purchase of merchandise and |
| decreased at the time of each sale. |
| B. An inventory costing method that assigns the most recent costs to ending inventory. |
| C. The system in which the Inventory account is updated only at the end of the period. |
| D. An inventory costing method that assigns the most recent costs to cost of goods sold. |
| |
| E. A method by which the same dollar amount of depreciation is recorded in each year of asset use. |
| F. A method by which depreciation is recorded at twice the straight-line rate but the depreciable balance is |
| reduced in each period. |
| G. The concept that indicates that people should prefer to receive an immediate amount at the present time over |
| an equal amount in the future. |
| H. The principal amount of the bond as stated on the bond certificate. |
| I. Bonds that may be redeemed or retired before their specified due date. |
| J. Allows preferred stock to be returned to the corporation in exchange for common stock. |
| K. Stock issued by the firm and then repurchased but not retired. |
| L. The financial statement that summarizes an entity’s cash receipts and cash payments during the period from |
| operating, investing, and financing activities. |
| M. A stricter test of liquidity than the current ratio; excludes inventory and prepayments from the numerator. |
| N. The nearness to cash of the assets and liabilities. |
| O. The ability of a company to remain in business over the long term. |
| BSC401 FINAL EXAM |
| Page 4 |
| SECTION III. SHORT-ANSWER (30 possible points) |
| Please give a brief answer to each of the following questions. Each question is worth a possible 5 points. |
| 1. INVENTORIES AND COST OF GOODS SOLD (5 possible points) |
| Why are shipping terms, such as FOB shipping point or FOB destination point, important in deciding ownership |
| of inventory at the end of the year? |
| 2. LONG-TERM LIABILITIES (5 possible points) |
| Which interest rate, the face rate or the market rate, should be used when calculating the issue price of a bond? |
| Explain. |
| 3. STOCKHOLDERS’ EQUITY (5 possible points) |
| What is a treasury stock? Why do firms use it? Where does it appear on the corporation’s financial statements? |
| 4. THE STATEMENT OF CASH FLOWS (5 possible points) |
| What is the purpose of the Statement of Cash Flows? As a flows statement, explain how it differs from the |
| Income Statement. |
| BSC401 FINAL EXAM |
| Page 5 |
| SECTION III. SHORT-ANSWER (Cont.) |
| 5. FINANCIAL STATEMENT ANALYSIS (5 possible points) |
| A company has a current ratio of 1.25 but an acid-test or quick ratio of only 0.65. How can the difference in the |
| two ratios be explained? What are some concerns that you would have about this company? |
| 6. BONUS (5 possible Bonus points) |
| What do you think you will take from this course that may be useful in your present and/or future career? |
| SECTION IV: PROBLEMS (30 possible points) |
| Please show all of your work for each problem. |
| PROBLEM 1 OPERATING ASSETS (10 possible points) |
| Assume that Able Company purchased a new machine on January 1, 2007, for $80,000. The machine has an |
| estimated useful life of nine years and a residual value of $8,000. Bloomer has chosen to use the straight-line |
| method of depreciation. On January 1, 2009, Able discovered that the machine would not be useful beyond |
| December 31, 2012, and estimated its value at that time would be $2,000. |
| Required: |
| 1. Calculate the depreciation expense, the accumulated depreciation, and the book value of the asset for each |
| year, 2007 to 2012. |
| 2. Was the depreciation recorded in 2007 and 2008 wrong? If so, why was it not corrected? |
| BSC401 FINAL EXAM |
| Page 6 |
| SECTION IV: PROBLEMS (Cont.) |
| PROBLEM 2 STOCKHOLDERS’ EQUITY (10 possible points) |
| The Stockholders’ Equity category of McElroy Company’s balance sheet appears below: |
| | | Common stock, $10 par, 10,000 shares issued, |
| | | 9,200 outstanding | | | | | $ ?? |
| | | Additional paid-in capital | | | | | ?? |
| | | Total contributed capital | | | | | $350,000 |
| | | Retained earnings | | | | | 100,000 |
| | | Treasury stock, ?? shares at cost | | | | | 10,000 |
| | | Total stockholders’ equity | | | | | $ ?? |
| Required: |
| 1. Determine the missing values that are indicated by question marks. |
| 2. What was the cost per share of the treasury stock? |
| PROBLEM 3 FINANCIAL STATEMENT ANALYSIS (10 possible points) |
| Presented below are selected data from the financial statements of Henson Company for 2011, 2010, and 2009. |
| | | | | 2012 | | 2011 | | 2010 |
| Total Assets | | | | $1,205,000 | | $952,000 | | $945,000 |
| Cost of Goods sold | | | | 360,000 | | 420,000 | | 440,000 |
| Inventory | | | | 56,000 | | 64,000 | | 53,000 |
| Net income | | | | 65,000 | | 25,000 | | 16,000 |
| Required: |
| 1. Calculate Henson’s inventory turnover ratio for 2012 and 2011. |
| 2. How many days’ sales in inventory at December 31, 2012 and at December 31, 2011? Assume 360 days in a |
| year. |
| 3. What problems do you see in the company’s inventory management? |
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