ACCT504 Final Exam Week 8

A GUI design elements is a combination of technology and equipment to provide users with a platform that allows users to interact with it. A series of GUI components follow a visual language to represent the information stored in the computer. The most common elements include a combination of components such as model WIMP (window, icon, menu, pointing device) in the personal computer.

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) When a corporation distributes a dividend, _____. (Points : 5)

the most common form of distribution is a cash dividend the Dividends account will be increased with a credit

the Retained Earnings account will be directly increased with a debit the Dividends account will be decreased with a debit

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

Cash $7,000

Prepaid insurance 700

Accounts receivable 3,500

Accounts payable 2,800

Notes payable 4,200

Common stock 1,400

Dividends 700

Revenues 21,000

Expenses 17,500

What did Denton Company show as total credits? (Points : 5)

$30,100 $29,400 $28,700 $30,800

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 staf

insignificant receivables and payables all sales and purchases on account

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.

6. (TCOs A, E) Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5)

$14,160 $11,760 $9,840 $9,600

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 $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was

$120,000. Exclusive of the efect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _____. (Points : 5)

$120,000 $125,000 $155,000 $115,000

9. (TCO F) Which one of the following is not a tool in financial statement analysis? (Points : 5)

Horizontal analysis

Circular analysis

Vertical analysis

Ratio analysis

10. (TCO F) In vertical analysis, the base amount for studying salary and wages expense is generally _____. (Points : 5)

net sales

salary and wages expense in a previous year gross profit

net income

11. (TCO F) Ratios are most useful in identifying _____. (Points : 5)

trends diferences causes

relationships among diferent numbers

12. (TCO F) A common measure of liquidity is _____. (Points : 5)

return on assets current ratio profit margin debt to equity

13. (TCO F) Return-on-assets ratio is most closely related to _____. (Points : 5)

profit margin and debt-to-total-assets ratio profit margin and asset-turnover ratio

times interest earned and debt-to-stockholders equity ratio profit margin and free cash flow

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

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	8,109
and Marketable
Securities
Cash	8,442
Other non-current	10,449
Liabilities

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	23,486
Equipment
Trademarks	6,527
Other Intangible Assets	20,810
Allowance for Doubtful	53
Accounts

Accumulated	9,010
Depreciation
Accounts Payable	8,680
Short Term Notes	17,874
Payable
Prepaid Expenses	2,781
Other Current Liabilities	796
Long-Term Liabilities	14,736
Paid-in-Capital in Excess	11,379
of Par Value
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 4,920 12/31/11

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)

1) Coca Cola Balance sheet

As of December 31, 2012

	(in
	millions)
Assets
Current Assets
Cash		8,442
Short-term Investments and Marketable Securities		8,109
Accounts Receivables	4,812
Less: Allowance for doubtful Accounts	(53)	4,759
Inventory		3,264
Prepaid Expenses		2,781
Other Current Assets		2,973
Total Current Assets		30,328
Long term Investments

	10,448
Property, Plant and Equipment	23,486
Less: Accumulated Depreciation	(9,010)
Property, Plant and Equipment, Net	14,476
Intangible Assets
Trademarks	6,527
Other Intangible Assets	20,810
Total Intangibles	27,337
Other
Other Non Current Assets	3,585
Total Non-Current Assets		55,846
Total Assets	86,174
Liabilities and stockholder's equity
Current Liabilities
Short term Notes Payable	17,874
Accounts Payable	8,680
Income taxes payable	471
Other curent liabilities	796
Total current liabilities	27,821
Long Term Debt
Long term liabilities	14,736
Other non curent liabilities	10,449
Total Long term liabilities	25,185
Total liabilities	53,006
Stockholder's equity
Common Stock	1,760
Paid-in-Capital in excess of par

		11,379
	Retained Earnings	55,038
	Total paid in capital and retained earnings					68,177
	Less: Treasury stock					(35,009)
	Total equity						33,168
	Total liabilities & Stockholder's equity						86,174
2)	Current ratio =		Current assets
			Current Liabilities
		30,328
		27,821
		1.09	: 1
	Inventory turnover		Cost of goods sold
			Average Inventory
		19,053
		3,178
		6.00
	Days in inventory	365
			Inventory turnover
		365
		6.00
		61			days
	Receivables turnover		Net Sales
			Average Accounts receivables

	48,017
	4,840
	9.92
Average collection period	365
		Receivables turnover
	365
	9.92
	37			days
		Net
Return on assets=		income
		Average Total Assets
	9,019
	83,074
	10.9%
		Total
Debt to total assets		Debts
		Total
		Assets
	53,006
	86,174
	61.5%
Return on common stockholder's equity		Net income after Tax - Preferred dividends
				Average Stockholder's equity

9,019

32,545

27.7%

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	88,873
Administrative Expenses
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)

1) Wal-Mart Inc. Income statement

For the year ending January 31, 2013

Revenues
Net Sales	466,114
Cost of Goods sold	352,488
Gross Profit	113,626

Operating Expenses:
Operating , selling and Administrative expenses	88873
Income from operations	24,753
Other revenues and gains
Membership revenues	3,048
Other expenses and losses
Interest Expense	(2,064)
Net gain or losses from other activities			984
Income before taxes	25,737
Income tax expense	7981
Net Income	17,756
2) Profit Margin				Net Income
				Net Sales
		17,756
		466,114
	3.81%
Gross profit rate				Gross profit
				Net Sales

113,626

466,114

24.4%

The gross profit rate is 24.4% while the net profit margin is 3.81%. The net profit margin is very low as compared to the gross profit rate. It implies that the operating expenses

of the company are very high and it needs to be controlled.

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	5,095	4,984
amortization
Impairment of goodwill	18,035	885
and purchased intangible
assets
Stock-based	635	685
compensation expense
Provision for doubtful	142	81
accounts
Provision for inventory	277	217
Restructuring charges	2,266	645

Deferred taxes on	(711)	166
earnings
Excess tax benefit from	(12)	(163)
stock-based competition
Other, net	265	(46)
Accounts and financing	1,269	(227)
receivables
Inventory	890	(1,252)
Accounts payable	(1,414)	275
Taxes on earnings	(320)	610
Restructuring	(840)	(1,002)

Other assets and liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Investment in property, plant, and equipment

Proceeds from sale of property, plant, and equipment

Purchases of available-for-sale securities and other investments

Maturities and sales of available- for-sale securities and other investment

(2,356)	(293)
10,571	12,639
(3,706)	(4,539)
617	999
(972)	(96)
662	68

Payments in connection with business acquisitions, net of cash acquired

Proceeds from business divestiture, net

Net cash used in investing activities

Cash flow from financing activities:

(Payments) issuance of commercial paper and notes payable, net

Issuance of debt

Payment of debt

(141)	(10,480)
87	89
(3,453)	(13,959)
(2,775)	(1,270)
5,154	11,942
(4,333)	(2,336)

Issuance of common	716	896
stock under employee
stock plans
Repurchase of common	(1,619)	(10,117)
stock
Excess tax benefit from	12	163
stock-based
compensation
Cash dividends paid	(1,015)	(844)
Net cash used in	(3,860)	(1,566)
financing activities
Increase (decrease) in	3,258	(2,886)
cash and cash
equivalents
Cash and cash	8,043	10,929
equivalents at beginning
of period

Cash and cash		$11,301		$8,043
equivalents at end of
period

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)

1) Hewlett Packard Statement Statement of Cash flows

In millions

For the year ended 2012 For the ye

Cash flow from operating activities
Net (loss) earnings	($12,650)
Depreciation and amortization	5,095
Impairment of goodwill and purchased intangible assets	18,035
Stock-based compensation expense	635
Provision for doubtful accounts	142
Provision for inventory	277
Restructuring charges	2,266
Deferred taxes on earnings	-711
Excess tax benefit from stock-based competition	-12
Other, net	265
Accounts and financing receivables	1,269

Inventory			890
Accounts payable			-1,414
Taxes on earnings			-320
Restructuring			-840
Other assets and liabilities			-2,356
Net cash provided by	operating activities	10,571
Cash flows from investing activities:
Investment in property, plant, and equipment	-3,706
Proceeds from sale of property, plant, and equipment	617
Purchases of available-for-sale securities and other investments	-972
Maturities and sales of available-for-sale securities and other	662
investment
Payments in connection with business acquisitions, net of cash	-141
acquired
Proceeds from business divestiture, net		87
Net cash used in investing	activities	-3,453
Cash flow from financing activities:
(Payments) issuance of commercial paper and notes payable, net	-2,775
Issuance of debt			5,154
Payment of debt			-4,333
Issuance of common stock under employee stock plans	716
Repurchase of common stock			-1,619
Excess tax benefit from stock-based compensation	12
Cash dividends paid			-1,015
Net cash used in financing activities	-3,860
Increase (decrease) in cash and cash equivalents	3,258
Cash and cash equivalents at beginning of period	8,043
Cash and cash equivalents at end of period		$11,301

The net decrease in operating cash flows is $2068 in year 2012 as compared to year 2011. This is majorly due The net working capital has increased during the year 2012. Further payment against the deferred taxes has le increased

The net cash used for operating activities has come down from $13,959 to $3,453. The outflow for business ac

The net increase in net cash used for financing activities is $2,294. The major reason for them is inflow against to the year 2011. Further the payment for commercial paper and debt is high in year 2012 as compared to the

2) Free cash flow = Cash flow from operation (CFO) - capital expenditure - Dividends
Cash flow from operation (CFO)	10,571
capital expenditure	-3,847
Dividends	-1,015
Free cash flow	5,709

Free cash flow refers to the cash flow available to the business after making payment necessary for maintaing

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)

A. In this scenario I would use FIFO. The only way to battle failing costs is to get the newer merchandise out the door quicker before it depreciates faster that what the cost is, thus making negative profit on the merchandise. Merchandise that has already been in stock for a longer period has already deprecated affecting the balance and income statements, so battle this by making as much profit as possible on the incoming merchandise.

B. I would use the straight line depreciation method that factors in the salvage value after x numbers of years of use. If the company would use the DDB, then it ignores the salvage value, so if the equipment in question book value drops below the salvage value, there would be a negative benefit to the company in trying to sell or replace the equipment.

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	59.4 days	69.1 days
period
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)

1) The profit margin of Pfizer is 24.7%. It is a profitability measure and it implies that for every one dollar of revenue generated the company has made a profit of 25 cents. The inventory turnover ratio indicates that the company has sold or replaced its inventory 1.7 times during the year. The average collection period suggests that the company takes 69.1 days to collect its payments from its sales on account. The company has a cash debt coverage ratio of .16 times. It implies that the cash provided by the operating activities are .16 times of the average liabilities of the company and it has a sufficient cushion to repay its liabilities out of the cash generated from the operating activities without having to liquidate its assets used in the operations. The debt to total assets is 127.5% of the total assets. It indicates that 127.5% of its total assets are financed through debt.

2) The profit margin of Pfizer is better than that of J&J. Pfizer has higher profitability. The inventory turnover of Pfizer is low compared to that of J&J. It means that the inventory of Pfizer is not being sold quickly. The average collection period of J&J is lower than that of Pfizer. It implies that J&J is making more timely collection of its accounts as compared to Pfizer. The cash debt coverage ratio of J&J is better than that of Pfizer. The debt to total assets ratio of Pfizer is abnormal. J&J’s debt to total assets is comfortable and better than that of Pfizer.

Basically the graphic UI design elements include lines, images, shapes, text, color, and space. A design may look attractive if it is designed perfectly and have a good creative concepts. The beauty of graphic design consideration and focus more on the ability to recognize the eyes. In order for the work to be attracted, the graphic design elements can have the touch, effects