DeVry ACCT 504 final Exam Answers

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DeVry ACCT 504 final Exam Answers


Accounting 504 final exam answers


Acct 504 final exam



(TCO A) A corporation has which of the following advantages? (Points : 5)


Reduced taxes

Simple to set up

Limited liability for stockholders

Owner maintains control




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 and B) Below is a partial list of account balances for LBJ Company.





Prepaid rent


Accounts receivable


Accounts payable


Notes payable


Common stock









What did LBJ Company show as total debits? (Points : 5)









Question 4.4. (TCO B and E) Under cash-basis accounting, which of the following transactions would not be recorded? (Points : 5)


Cash sales to customers

Payments to vendors

Sales on account

Payroll payments to employees



Question 5.5. (TCO D) If ending inventory of the current year is understated (Points : 5)


Cost of goods sold for the current year will be understated

Gross profit for the current year will be unaffected

Gross profit for the current year will be understated

Net income for the current year will be overstated



Question 6.6. (TCO A and E) Equipment was purchased for $27,000. Freight charges amounted to $1,000 and there was a cost of $5,000 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 7-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5)









Question 7.7. (TCOs D and G) When the market rate of interest exceeds the stated rate of interest on the bond, the bond will require _____. (Points : 5)



a debit to Discount on Bonds Payable

a credit to Premium on Bonds Payable

a debit to Loss on Bonds Payable

a credit to Gain on Bonds Payable



Question 8.8. (TCO C) Which inventory accounting system does not require a physical count of the inventory at the year end? (Points : 5)


Periodic inventory system

Perpetual inventory system

Specific Identification

None of the above



Question 9.9. (TCO F) Horizontal analysis is also known as _____. (Points : 5)



ratio analysis

vertical analysis

common-size analysis

trend analysis



Question 10.10. (TCO F) When performing a common-size balance sheet, the 100% figure is _____. (Points : 5)



net sales

total liabilities

total assets

total equity



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






Question 13.13. (TCO F) Shareholders are usually most interested in evaluating _____. (Points : 5)






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 _____. (Points : 5)



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



  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.

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





2.TCO B) 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 Expense 2,064
Membership Revenues 3,048
Net Sales 466,114
Operating, Selling and Administrative Expenses 88,873
Retained Earnings 72,978



Required: 1: Using the information provided above, 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 and results.

(Points : 36)



  1. (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 $(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. (Points : 36)




  1. 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 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: 1: 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.

2: 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)



  1. 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)