1. FI504 Final Exam
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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
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

2. 3. (TCOs A, B) Cerner Company showed the following balances at the end of its
first year:
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 on its trial balance? (Points : 5)
$21,500
$21,000
$20,500
$22,000
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
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

3. The average cost method
Income tax expense for the period will be the same under all assumptions.
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
7. (TCOs D, G) Mendez Corporation issues 2,000 ten-year, 8%, $1,000 bonds
dated January 1, 2007, at 103. The journal entry to record the issuance will show
a _____. (Points : 5)
debit to Cash of $2,000,000
debit to Premium on Bonds Payable for $60,000
credit to Bonds Payable for $2,000,000
credit to Cash for $2,060,000
8. (TCO C) Accounts receivable arising from sales to customers amounted to
$40,000 and $35,000 at the beginning and end of the year, respectively. Income
reported on the income statement for the year was $110,000. 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)
$110,000
$105,000
$115,000
$150,000
9. (TCO F) Which one of the following is not a tool in financial statement
analysis? (Points : 5)
Horizontal analysis

4. Circular 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) Ratios are most useful in identifying _____. (Points : 5)
trends
differences
causes
relationships among different numbers
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) The present value of a bond is a function of which factors below?
(Points : 5)

5. The market interest rate
The length of time until the amounts are received
The dollar amounts to be received
All of the above
1. (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
To earn full credit, you must show the formula you are using, show your
computations, and explain the meaning of each of your ratio results.
(Points : 30)
2. (TCOs B, E) The following items are taken from the financial statements of
Tracy Company for 2010.
Accounts payable $ 15,000
Accounts receivable 11,000
Accumulated depreciation video equipment 28,000
Advertising expense 21,000
Cash 24,000
Common stock 90,000
Depreciation expense 12,000
Dividends 15,000
Insurance expense 3,000
Note payable (due 2013) 70,000
Prepaid insurance 6,000
Rent expense 17,000
Retained earnings (beginning) 12,000
Salaries expense 34,000

6. Salaries payable 3,000
Service revenue 145,000
Supplies 4,000
Supplies expense 6,000
Video equipment 210,000
Instructions:
a) Calculate the net income.
b) Calculate the balance of Retained earnings that would appear on a balance
sheet at December 31, 2010. (Points : 30)
3. (TCO D) The Oxford Company has budgeted sales revenues as follows.
April May June
Credit sales $60,000 $48,000 $36,000
Cash sales 36,000 102,000 78,000
Past experience indicates that 60% of the credit sales will be collected in the
month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit, with 60% paid in the month of purchase
and 40% in the month following purchase. Budgeted inventory purchases are
$130,000 in April, $90,000 in May, and $42,000 in June.
Other budgeted cash receipts include (a) the sale of plant assets for $24,700 in
May and (b) the sale of new common stock for $33,700 in June. Other budgeted
cash disbursements include (a) operating expenses of $13,500 each month, (b)
selling and administrative expenses of $25,000 each month, (c) dividends of
$38,000 to be paid in May, and (d) purchase of equipment for $12,000 cash in
June.
The company has a cash balance of $20,000 at the beginning of June and wishes
to maintain a minimum cash balance of $20,000 at the end of each month. An
open line of credit is available at the bank and carries an annual interest rate of
12%. Assume that all borrowing is done on the first day of the month in which
financing is needed and that all repayments are made on the last day of the
month in which excess cash is available. Also assume that $7,000 of financing
was obtained on May 1.
Requirements: Use this information to prepare a schedule of expected cash
collections from customers for the months of May and June only. (Points : 30)
4. (TCO D) Your friend Sally 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.

7. b) For the weaknesses, you also need to state a recommendation for
improvement.
Invoices are prenumbered. The controller approves of the purchases and makes
the payment because he is familiar with the purchases. The office manager is in
charge of the petty cash fund. Blank checks are stored in the safe. At the end of
the day, the total receipts are counted by the cashier on duty and reconciled to
the cash register total.
(Points : 30)
5. (TCOs D, E) Prepare the following journal entries. Indicate which account
should be debited and which account should be credited, along with the dollar
amount of the debit and credit.
a) Investors invested $50,000 in exchange for 1,000 shares of common stock.
b) Company purchased equipment for $10,000 on credit
c) Company received $5,000 for services performed
d) Company made payment on account for $2,000
e) Company received $7,000 for services not yet performed (Points : 30)
6. (TCO C) 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) Amortization of a patent
b) Increase in accounts receivable
c) Payment of dividends
d) Purchased equipment to operate the business
e) Decrease in inventory (Points : 30)