Week8 Final Exam PART 1 and PART 2

Question
Week8 Final Exam PART 1 and PART 2

Q1 (TCO A) An advantage of the corporate form of business is _____. (Points : 5)

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it is simple to establish

the corporate tax rate is less than the personal tax rate

corporations must pay dividends

the shareholders are not responsible for the corporation’s debts

Q2 (TCO A) Which one of the following statements is correct with regard to Dividends? (Points : 5)

Dividends are increased by credits.

Dividends are subtracted on the Income Statement.

Common stock dividends are required to be paid.

Dividends reduce stockholders’ equity.

Q3 (TCOs A, B) Below is a partial list of account balances for LBJ Company:

Cash $12,000

Prepaid insurance 1,300

Accounts receivable 7,000

Accounts payable 5,000

Notes payable 9,000

Common stock 22,000

Dividends 2,000

Revenues 45,000

Expenses 35,000

What did LBJ Company show as total debits? (Points : 5)

$57,300
$81,000
$55,300
$56,000

Q4 (TCOs B, E) Which of the following statements is incorrect with regard to accrual accounting? (Points : 5)

Accrual accounting is consistent with the matching principle.

Accrual accounting does not record expenses until they are paid.

Accrual accounting is more complex than cash basis accounting.

Accrual accounting is required by GAAP.

Q5 (TCO D) Three different companies each utilize a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)

FIFO will have the highest ending inventory

FIFO will have the highest cost of goods sold

LIFO will have the lowest cost of goods sold

LIFO will have the highest ending inventory

Q6 (TCOs A, E) Equipment was purchased for $85,000. Freight charges amounted to $2,550 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $5,000 salvage value at the end of its 6-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5)

$13,333
$16,258
$15,425
$13,578

Q7 (TCOs D, G) When the market rate of interest is equal to the stated rate of interest on the bond, the bond will require _____. (Points : 5)

a debit to Discount on Bonds Payable

a credit to Discount on Bonds Payable

a credit to Bonds Payable

a debit to Bonds Payable

Q8 (TCO C) Accounts receivable arising from sales to customers amounted to $50,000 and $45,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was

$150,000. Based on these transactions, the cash flows from operating activities to be reported on the statement of cash flows would be _____. (Points : 5)

$195,000
$145,000
$115,000
$155,000

Q9 (TCO F) Which one of the following tools uses the percentage change formula to make year-over-year comparisons of sales growth? (Points : 5)

Horizontal analysis

Common-size analysis

Vertical analysis

Ratio analysis

Q10 (TCO F) When performing a common-size Income Statement, the 100% figure is _____. (Points : 5) net sales

otal liabilities plus stockholders’ equity

net income

total assets

Q11 (TCO F) Ratios are most useful in expressing _____. (Points : 5)

cause-and-effect relationships

the relationships between numbers

the delta between numbers

the root cause of the problem

Q12 (TCO F) Creditors are usually most concerned with analyzing _____. (Points : 5)

the company stock price

turnover

liquidity profitability

Q13 (TCO F) Shareholders are usually most interested in evaluating _____. (Points : 5)

Profitability

Leverage

Turnover

the ability to pay debts as they come due

Q14 (TCO G) To calculate the market value of a bond, we need to _____. (Points : 5)

multiply the stated rate times the bond’s face value

calculate the present value of the principal only

calculate the present value of both the principal and the interest

calculate the present value of the interest only

PART 2

Q1. (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 Asset

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 the Current Ratioand Return on common stockholders’ equity ratio. (Make sure to show all your work). (Points : 36)

Q2. (TCO B) The following selected data was retrieved from the Walmart, 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)

Q3 (TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the two 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.

(Points : 36)

Q4. (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 in which 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)

Q5. (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)

Ratio Name

Johnson & Johnson

Pfizer

Comment

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%

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