PART 1
1. An advantage of the corporate form of business is _____.
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 corporation's debts
2. Which one of the following statements is correct with regard to Dividends?
Dividends are increased by credits.
Dividends are subtracted on the Income Statement.
Common stock dividends are required to be paid.
Dividends reduce
stockholders' equity.
3. Below is a partial list of account balances for LBJ Company:
Cash $12,000
Prepaid insurance 1,300
Accounts receivable 7,000
Accounts payable 5,000
Notes payable 9,000
Common stock 22,000
Dividends 2,000
evenues 45,000
Expenses 35,000
What did LBJ Company show as total debits?
$57,300
$81,000
$55,300
$56,000
4. Which of the following statements is incorrect with regard to accrual accounting?
Accrual accounting is consistent with the matching principle.
Accrual accounting does not record expenses until they are paid.
Accrual accounting is more complex than cash basis accounting.
Accrual accounting is required by GAAP.
5. Three different companies each utilize a different inventory costing method. If the price of goods has increased during the period, then the company using _____.
FIFO will have the highest ending inventory
FIFO will have the highest cost of goods sold
LIFO will have the lowest cost of goods sold
LIFO will have the highest ending inventory
6. Equipment was purchased for $85,000. Freight charges amounted to $2,550 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $5,000 salvage value at the end of its 6-year useful life. Depreciation expense each year using the straight-line method will be _____.
$13,333
$16,258
$15,425
$13,578
7. When the market rate of interest is equal to the stated rate of interest on the bond, the bond will require _____.
a debit to Discount on Bonds Payable
a credit to Discount on Bonds Payable
a credit to Bonds Payable
a debit to Bonds Payable
8. Accounts receivable arising from sales to customers amounted to $50,000 and $45,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $150,000. Based on these transactions, the cash flows from operating activities to be reported on the statement of cash flows would be _____.
$195,000
$145,000
$115,000
$155,000
9. Which one of the following tools uses the percentage change formula to make year-over-year comparisons of sales growth?
Horizontal analysis
Common-size analysis
Vertical analysis
Ratio analysis
10. When performing a common-size Income Statement, the 100% figure is _____.
net sales
total liabilities plus stockholders' equity
net income
total assets
11. Ratios are most useful in expressing _____.
cause-and-effect relationships
the relationships between numbers
the delta between numbers
the root cause of the problem
12. Creditors are usually most concerned with analyzing _____.
the company stock price
turnover
liquidity
profitability
13. Shareholders are usually most interested in evaluating _____.profitability
leverage
turnover
the ability to pay debts as they come due
14. To calculate the market value of a bond, we need to _____.
multiply the stated rate times the bond's face value
calculate the present value of the principal only
calculate the present value of both the principal and the interest
calculate the present value of the interest only
PART 2
1. 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 Asset
|
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:
a. 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. The following selected data was retrieved from the Walmart, 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:
a. Prepare a multiple-step income statement
b. 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.
3. 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
|
$(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.
4. 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 in which 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)?
5. 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.
|
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%
|