Acct 504 final exam

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  • 1. ACCT 504 FINAL EXAM PLEASE DOWNLOAD HERE1. (TCO A) Which of the following is an advantage of the sole proprietorshiprelative to the corporate form of business organization? (Points : 5)Limited liability of investorTransferability of ownershipSimple to establishUnlimited life2. (TCO A) Dividends _____. (Points : 5)represent an expense and are an operating activityrepresent an obligation and are an operating activityrepresent a distribution of earnings and are a financing activityrepresent an asset and are an investing activity3. (TCOs A, B) Below is a partial list of account balances for LBJ Company:Cash $15,000Prepaid insurance 5,000Accounts receivable 2,500Accounts payable 3,000Notes payable 6,000Common stock 10,000Dividends 500Revenues 15,000Expenses 13,000What did LBJ Company show as total debits?
  • 2. (Points : 5)$34,000$36,000$70,000$31,0004. (TCOs B, E) Why is the accrual basis of accounting preferred by GAAP?(Points : 5)The Accrual basis is easier to use.The Accrual basis is also preferred by the Internal Revenue Service.The Accrual basis complies with the revenue recognition and matching principles.The Accrual basis requires fewer accounting resources.5. (TCO D) In a period of increasing prices, which inventory cost flow assumptionwill result in the highest amount of net income?(Points : 5)LIFOThe average cost methodFIFOIncome tax expense for the period will be the same under all assumptions.6. (TCOs A, E) Equipment was purchased for $75,000 on January 1, 2011.Freight charges of $3,200 were incurred and there was a cost of $6,000 forinstallation. It is estimated the equipment will have a $12,000 salvage value at theend of its 5-year useful life. Depreciation expense for 2011 using the straight-linemethod will be _____. (Points : 5)$13,800$14,440$12,600$13,240
  • 3. 7. (TCO D,G) Payne Corporation issues 100 twenty-year, 6%, $1,000 bondsdated July 1, 2010, at 94. The journal entry to record the issuance will show a_____. (Points : 5)debit to Cash of $100,000credit to Bonds Payable of $94,000credit to Premium on Bonds Payable of $4,000debit to Discount on Bonds Payable of $6,0008. (TCO C) Accounts receivable arising from sales to customers amounted to$80,000 and $100,000 at the beginning and end of the year, respectively. Incomereported on the income statement for the year was $1,000,000. Exclusive of theeffect of other adjustments, the cash flows from operating activities to be reportedon the statement of cash flows is _____. (Points : 5)$20,000$1,020,000$1,000,000$980,0009. (TCO F) If you are making comparisons within a company to detect changes infinancial relationships and significant trends, you are performing what type ofanalysis? (Points : 5)Industry averages analysisIntercompany analysisCommon-size analysisIntracompany analysis10. (TCO F) The formula for performing horizontal analysis is _____. (Points : 5)(Current Year Amount minus Base Year Amount) divided by Current YearAmountBase Year Amount divided by Current Year AmountCurrent Year Amount minus Base Year Amount(Current Year Amount minus Base Year Amount) divided by Base Year Amount
  • 4. 11. (TCO F) Horizontal analysis is a technique for evaluating a series of financialstatement data over a period of time _____.(Points : 5)that has been arranged from the highest number to the lowest numberthat has been arranged from the lowest number to the highest numberto determine which numbers are in errorto determine the amount and/or percentage increase or decrease that has takenplace12. (TCO F) A common measure of liquidity is _____. (Points : 5)debt-to-total-assets ratiocash debt coveragefree cash flowworking capital13. (TCO F) Short-term creditors would be most interested in which of thefollowing ratios? (Points : 5)Average collection periodTimes interest earnedCash debt coverageFree cash flow14. (TCO G) To calculate the market value of a bond, we need to _____. (Points :5)multiply the bond price times the interest ratecalculate the present value of the principal onlycalculate the present value of the interest onlycalculate the present value of both the principal and1. (TCO A) Use the following partial financial statement information below tocalculate the liquidity and profitability ratios. This information can be used tocorrectly solve each of the ratios below.
  • 5. Average common shares outstanding 35,000 Current liabilities $25,000Capital expenditures $20,000 Net income $50,000Cash provided by operations $77,000 Net sales $100,000Preferred stock dividends paid $30,000 Total liabilities $50,000Current assets $20,000 Total assets $80,000Instructions: Compute the following.a) Current ratiob) Working capitalc) Earnings per shared) Debt-to-total-assets ratioe) Free cash flowTo earn full credit, you must show the formula you are using, show yourcomputations, and explain the meaning of each of your ratio results. (Points : 30)Metric Formula Used Figure IndicationCurrent Ratio (Current Assets)/(Current Liabilities) 0.8x This means that the firmwill have a hard time paying off its current liabilities if the need arises.Working Capital Current Assets-Current Liabilities -$5,000 This means that thefirm cannot continue its operations without facing many obligations.Earnings per share (Net Income-Preferred Dividends)/(Number of CommonShares) $0.57 a share This means that investors are earning $0.57 per shareowned.Debt to total assets ratio ((Total Debt))/(Total Assets) 0.625 This means thecompany’s capital structure relies so much on debtFCF Cash by operations-Capital Exp. $57,000 This tells us that the companyhas $57,000 cash to be used.2. (TCO D) The Oxford Company has budgeted sales revenues as follows.Oct Nov DecCredit sales $120,000 $96,000 $72,000
  • 6. Cash sales 72,000 204,000 156,000Total sales 192,000 300,000 228,000Past experience indicates that 60% of the credit sales will be collected in themonth 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 purchaseand 40% in the month following purchase. Budgeted inventory purchases are$260,000 in October, $180,000 in November, and $84,000 in December.Other budgeted cash receipts include (a) the sale of plant assets for $49,400 inNovember and (b) the sale of new common stock for $67,400 in December. Otherbudgeted cash disbursements include (a) operating expenses of $27,000 eachmonth, (b) selling and administrative expenses of $50,000 each month, (c)dividends of $76,000 to be paid in November, and (d) purchase of equipment for$24,000 cash in December.The company has a cash balance of $40,000 at the beginning of December andwishes to maintain a minimum cash balance of $40,000 at the end of each month.An open line of credit is available at the bank and carries an annual interest rateof 12%. Assume that all borrowing is done on the first day of the month in whichfinancing is needed and that all repayments are made on the last day of themonth in which excess cash is available. Also assume that $14,000 of financingwas obtained on November 1.Requirements: Use this information to prepare a schedule of expected cashpayments for purchases of inventory for the months of November and Decemberonly.This question does not require creation of an entire cash budget so please onlycreate the schedule that is asked for in the question because otherwise you willbe wasting valuable time.(Points : 30)Nov DecBeginning Cash Balance $32,000 $40,000Cash Receipts:Cash sales $204,000 $156,000Collection of Sales $105,600 $81,600Sale of Plant $49,400 $0Sale of Stocks $0 $67,400
  • 7. Cash Disbursements:Payment of Purchases ($212,000) ($122,400)Operating Expenses ($27,000) ($27,000)S&A Expenses ($50,000) ($50,000)Dividends ($76,000) $0Equipment Purchase $0 ($24,000)Interest Payments $0 ($1,680)Borrowing $14,000 $0Ending Balance $40,000 $119,9203. (TCOs B, E) The following items are taken from the financial statements ofLansing Company for 2010.Accounts payable $16,500Accounts receivable 25,500Accumulated depreciation 12,600Bonds payable 35,000Cash 55,000Common stock 75,000Cost of goods sold 53,000Depreciation expense 6,300Dividends 5,300Equipment 35,000Interest expense 4,300Patents 6,500Retained earnings, January 1 80,000Salaries expense 42,000
  • 8. Sales revenue 115,000Supplies 3,500Instructions: Prepare an income statement and a retained earnings statement forLansing Company. (Points : 30)Lansing CompanyIncome StatementSales Revenue $115,000Cost of Goods Sold ($53,000)Gross Margin $62,000Salaries Expense ($42,000)Depreciation Expense ($6,300)Interest Expense ($4,300)Net Income $9,400Lansing CompanyStatement of Retained EarningsBeginning Retained Earnings $80,000Add: Net Income $9,400Less: Dividends Paid ($5,300)Ending Retained Earnings $89,4004. (TCO D) Your friend James has hired you to evaluate the following internalcontrol procedures.a) Explain to your friend whether each of the numbered items below is an internalcontrol strength or weakness. You must also state which principle relates to eachof the internal controls.b) For the weaknesses, you also need to state a recommendation forimprovement.Everyone has access to the petty cash fund.
  • 9. Cash register codes are assigned to each cashier.The treasurer is the only one allowed to sign checks.Supervisors count cash receipts daily.The treasurer approves of the purchases and makes the payment because he isfamiliar with the purchases.(Points : 30)Control Principle TypeEveryone has access to the petty cash fund Proper authorization WeaknessCash register codes are assigned to each cashier. Segregation of dutiesStrengthThe treasurer is the only one allowed to sign checks. Proper AuthorizationStrengthSupervisors count cash receipts daily. Independent checks StrengthThe treasurer approves of the purchases and makes the payment because he isfamiliar with the purchases. Proper Authorization Weaknessb.) For the weaknesses, it is wise to limit the access to the petty cash funds, andinstead designate a number of authorized people to have access into it. Ifeveryone has access to the petty cash fund, then there is a high risk of runninginto fraud or theft. Also, it is not an adequate reason to let the treasurer approvethe purchases just because he is familiar with them. A thorough analysis shouldbe taken into consideration, and the treasurer should be accompanied withanother authorized employee with regards to making approvals of this kind.5. (TCOs D, E) Please prepare the following journal entries. Indicate whichaccount should be debited with the abbreviation DR in front of the account nameand which account should be credited with the abbreviation CR in front of theaccount name along with the dollar amount of the debit and credit.a) Investors invested $150,000 in exchange for 10,000 shares of common stock.b) Company made payment on account for $10,000c) Company received $15,000 for services not yet performedd) Company purchased $7,500 worth of equipmente) Company billed $5,000 for services performed (Points : 30)
  • 10. Cash DR $150 ,000Common Stock CR $150,000Accounts Payable DR $10,000Cash CR $10,000Cash DR $15,000Unearned Revenue CR $15,000Equipment DR $7,500Cash CR $7,500Accounts Receivables DR $5,000Service Revenue CR $5,0006. (TCO C) Please indicate which section of the statement of cash flows shouldcontain each of the following items and whether each item would result in aninflow or outflow of cash. The sections are Operating, Investing, and Financing.a) Depreciation of equipmentb) Increase in accounts payablec) Sold a building at book valued) Paymentofdividendse) Increase in inventory (Points : 30)Event Section ResultDepreciation of equipment Operating InflowIncrease in accounts payable Operating InflowSold a building at book value Investing InflowPayment of dividends Financing OutflowIncrease in inventory Operating Outflow