ACCT 504 Final Exam

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ACCT 504 Final exam  – Latest DeVry

 

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

 

/

 

 

ircumstances.

 

 

 

17.Shareholder wealth is measured by the market value of the firm’s common stock.

 

 

18.The agency problem arises due to the separation of ownership and control in a firm.

 

 

19.There is little, if any, difference between a business error and an ethical error.

 

20.For markets to be efficient, price adjustments to new information must be correct.

 

 

21.Ethical dilemmas frequently exist in finance.

 

 

22.Even though diversification can eliminate risk, it also makes it more difficult to measure a project’s or an asset’s risk.

 

 

23.Consider the following equally likely project outcomes: Profit XY Pessimistic prediction$0$500 Expected outcome$ 500$500 Optimistic prediction$1000 $500

a.Project Y has less uncertainty than Project X.

b.Project X has more variability than Project Y.

c.a and b.

d.Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

 

24.Maximization of shareholder wealth as a goal is superior to profit maximization because:

a.it considers the time value of the money.

b.following the shareholder wealth maximization goal will ensure high stock prices.

c.it considers uncertainty.

d.a and c.

 

25.Why is maximizing shareholder wealth a better goal than maximizing profits?

a.Maximizing shareholder wealth places greater emphasis on the short term.

b.Maximizing profits ignores the uncertainty that is related to expected profits.

c.Maximizing shareholder wealth gives superior consideration to the entire portfolio of shareholder investments.

d.Maximizing profits gives too much weight to the tax position of shareholders.

 

 

 

46.A limited liability company (LLC) is:

a.able to retain limited liability for owners.

b.taxed like a corporation.

c.a cross between a partnership and a corporation.

d.a and c.

e.all of the above.

 

47.Purchasing a security of a company that is issuing their stock for the first time publicly would be considered:

a.a secondary market transaction.

b.an initial public offering.

c.a seasoned new issue.

d.both a and b.

 

48.In measuring value, the focus should be on:

a.cash flow.

b.accounting profits.

c.time value of money.

d.earnings per share.

 

49.Which of the following is regarding accounting profits?

a.Received by the firm and reinvested

b.Reflects money in hand

c.Represents actual money received and paid out

d.Equals cash in the bank

 

50.Which of the following statements is regarding competitive markets?

a.Large profits exist over the long run.

b.Product differentiation produces insulation for competitors.

c.Cost advantages attract new entrants.

d.Both b and c.

 

 

59.Briefly discuss why financial decision makers must focus on incremental cash flows when evaluating new projects.

60.Discuss the risk/return tradeoff and how it relates to finance.

61.Compare and contrast primary market and secondary market transactions as it relates to the flow of funds in the transactions.

62.Discuss how new entrants are deterred from entering a competitive market.

63.What is incremental cash flow and

how is

it used in project analysis?

 

 

Ch1:

1. In the past, the study of finance has included

A) mergers and acquisitions.

B) raising capital.

C) bankruptcy.

D) all of the above.

2. One of the major disadvantages of a sole proprietorship is

A) that there is unlimited liability to the owner.

B) the simplicity of decision making.

C) low organizational costs.

D) low operating costs.

3. Many companies such as Tyco, Enron, WorldCom, etc. that suffered financial distress in the late 1990s and early 2000s,

A) committed fraud.

B) had failed corporate governance oversight.

C) went bankrupt.

D) all of the above are .

4. Agency theory would imply that conflicts are more likely to occur between management and shareholders when

A) the company is owned and operated by the same person.

B) management acts in the best interests of maximizing shareholder wealth.

C) the chairman of the board is also the chief executive officer (CEO).

D) the board of directors exerts strong and involved oversight of management

5. Maximization of shareholder wealth is a concept in which

A) increased earnings is of primary importance.

B) profits are maximized on a quarterly basis.

C) virtually all earnings are paid as dividends to common stockholders.

D) optimally increasing the long-term value of the firm is emphasized.

6. Money markets would include which of the following securities?

A) common stock and corporate bonds.

B) treasury bills and commercial paper.

C) certificates of deposit and preferred stock.

D) all of the above.

 

7.

The Internet

has affected the financial markets by

 

A) creating more competition between markets.

B) pushing the cost of trading down.

C) forcing brokerage companies to consolidate.

D) all of the above

 

 

6. Use the table to answer following questions:

 

Sales (75,000 units) $750,000

Variable costs 225,000

Contribution margin $525,000

Fixed manufacturing costs 187,500

Operating income $337,500

Interest 75,000

Earnings before taxes $262,500

Taxes (at 31%) 81,375

Net Income $181,125

Shares outstanding 15,000

 

1. (TCO A) Which of the following is an advantage of the sole proprietorship relative to the corporate form of business organization? (Points : 5)

Limited liability of investor

Transferability of ownership

Simple to establish

Unlimited life

 

 

2. (TCO A) Dividends _____. (Points : 5)

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. (TCOs A, B) 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?

(Points : 5)

$34,000

$36,000

$70,000

$31,000

 

 

4. (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 assumption will result in the highest amount of net income?(Points : 5)

LIFO

The average cost method

FIFO

Income 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 for installation. It is estimated the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense for 2011 using the straight-line method will be _____. (Points : 5)

$13,800

$14,440

$12,600

$13,240

 

 

7. (TCO D,G) 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 _____. (Points : 5)

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

Category: Tag:

Description

ACCT 504 Final Exam,

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

 

  1. (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

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

 

  1. (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

 

  1. (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
The average cost method
Income tax expense for the period will be the same under all assumptions.

 

  1. (TCOs A, E) Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5)

$14,160
$11,760
$9,840
$9,600

 

  1. (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

 

  1. (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

 

  1. (TCO F) Which one of the following is not a tool in financial statement analysis? (Points : 5)

Horizontal analysis
Circular analysis
Vertical analysis
Ratio analysis

 

  1. (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

  1. (TCO F) Ratios are most useful in identifying _____. (Points : 5)

trends
differences
causes
relationships among different numbers

 

  1. (TCO F) A common measure of liquidity is _____. (Points : 5)

return on assets
current ratio
profit margin
debt to equity

  1. (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

 

  1. (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

 

  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:

 

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