Set 1

Question 1. 1. (TCOs A, B, and C) Which type of corporate information is not available to investors? (Points : 3)
Dividend history
Forecast of cash needs for the upcoming year
Cash provided by investing activities
Beginning cash balance
Question 2. 2. (TCO C) Debt securities sold to investors that must be repaid at a particular date some years in the future are called (Points : 3)
accounts payable.
notes receivable.
taxes payable.
bonds payable.
Question 3. 3. (TCO C) Buying and selling products are examples of (Points : 3)
operating activities.
investing activities.
financing activities.
delivering activities.
Question 4. 4. (TCO A) The cost of assets consumed or services used is also known as (Points : 3)
a revenue.
an expense.
a liability.
an asset.
Question 5. 5. (TCO C) Finley Company recorded the following cash transactions for the year.
Paid $90,000 for salaries
Paid $40,000 to purchase office equipment
Paid $10,000 for utilities
Paid $4,000 in dividends
Collected $150,000 from customers

What was Finley’s net cash provided by operating activities? (Points : 3)
$50,000
$10,000
$60,000
$46,000

Question 6. 6. (TCO A) On a classified balance sheet, prepaid insurance is classified as (Points : 3)
an intangible asset.
property, plant, and equipment.
a current asset.
a long-term investment.
Question 7. 7. (TCO A) An intangible asset (Points : 3)
may have the capacity to earn revenue for its owner.
is worthless because it has no physical substance.
is converted into a tangible asset during the operating cycle.
cannot be reported on the balance sheet because it lacks physical substance.

Question 8. 8. (TCO A) The following are selected account balances on December 31, 2010.

-Land (location of the corporation’s office building): $100,000
-Land (held for future use): 150,000
-Corporate Office Building: 600,000
-Inventory: 200,000
-Equipment: 450,000
-Office Furniture: 100,000
-Accumulated Depreciation: 300,000
What is the total NET amount of property, plant, and equipment that will appear on the balance sheet? (Points : 3)
$1,300,000
$1,100,000
$1,600,000
$950,000
Question 9. 9. (TCO B) For 2010, Landford Corporation reported net income of $30,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2010 earnings per share? (Points : 3)
$4.66
$0.20
$66.67
$5.00
Question 10. 10. (TCO B) At December 31, 2010, Shorts Company had retained earnings of $2,184,000. During 2010 they issued stock for $98,000, and paid dividends of $34,000. Net income for 2010 was $402,000. The retained earnings balance at the beginning of 2010 was: (Points : 3)
$2,552,000
$1,816,000
$1,914,000
$2,454,000
Question 11. 11. (TCO D) Money collected from customers before the work is done is treated as (Points : 3)
prepaid expenses.
accrued revenues.
unearned revenues.
accrued expenses.
Question 12. 12. (TCO D) An account is a part of the financial information system and is described by all except which one of the following? (Points : 3)
An account has a debit and credit side.
An account has to be in paper form.
An account has a zero or nonzero balance.
An account has a title.
Question 13. 13. (TCO D) Which of the following describes the classification and normal balance of the retained earnings account? (Points : 3)
Asset, debit
Stockholders’ equity, credit
Revenues, credit
Expense, debit
Question 14. 14. (TCO D) In recording an accounting transaction in a double-entry system (Points : 3)
the number of debit accounts must equal the number of credit accounts.
there must always be entries made on both sides of the accounting equation.
the amount of the debits must equal the amount of the credits.
there must only be two accounts affected by any transaction.
Question 15. 15. (TCO D) Which of the following accounts follows the rules of debit and credit in relation to increases and decreases in the opposite manner? (Points : 3)
Prepaid insurance and dividends
Dividends and medical fees earned
Interest payable and common stock
Advertising expense and land
Question 16. 16. (TCO E) An accounting time period that is 1 year in length is called (Points : 3)
a fiscal year.
an interim period.
the time period assumption.
a reporting period.
Question 17. 17. (TCO E) In a service-type business, revenue is considered earned (Points : 3)
at the end of the month.
at the end of the year.
when the service is performed.
when cash is received.
Question 18. 18. (TCO E) Why do generally accepted accounting principles require the application of the revenue recognition principle? (Points : 3)
Failure to apply the revenue recognition principle could lead to an overstatement of revenue.
It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.
Recording revenue when cash is received is an objective application of the revenue recognition principle.
Accounting software has made the revenue recognition easy to apply.

Question 19. 19. (TCO E) The following is selected information from G Corporation for the fiscal year ending October 31, 2010.

-Cash received from customers: $150,000
-Revenue earned: 175,000
-Cash paid for expenses: 85,000
-Expenses incurred: 100,000
Based on the accrual basis of accounting, what is G Corporation’s net income for the year ending October 31, 2010? (Points : 3)
$57,000
$75,000
$41,000
$85,000

Question 20. 20. (TCO E) Accounts often need to be adjusted because (Points : 3)
there are never enough accounts to record all the transactions.
many transactions affect more than one time period.
there are always errors made in recording transactions.
management can’t decide what they want to report.

Question 21. 21. (TCOs A and B) Which of the following expressions is incorrect? (Points : 3)
Gross profit – operating expenses = net income
Sales – cost of goods sold – operating expenses = net income
Net income + operating expenses = gross profit
Operating expenses – cost of goods sold = gross profit

Question 22. 22. (TCO B) Hunter Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period? (Points : 3)
$11,040
$10,800
$11,760
$12,000
Question 23. 23. (TCOs A and B) Jake’s Market recorded the following events involving a recent purchase of merchandise.

-Received goods for $20,000, terms 2/10, n/30.
-Returned $400 of the shipment for credit.
-Paid $100 freight on the shipment.
-Paid the invoice within the discount period.

As a result of these events, the company’s merchandise inventory (Points : 3)
increased by $19,208.
increased by $19,700.
increased by $19,306.
increased by $19,308.

Question 24. 24. (TCO A) If goods in transit are shipped FOB destination (Points : 3)
the seller has legal title to the goods until they are delivered.
the buyer has legal title to the goods until they are delivered.
the transportation company has legal title to the goods while the goods are in transit.
no one has legal title to the goods until they are delivered.

Question 25. 25. (TCO A) Which statement is false? (Points : 3)
Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.
An inventory count is generally more accurate when goods are not being sold or received during the counting.
Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance-sheet date and to determine cost of goods sold for the accounting period.

Question 26. 26. (TCO A) Of the following companies, which one would not likely employ the specific identification method for inventory costing? (Points : 3)
Music store specializing in piano sales
Custom jewelry store
Antique shop
Hardware store
Question 27. 27. (TCO A) Which of the following statements is correct with respect to inventories? (Points : 3)
The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
It is generally good business management to sell the most recently acquired goods first.
Under FIFO, the ending inventory is based on the latest units purchased.
FIFO seldom coincides with the actual physical flow of inventory.
Question 28. 28. (TCO A) In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the (Points : 3)
FIFO method.
LIFO method.
average cost method.
tax method.
Question 29. 29. (TCO B) In a perpetual inventory system, cost of goods sold is recorded (Points : 3)
on a daily basis.
on a monthly basis.
on an annual basis.
each time a sale occurs.
Question 30. 30. (TCO B) The primary source of revenue for a retailer is (Points : 3)
investment income.
service revenue.
the sale of merchandise.
the sale of plant assets the company owns.

Question 31. 31. (TCO D) An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased, and the normal balance of each type of accounts. (Points : 25)

Question 32. 32. (TCOs B and E) The adjusted trial balance of Gertz Company included the following selected accounts.

Debit Credit
Sales $575,000
Sales returns and allowances $ 50,000
Sales discounts 9,500
Cost of goods sold 347,000
Freight-out 2,000
Advertising expense 15,000
Interest expense 19,000
Store salaries expense 74,000
Utilities expense 18,000
Depreciation expense 3,500
Interest revenue 25,000

Instructions:

1.Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010.
2.Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.
(Points : 35)

Set 2

1. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?
Reduced legal liability for investors
Harder to transfer ownership
Lower taxes
Most common form of organization

2. Dividends _____.
represent an expense and are an operating activity
represent an obligation and are an operating activity
represent a distribution of earnings and are a financing activity
represent an asset and are an investing activity

3. Below is a partial list of account balances for LBJ Company:
Cash $15,000
Prepaid insurance 5,000
Accounts receivable 2,500
Accounts payable 3,000
Notes payable 6,000
Common stock 10,000
Dividends 500
Revenues 15,000
Expenses 13,000

What did LBJ Company show as total debits?
$34,000
$36,000
$70,000
$31,000

4. Under the accrual basis of accounting, revenues are recorded and reported _____.

when companies receive payments for jobs performed or products provided
when companies have provided products or performed services
when companies receive payments prior to providing products or performing services
when companies receive payments after providing products or performing services

5. In a period of increasing prices, which inventory cost flow assumption will result in the highest amount of net income?

LIFO
The average cost method
FIFO
Income tax expense for the period will be the same under all assumptions.

6. Equipment was purchased for $55,000 on January 1, 2011. Freight charges of $2,200 were incurred and there was a cost of $1,800 for installation. It is estimated the equipment will have a $5,500 salvage value at the end of its 5-year useful life. Depreciation expense for 2011 using the straight-line method will be _____.

$10,340
$10,700
$10,260
$9,900

7. Payne Corporation issues 100 twenty-year, 6%, $1,000 bonds dated July 1, 2010, at 94. The journal entry to record the issuance will show a _____.

debit to Cash of $100,000

credit to Bonds Payable of $94,000

credit to Premium on Bonds Payable of $4,000

debit to Discount on Bonds Payable of $6,000

8. Accounts receivable arising from sales to customers amounted to $80,000 and $120,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $2,000,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _____.
$2,040,000

$2,000,000

$1,200,000

$1,960,000

9. If you are making comparisons within a company to detect changes in financial relationships and significant trends, you are performing what type of analysis?

Industry averages analysis

Intercompany analysis

Common-size analysis

Intracompany analysis

10. The formula for performing horizontal analysis is _____.

(Current Year Amount minus Base Year Amount) divided by Current Year Amount

Base Year Amount divided by Current Year Amount

Current Year Amount minus Base Year Amount

(Current Year Amount minus Base Year Amount) divided by Base Year Amount

11.Horizontal analysis of comparative financial statements includes the _____.

development of common-size statements

calculation of liquidity ratios

calculation of dollar amount changes and percentage changes from the previous year to the current year

evaluation of financial statement data that expresses each item in a financial statement as a percentage of a base amount

12. A common measure of solvency is the _____.

asset turnover

current cash debt coverage ratio

cash debt coverage ratio

current ratio

13. Stockholders would be most interested in which of the following ratios?

Days in inventory

Free cash flow

Current ratio

Average collection period

14. To calculate the market value of a bond, we need to _____.

multiply the bond price times the interest rate

calculate the present value of the principal only

calculate the present value of the interest only

calculate the present value of both the principal and interest payments

15. (TCO A) Use the following partial financial statement information below to calculate the liquidity and profitability ratios. This information can be used to correctly solve each of the ratios below.
Average common shares $10,000 Current liabilities $100,000 Capital expenditures 20,000 Net income 21,000
Cash provided by operations 28,000 Net sales 150,000
Common stock dividends paid 5,000 Total liabilities 105,000 Current assets 150,000 Total assets 175,000 Instructions: Compute the following.
a) Current ratio
b) Working capital
c) Earnings per share
d) Debt-to-total-assets ratio
e) Free cash flow
Must show the formula you are using, show your computations, and explain the meaning of each of your ratio results.

16.) Please indicate which section of the statement of cash flows should contain each of the following items and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing.
a) Payment of dividends
b) Bought assets needed to operate the business
c) Depreciation of equipment
d) Increase in inventory
e) Sale of building

17. (TCOs D, E) Please prepare the following journal entries. Indicate which account should be debited with the abbreviation DR in front of the account name and which account should be credited with the abbreviation CR in front of the account name along with the dollar amount of the debit and credit.
a) Investors invested $600,000 in exchange for 30,000 shares of common stock.
b) Company paid rent of $3,000
c) Company billed $5,000 for services performed
d) Company purchased supplies of $3,000
e) Company received $20,000 for services not yet performed

18) (TCO D) Your friend Dean has hired you to evaluate the following internal control procedures.

a) Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls.

b) For the weaknesses, you also need to state a recommendation for improvement.

1. Bonding of the cashiers is not required because all of the cashiers have significant experience.

2. The treasurer is the only one allowed to sign checks.

3. All employees may operate cash registers.

4. Blank checks are stored in the safe.

5. Supervisors count cash receipts daily.

19) The following items are taken from the financial statements of Grove Company for 2010.

Accounts payable $ 18,500 Accounts receivable 4,000

Accumulated depreciation 4,800 Bonds payable 18,000

Cash 24,000 Common stock 25,000

Cost of coods sold 13,000 Depreciation expense 4,800

Dividends 5,300 Equipment 48,000

Interest expense 2,500 Patents 7,500

Retained earnings, January 1 16,000 Salaries expense 5,200 Sales revenue 36,500 Supplies 4,500

Instructions: Prepare an income statement and a retained earnings statement for Grove Company.

Set 3:

1. (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)

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 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 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)

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.
(Points : 36)

QCM

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) The Dividends account _____. (Points : 5)

is increased with a debit
is decreased with a credit
is not an expense account
All of the above

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 staff
insignificant receivables and payables
all sales and purchases on account

5. (TCO D) Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)

LIFO will have the highest ending inventory
FIFO will have the highest cost of goods sold
FIFO will have the highest ending inventory
LIFO will have the lowest cost of goods sold

6. (TCO A, E) Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? (Points : 5)

$6,680
$3,340
$2,860
$5,720

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 $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $240,000. 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)

$240,000
$250,000
$310,000
$230,000

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

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

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

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

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

current ratio
current cash debt coverage ratio
return on common stockholder’s equity ratio
debt to total assets

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

liquidity
marketability
profitability
solvency

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

Set 4:

Week 8 : Final Exam – Final Exam

Page 1

Question 1. 1. (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

Question 2. 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

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

Cash $5,000
Prepaid insurance 500
Accounts receivable 2,500
Accounts payable 2,000
Notes payable 3,000
Common stock 1,000
Dividends 500
Revenues 15,000
Expenses 12,500

What did Cerner Company show as total credits? (Points : 5)
$21,500
$21,000
$20,500
$22,000

Question 4. 4. (TCOs B, E) Using accrual accounting, expenses are recorded and reported only _____. (Points : 5)
when they are incurred, whether or not cash is paid
when they are incurred and paid at the same time
if they are paid before they are incurred
if they are paid after they are incurred

Question 5. 5. (TCO D) Three companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)
LIFO will have the highest ending inventory
FIFO will have the highest cost of goods sold
All three companies will have the same value for ending inventory.
average cost will have an ending inventory value that falls between FIFO and LIFO

Question 6. 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

Question 7. 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

Question 8. 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 effect 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

Question 9. 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

Question 10. 10. (TCO F) Comparisons of data within a company are an example of the following comparative basis. (Points : 5)
Industry averages
Intercompany
Intracompany
Interregional

Question 11. 11. (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

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

Question 13. 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

Question 14. 14. (TCO G) The present value of a bond is a function of which factors below? (Points : 5)
The market interest rate
The length of time until the amounts are received
The dollar amounts to be received
All of the above

Page 2

Question 1. 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 and Marketable Securities 8,109
Cash 8,442
Other non-current Liabilities 10,449
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 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 Ratio and Return on common stockholders’ equity ratio. (Make sure to show all your work).
(Points : 36)

Question 2. 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 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)

Question 3. 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 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)

Question 4. 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)

Question 5. 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.
(Points : 36)