Question 1.1.(TCO A) An advantage of the corporate form of business is _____.(Points : 5)
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 corporations debts
Question 2.2.(TCO A) Dividends flow through which one of the following statements?(Points : 5)
The Balance Sheet
The Statement of Retained Earnings
The Income Statement
None of the above
Question 3.3.(TCOs A B)Below is a partial list of account balances forLBJ Company:
Cash
$15000
Prepaid insurance
1000
Accounts receivable
3500
Accounts payable
3000
Notes payable
6000
Common stock
100000
Dividends
1500
Revenues
75000
Expenses
45500
What did LBJ Company show as total credits?(Points : 5)
$185500
$250500
$66000
$184000
Question 4.4.(TCOs B E) Which of the following statements is correct with regard to accrual accounting?(Points : 5)
Accrual accounting is consistent with the matching principle.
Accrual accounting is less complex than the cash-basis method.
Accrual accounting does not record expenses until paid.
Accrual accounting does not record revenue until payment is received.
Question 5.5.(TCO D) Which inventory method will result in the lowest income taxes when prices are decreasing?(Points : 5)
The average cost method
LIFO
FIFO
Income tax expense will be the same.
Question 6.6.(TCO A E) Equipment was purchased for $27000. Freight charges amounted to $1000 and there was a cost of $5000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $5000 salvage value at the end of its 7-year useful life. Depreciation expense each year using the straight-line method will be _____.(Points : 5)
$4714
$4000
$3857
$3285
Question 7.7.(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
Question 8.8.(TCO C) Accounts receivable arising from sales to customers amounted to $50000 and $45000 at the beginning and end of the year respectively. Income reported on the income statement for the year was $150000. Based on these transactions the cash flows from operating activities to be reported on the statement of cash flows would be _____.(Points : 5)
$195000
$145000
$115000
$155000
Question 9.9.(TCO F) If you are calculating the percentage change between 2 years worth of sales data you are conducting a _____.(Points : 5)
common-size analysis
vertical analysis
horizontal analysis
ratio analysis
Question 10.10.(TCO F) When performing a common-size Income Statement the 100% figure is _____.(Points : 5)
net sales
total liabilities plus stockholders equity
net income
total assets
Question 11.11.(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
Question 12.12.(TCO F) Creditors are usually most concerned with analyzing _____.(Points : 5)
the company stock price
turnover
liquidity
profitability
Question 13.13.(TCO F) Shareholders are usually most interested in evaluating _____.(Points : 5)
profitability
leverage
turnover
the ability to pay debts as they come due
Question 14.14.(TCO G) To calculate the market value of a bond we need to use the time-value-of-money concept called _____.(Points : 5)
interpolation
future value
compounding
discounting
(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
8109
Cash
8442
Other non-current Liabilities
10449
Common Stock
1760
Receivables
4812
Other Current Assets
2973
Long-term Investments
10448
Other Non-current Assets
3585
Property Plant and Equipment
23486
Trademarks
6527
Other Intangible Assets
20810
Allowance for Doubtful Accounts
53
Accumulated Depreciation
9010
Accounts Payable
8680
Short Term Notes Payable
17874
Prepaid Expenses
2781
Other Current Liabilities
796
Long-Term Liabilities
14736
Paid-in-Capital in Excess of Par Value
11379
Retained Earnings
55038
Inventories
3264
Treasury Stock
35009
Other information taken from the Annual Report:
Sales Revenue for 2012
$48017
Cost of Goods Sold for 2012
19053
Net Income for 2012
9019
Inventory Balance on 12/31/11
3092
Net Accounts Receivable Balance on 12/31/11
4920
Total Assets on 12/31/11
79974
Equity Balance on 12/31/11
31921
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 calculatetheCurrent Ratioand 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 Walmart Inc. financial statements for the year ending January 31 2013:
Accounts Payable
$38080
Accounts Receivable
6768
Cash
7781
Common Stock
3952
Cost of Goods Sold
352488
Income Tax Expense
7981
Interest Expenses
2064
Membership Revenues
3048
Net Sales
466114
Operating Selling and Administrative Expenses
88873
Retained Earnings
72978
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 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
$(12650)
$7074
Depreciation and amortization
5095
4984
Impairment of goodwill and purchased intangible assets
18035
885
Stock-based compensation expense
635
685
Provision for doubtful accounts
142
81
Provision for inventory
277
217
Restructuring charges
2266
645
Deferred taxes on earnings
(711)
166
Excess tax benefit from stock-based competition
(12)
(163)
Other net
265
(46)
Accounts and financing receivables
1269
(227)
Inventory
890
(1252)
Accounts payable
(1414)
275
Taxes on earnings
(320)
610
Restructuring
(840)
(1002)
Other assets and liabilities
(2356)
(293)
Net cash provided by operating activities
10571
12639
Cash flows from investing activities:
Investment in property plant and equipment
(3706)
(4539)
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)
(10480)
Proceeds from business divestiture net
87
89
Net cash used in investing activities
(3453)
(13959)
Cash flow from financing activities:
(Payments) issuance of commercial paper and notes payable net
(2775)
(1270)
Issuance of debt
5154
11942
Payment of debt
(4333)
(2336)
Issuance of common stock under employee stock plans
716
896
Repurchase of common stock
(1619)
(10117)
Excess tax benefit from stock-based compensation
12
163
Cash dividends paid
(1015)
(844)
Net cash used in financing activities
(3860)
(1566)
Increase (decrease) in cash and cash equivalents
3258
(2886)
Cash and cash equivalents at beginning of period
8043
10929
Cash and cash equivalents at end of period
$11301
$8043
Required:
1)Please calculate the percentage increase or decrease in cash for the total line of the operating investing and financing sections bolded aboveand 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 companys net income can vary widely depending on which accounting choices are made from the GAAP menu.
Assuming the goal is tomaximizenet 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 chooseLIFO 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)