At the end of last year, the company's assets totaled ...



Accounting 284

Final Exam

Fall 2008

Name (please print) ____________________________ Signature___________________________

please Check your instructor/section:

| |Sec. Code |Instructor |Section |Class Time |

| |1 |Clem |A |MWF 10:00-10:50 |

| |2 |Mazzitelli |B |TR 12:40-2:00 |

| |3 |Mazzitelli |C |TR 11:00-12:20 |

| |4 |Clem |D |MWF 11:00-11:50 |

Exam Instructions:

1. Use a number 2 pencil to complete the answer sheet.

2. Be sure your name and University ID number (full 9 digits) are on the answer sheet. Only put your name on the exam.

3. PLEASE MAKE SURE YOUR SECTION is on the answer sheet in the area mark special codes.

4. There are 50 questions on the exam. Make sure you have 50 questions and that you answer them all.

5. When you finish the exam, please bring it to the front of the room with your answer sheet and your photo ID, along with rest of your personal belongings. Plan to leave the room without returning to your seat.

|1. |At the end of last year, the company's assets totaled $860,000 and its liabilities totaled $740,000. During the current year, the |

| |company's total assets increased by $58,000 and its total liabilities increased by $24,000. At the end of the current year, |

| |stockholders' equity was  |

| |A. |

| |$154,000. |

| | |

| |B. |

| |$120,000. |

| | |

| |C. |

| |$34,000. |

| | |

| |D. |

| |$178,000. |

| | |

|2. |During March, the Long Life Consulting Company provides $23,000 in consulting services of which $12,000 is immediately paid for and $11,000 is on|

| |account.  |

| |A. |

| |Cash increases $12,000, revenue increases $11,000, and stockholders' equity increases $23,000. |

| | |

| |B. |

| |Cash increases $12,000, Accounts Receivable increases $11,000, and revenues increase $23,000. |

| | |

| |C. |

| |Accounts Receivable increases $11,000, liabilities decrease $12,000, and stockholders' equity decreases $1,000. |

| | |

| |D. |

| |Revenues increase $12,000, liabilities decrease $12,000, and stockholders' equity is unchanged. |

| | |

|3. |Which of the following direct effects on the fundamental accounting model is not possible as a result of transaction analysis? |

|A. |Increase a liability and increase an asset. |

|B. |Decrease stockholders' equity and increase an asset. |

|C. |Increase an asset and decrease an asset. |

|D. |Decrease stockholders' equity and decrease an asset. |

|4. |Which of the following are policies and procedures of good internal control of cash? |

|A. |Segregation of duties |

|B. |Preparation of a bank reconciliation monthly |

|C. |Approval of all disbursements by check |

|D. |All of the above are good internal control policies and procedures |

|5. |The Acme Corporation buys 300 units of merchandise in January at $5 each. In February, Acme buys 500 units at $6 each and in March|

| |it buys 200 units at $7 each. Acme sells 350 units during this quarter. What is the cost of goods sold under the LIFO method?  |

| |A. |

| |$2,100 |

| | |

| |B. |

| |$2,300 |

| | |

| |C. |

| |$2,375 |

| | |

| |D. |

| |$2,450 |

| | |

|6. |Bateman Company reported total stockholders' equity of $58,000 on its balance sheet dated December 31, 2008. During 2008, it |

| |reported a net income of $4,000, declared and paid a cash dividend of $2,000, and issued additional capital stock of $20,000. |

| |Therefore, total stockholders' equity at January 1, 2008, was |

|A. |$38,000. |

|B. |$36,000. |

|C. |$34,000. |

|D. |$16,000. |

|7. |During 2005, Shockglass Company recorded inventory purchases of $45,000 and cost of goods sold of $50,000. If inventory at the |

| |beginning of the year was $15,000, the ending inventory balance must have been:  |

| |A. |

| |$10,000. |

| | |

| |B. |

| |$25,000. |

| | |

| |C. |

| |$26,000. |

| | |

| |D. |

| |$27,000. |

| | |

|8. |On average, 5% of credit sales has been uncollectible in the past. At the end of the year, the balance of accounts receivable is |

| |$100,000 and the allowance for doubtful accounts has a credit balance of $500 net credit sales during the year were $150,000. Using |

| |the percentage of credit sales method, the estimated bad debt expense would be:  |

| |A. |

| |$5,000. |

| | |

| |B. |

| |$7,000. |

| | |

| |C. |

| |$7,500. |

| | |

| |D. |

| |indeterminable; the percent of credit sales method cannot be used, because, based on this information, the aging of accounts |

| |receivable method should be used. |

| | |

 

|9. |The amount of uncollectible accounts at the end of the year is estimated to be $25,000 using the aging of accounts receivable |

| |method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. Assuming no accounts are |

| |written off during the period, what will be the amount of bad debts expense for the period?  |

| |A. |

| |$8,000. |

| | |

| |B. |

| |$17,000. |

| | |

| |C. |

| |$25,000. |

| | |

| |D. |

| |$33,000. |

| | |

 

|10. |A piece of equipment was acquired on January 1, 2004, at a cost of $22,000, with an estimated residual value of $2,000 and an |

| |estimated useful life of four years. The company uses the double-declining-balance method. What is its book value at December 31, |

| |2005?  |

| |A. |

| |$5,500 |

| | |

| |B. |

| |$10,000 |

| | |

| |C. |

| |$11,000 |

| | |

| |D. |

| |$12,000 |

| | |

 

|11. |An asset is purchased on January 1 for $40,000. It is expected to have a useful life of five years after which it will have an |

| |expected salvage value of $5,000. The company uses the straight-line method. If it is sold for $30,000 exactly two years after its |

| |purchase, the company will record a:  |

| |A. |

| |gain of $6,000. |

| | |

| |B. |

| |gain of $4,000. |

| | |

| |C. |

| |loss of $4,000. |

| | |

| |D. |

| |loss of $6,000. |

| | |

 

|12. |On October 1, 2005, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the |

| |following year, you are required to pay half the annual interest to your creditors. On December 31, 2005, your journal entry for the|

| |quarter should:  |

| |A. |

| |Increase Interest Expense for $3,000 and increase Interest Payable for $3,000. |

| | |

| |B. |

| |Increase Cash for $3,000 and increase Accrued Interest for $3,000. |

| | |

| |C. |

| |Increase Interest Expense for $6,000 and decrease Cash for $6,000. |

| | |

| |D. |

| |Increase Interest Expense for $6,000 and increase Notes Payable for $6,000. |

| | |

|13. |If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would issue at an amount:  |

| |A. |

| |less than face value. |

| | |

| |B. |

| |equal to the face value. |

| | |

| |C. |

| |greater than face value. |

| | |

| |D. |

| |that cannot be determined. |

| | |

|14. |On January 1, your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest |

| |rate is 5%. The issue price of the bond was $10,866. Using the effective interest method of amortization and rounding to the nearest|

| |dollar, the interest expense in the first year ended December 31 would be:  |

| |A. |

| |$700. |

| | |

| |B. |

| |$543. |

| | |

| |C. |

| |$667. |

| | |

| |D. |

| |$759. |

| | |

 

|15. |A company sells 1 million shares of common stock with a par value of $0.02 for $15 a share. To record the transaction, the company |

| |would:  |

| |A. |

| |Increase Cash for $20,000 and increase Common Stock for $20,000. |

| | |

| |B. |

| |Increase Cash for $15 million and increase Common Stock for $15 million. |

| | |

| |C. |

| |Increase Cash for $15 million, increase Common Stock for $20,000 and increase |

| |additional paid-in Capital for $14,980,000. |

| | |

| |D. |

| |Increase Cash for $20,000, increase Capital Receivable for $14,980,000, increase |

| |Common Stock for $20,000 and increase additional paid-in capital for $14,980,000. |

| | |

 

|16. |GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this stock for $65 a share. The |

| |stock reissue would be recorded as:  |

| |A. |

| |An increase to Cash of $19.5 million and a decrease to Treasury Stock of $19.5 million. |

| | |

| |B. |

| |An increase to Cash of $13.5 million, an increase to Additional Paid-in Capital of |

| |$6 million, a decrease to Treasury Stock of $13.5 million, and an increase to |

| |Stockholders' Equity of $6 million. |

| | |

| |C. |

| |An increase to Cash of $19.5 million, a decrease to Treasury Stock of $13.5 million, |

| |and an increase to Additional Paid-in Capital of $6 million |

| | |

| |D. |

| |An increase to Cash of $13.5 million, and a decrease to Stockholders' Equity of |

| |$6 million, a decrease to Treasury Stock of $13.5 million, and an increase to |

| |Gain on Sale of $6 million. |

| | |

|17. |On April 1, 2007, the premium on a one-year insurance policy on a building was paid amounting to $6,000. At the end of 2007 (end of |

| |the accounting period), the financial statements for 2006, would report  |

| |A. |

| |Insurance expense, $6,000; Prepaid insurance $0. |

| | |

| |B. |

| |Insurance expense, $0; Prepaid insurance $6,000. |

| | |

| |C. |

| |Insurance expense, $1,500; Prepaid insurance $4,500. |

| | |

| |D. |

| |Insurance expense, $4,500; Prepaid insurance $1,500. |

| | |

18. Amortization Inc. issued $10,000, 10%, 10-year bonds for an issue price of $10,777 . Amortization uses the effective interest method to amortize any premium or discount on issued bonds. Assuming a market rate of interest of 8%, what amount of premium should be amortized for the first year of the bond’s life?

A. $ 78

B. $ 138

C. $ 862

D. $1,000

19. What of the following is not consistent with the primary purpose of financial accounting?

A. To provide the SEC audited financial statements on a quarterly and annual basis.

B. To provide investors with relevant information to use in decision making.

C. To provide financial institutions with information relevant to lending decisions.

D. All of the above are consistent with the purpose of financial accounting.

|20. |The principle which holds that all of the expenses incurred in earning revenue should be identified with the revenue recognized and |

| |reported for the same period is the |

|A. |revenue principle. |

|B. |liability principle. |

|C. |cost principle. |

|D. |matching principle. |

| | |

|21. |A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred |

| |stock has an 8% dividend rate. The company declares $300,000 in total dividends for the year. Which of the following is true if the |

| |preferred stockholders have a current and cumulative dividend preference?  |

| |A. |

| |Preferred stockholders will receive the entire $300,000, and they must also be paid |

| |$20,000 before the end of the current accounting period. Common stockholders will |

| |receive nothing. |

| | |

| |B. |

| |Preferred stockholders will receive $24,000 (8% of the total dividends). Common |

| |stockholders will receive the remaining $276,000. |

| | |

| |C. |

| |Preferred stockholders will receive the entire $300,000, and they must also be paid |

| |$20,000 sometime in the future before common stockholders will receive anything. |

| | |

| |D. |

| |Preferred stockholders will receive the entire $300,000, but will receive nothing more |

| |relating to this dividend declaration. Common stockholders will receive nothing. |

| | |

 

|22. |Which of the following would be included in the calculation of net cash flows from financing activities?  |

| |A. |

| |Cash proceeds from sales. |

| | |

| |B. |

| |Cash received from a sale of land. |

| | |

| |C. |

| |Dividends paid to stockholders. |

| | |

| |D. |

| |Cash used to purchases of equipment. |

| | |

|23. |When the indirect method is used, if prepaid expenses fall during the accounting period, the change in prepaid expenses is:  |

| |A. |

| |added to the change in the cash account. |

| | |

| |B. |

| |subtracted from net income. |

| | |

| |C. |

| |added to net income. |

| | |

| |D. |

| |subtracted from the change in the cash account. |

| | |

|24. |Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:  |

| |A. |

| |reduces income but not cash. |

| | |

| |B. |

| |is a cash inflow. |

| | |

| |C. |

| |is a revenue. |

| | |

| |D. |

| |is a valuation concept. |

| | |

 

|25. |Consider the following information: |

| | [pic]  |

| |The company would report a net cash inflow from operating activities of:  |

| |A. |

| |$17,500. |

| | |

| |B. |

| |$18,500. |

| | |

| |C. |

| |$21,500. |

| | |

| |D. |

| |$23,300. |

| | |

Use the 2005 financial statements of Pier 1 Imports, Inc. found in your attachment packet to answer the following 25 questions:

26. What is the return on equity (ROE) for the most recent year?

A. 4.5%

B. 5.8%

C. 9.0%

D. 10.6%

27. Assuming a market price of $25, what is the price/earnings ratio for the most recent year? (Hint: Use basic EPS)

A. 18.4

B. 25.8

C. 36.2

D. 42.6

28. What is the net profit margin the most recent year?

A. 3.2%

B. 5.6%

C. 7.9%

D. 9.1%

29. Has the current ratio improved or declined since last year?

A. the current ratio has increased

B. the current ratio has decreased

C. the current ratio has stayed the same

D. can not be determined

30. What is the gross profit ratio for the most recent year?

A. 28.3%

B. 38.3%

C. 42.1%

D. 47.3%

31. Assuming all sales are on credit, what is the receivable turnover for the most recent year? (Hint: use other accounts receivable, net for net receivables)

A. 25 times per year

B. 81 times per year

C. 128 times per year

D. 146 times per year

32. What is the inventory turnover the most recent year?

A. 3.1 times per year

B. 5.7 times per year

C. 6.9 times per year

D. 8.1 times per year

33. What is the debt-to-assets ratio at the end of the most recent year?

A. 0.26

B. 0.38

C. 0.42

D. 0.54

34. What amount of dividends were paid per share during the most recent year?

A. $0

B. $0.30

C. $0.40

D. $1.10

35. What is the net cash flow from operating activities for the most recent year?

A. $189,081,000 inflow

B. $176,688,000 outflow

C. $142,201,000 inflow

D. $ 97,553,000 outflow

36. By what percentage did net sales increase last year?

A. 1.6%

B. 2.3%

C. 3.1%

D. 3.9%

37. What is the asset turnover for the most recent year?

A. 2.4

B. 2.0

C. 1.8

D. 1.4

38. What is the effective tax rate for the most recent year?

A. 36.5%

B. 37.6%

C. 38.9%

D. 40.3%

39. What is the quality of income ratio for the most recent year?

A. 1.6

B. 1.9

C. 2.1

D. 2.4

40. What is the largest source of cash (i.e., inflow) from financing activities?

A. cash dividends

B. purchases of treasury stock

C. proceeds from stock options exercised

D. beneficial interest in securitized receivables

41. What is the net value of property, plant, and equipment at the end of the most recent year?

A. $ 3,852,000

B. $ 99,239,000

C. $159,040,000

D. $337,630,000

42. What did the company report as cash proceeds from the disposition of properties for the most recent year?

A. $ 3,852,000

B. $ 99,239,000

C. $159,040,000

D. $337,630,000

43. What is the par value of the common stock?

A. $ 0.01

B. $ 0.10

C. $ 1.00

D. $10.00

44. What is the balance in retained earnings at the end of the most recent year?

A. $ 60,457,000

B. $630,997,000

C. $656,692,000

D. $664,369,000

45. What is the largest expense reported on the income statement for the most recent year?

A. income tax expense

B. selling, general, and administrative expenses

C. interest expense

D. cost of sales

46. How many shares of common stock are held in treasury at the end of the most recent year?

A. 12,473,000 shares

B. 14,459,000 shares

C. 16,429,000 shares

D. 93,389,000 shares

47. By what amount did cash change during the most recent year?

A. $36,020,000 decrease

B. $36,020,000 increase

C. $178,289,000 increase

D. $178,289,000 decrease

48. What amount of accounts payable are reported at the end of the most recent year?

A. $ 14,116,000

B. $ 21,572,000

C. $ 102,294,000

D. $ 113,502,000

49. On what day does the company’s fiscal year end in 2005?

A. December 31

B. February 26

C. February 28

D. March 1

50. What is the cash coverage ratio for the most recent year?

A. 107.8

B. 167.3

C. 217.4

D. 256.3

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