Devry ACCT504 Final Exam December 2016

03 Jul Devry ACCT504 Final Exam December 2016

Question 1.1. (TCO D) Please describe the purpose of the Income Statement and the interrelationship between the income statement and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Income Statement, if any, and which financial statements need to be completed after the Income Statement, if any. (Points : 25)

Question 2.2. (TCO E) Your friend, Lisa, plans to open a nail salon. Lisa states that she does not have time to develop and implement a system of internal controls.

(a) Explain to Lisa the components of internal control. (10 points)

(b) Explain to Lisa at least 5 internal control procedures she must establish to protect herself against fraud. You should state specific internal control procedures from the textbook, and relate your answer to her nail salon business. (15 points) (Points : 25)

Question 3.3. (TCO H) Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation when the market rate of interest was 10%. Interest is paid semiannually on the bonds, and the bonds mature in 4 years.

Instructions:

Compute the total price paid by Simpson Inc. for the bonds showing your calculation for the present value of the principal and the present value of the interest payments.

Present value tables (Exhibit 8-14 and Exhibit 8-15) are available on pages 452 and 453 of your Harrison, Horngren, and Thomas textbook.  NOTE:  Be sure you review the PV Tables completely to ensure you find the correct period and interest rate for the calculation. (Points : 20)

Question 4.4. (TCO A) The following items are taken from the financial statements of BCT Company for 2013:

Cash

$138,800

Accounts Payable

75,000

Supplies

15,000

Accounts Receivable

35,000

Inventory

45,000

Salaries Payable

30,000

Unearned Revenue

45,000

Property, plant, and equipment, net

318,000

Intangible assets

260,000

Common Stock

100,000

Additional Paid-in Capital

400,000

Retained Earnings, 12/31/2012

21,000

Long-term debt

90,000

Service revenue

746,000

Cost of Goods Sold

639,200

Rent expense

30,000

Supplies expense

5,000

Insurance expense

21,000

Instructions:

(1) Create a classified balance sheet in good form for the year ended 2013. (30 points)

(2) Calculate the current ratio and debt ratio and explain your findings. (6 points) (Points : 36)

Question 5.5. (TCO B) The Caldor Company gathered the following condensed data for the year ended December 31, 2014:

Cost of Goods Sold

$500,000

Net Sales

975,000

Selling Expenses

150,000

Interest Expense

25,000

Administrative Expenses

175,000

Common Stock Dividends Paid

50,000

Income tax percentage

35%

Instructions:

(1) Prepare a multiple-step income statement for the year ended December 31, 2014. (30 points)

(2) Compute the gross margin percentage and net profit margin ratio. Caldor Company’s assets at the beginning of the year were $900,000, and the assets were $950,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (6 points) (Points : 36)

Question 6.6. (TCO C) This is a 2-part question.

Part 1) 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. (30 points)

(a) Amortization of a patent

(b) Increase in accounts payable

(c) Paid cash dividends to common stockholders

(d) Purchased equipment with cash

(e) Increase in inventory

Part 2) Please explain how to calculate free cash flow and the importance of free cash flow to investors. (6 points) (Points : 36)

Question 7.7. (TCO F) This is a 2-part question.

Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.

(a) The unadjusted balance of the Supplies account is $2,200. The total cost of supplies remaining is $1,000.

(b) Accrued Service Revenue of $9,000.

(c) Equipment was purchased at the beginning of the year for $45,000. The equipment’s useful life is 5 years, and the residual value is $5,000. Record the depreciation for this year.

(d) The weekly payroll is $25,000. Employees are owed for 3 days of a 5-day work week.

(e) Beginning unearned service revenue is $7,500, and ending unearned service revenue is $3,500.

(f) The business has interest expense of $750 that is due in January.

(30 points)

Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work. (6 points) (Points : 36)

Question 1.1. (TCO D) Please describe the purpose of the Income Statement and the interrelationship between the income statement and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Income Statement, if any, and which financial statements need to be completed after the Income Statement, if any. (Points : 25)

Question 2.2. (TCO E) Your friend, Lisa, plans to open a nail salon. Lisa states that she does not have time to develop and implement a system of internal controls.

(a) Explain to Lisa the components of internal control. (10 points)

(b) Explain to Lisa at least 5 internal control procedures she must establish to protect herself against fraud. You should state specific internal control procedures from the textbook, and relate your answer to her nail salon business. (15 points) (Points : 25)

Question 3.3. (TCO H) Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation when the market rate of interest was 10%. Interest is paid semiannually on the bonds, and the bonds mature in 4 years.

Instructions:

Compute the total price paid by Simpson Inc. for the bonds showing your calculation for the present value of the principal and the present value of the interest payments.

Present value tables (Exhibit 8-14 and Exhibit 8-15) are available on pages 452 and 453 of your Harrison, Horngren, and Thomas textbook.  NOTE:  Be sure you review the PV Tables completely to ensure you find the correct period and interest rate for the calculation. (Points : 20)

Question 4.4. (TCO A) The following items are taken from the financial statements of BCT Company for 2013:

Cash

$138,800

Accounts Payable

75,000

Supplies

15,000

Accounts Receivable

35,000

Inventory

45,000

Salaries Payable

30,000

Unearned Revenue

45,000

Property, plant, and equipment, net

318,000

Intangible assets

260,000

Common Stock

100,000

Additional Paid-in Capital

400,000

Retained Earnings, 12/31/2012

21,000

Long-term debt

90,000

Service revenue

746,000

Cost of Goods Sold

639,200

Rent expense

30,000

Supplies expense

5,000

Insurance expense

21,000

Instructions:

(1) Create a classified balance sheet in good form for the year ended 2013. (30 points)

(2) Calculate the current ratio and debt ratio and explain your findings. (6 points) (Points : 36)

Question 5.5. (TCO B) The Caldor Company gathered the following condensed data for the year ended December 31, 2014:

Cost of Goods Sold

$500,000

Net Sales

975,000

Selling Expenses

150,000

Interest Expense

25,000

Administrative Expenses

175,000

Common Stock Dividends Paid

50,000

Income tax percentage

35%

Instructions:

(1) Prepare a multiple-step income statement for the year ended December 31, 2014. (30 points)

(2) Compute the gross margin percentage and net profit margin ratio. Caldor Company’s assets at the beginning of the year were $900,000, and the assets were $950,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (6 points) (Points : 36)

Question 6.6. (TCO C) This is a 2-part question.

Part 1) 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. (30 points)

(a) Amortization of a patent

(b) Increase in accounts payable

(c) Paid cash dividends to common stockholders

(d) Purchased equipment with cash

(e) Increase in inventory

Part 2) Please explain how to calculate free cash flow and the importance of free cash flow to investors. (6 points) (Points : 36)

Question 7.7. (TCO F) This is a 2-part question.

Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.

(a) The unadjusted balance of the Supplies account is $2,200. The total cost of supplies remaining is $1,000.

(b) Accrued Service Revenue of $9,000.

(c) Equipment was purchased at the beginning of the year for $45,000. The equipment’s useful life is 5 years, and the residual value is $5,000. Record the depreciation for this year.

(d) The weekly payroll is $25,000. Employees are owed for 3 days of a 5-day work week.

(e) Beginning unearned service revenue is $7,500, and ending unearned service revenue is $3,500.

(f) The business has interest expense of $750 that is due in January.

(30 points)

Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work. (6 points) (Points : 36)

Question 8.8. (TCO G) Please review the following 6 ratios for Johnson Company and Lee Enterprises for the year ended 2014, and address the 2 questions below.

Ratio Name

Johnson Company

Lee Enterprises

(a) Accounts receivable turnover

6.5

5.3

(b) Days’ inventory outstanding

40

35

(c) Debt ratio

29.3%

25.7%

(d) Return on common stockholders’ equity

14.7%

10.5%

(e) Current ratio

2.50

3.60

(f) Price/Earnings ratio

10

12

Instructions: This is a 2-part question.

(1) Explain the meaning of each of the Johnson Company ratios above. (18 points)

(2) State which company performed better for each ratio. (18 points) (Points : 36)