Reference no: EM131335373

Question 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

Question 2. Dividends flow through which one of the following statements?

The Balance Sheet

The Statement of Retained Earnings

The Income Statement

None of the above

Question 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

Revenues 45,000

Expenses 35,000

What did LBJ Company show as total debits?

$57,300

$81,000

$55,300

$56,000

Question 4. Which of the following statements is correct with regard to accrual accounting?

Accrual accounting is consistent with the matching principle.

Accrual accounting is less complex than the cash-basis method.

Accrual accounting does not record expenses until paid.

Accrual accounting does not record revenue until payment is received.

Question 5. Two different companies utilize a different inventory costing method. If the price of goods has decreased during the period, then the company using _____.

LIFO will have the highest cost of goods sold

average cost will have the highest cost of goods sold

FIFO will have the highest ending inventory

LIFO will have the highest ending inventory

Question 6. 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 _____.

$4,714

$4,000

$3,857

$3,285

Question 7. When the market rate of interest is less than the stated rate of interest on the bond, the bond will require _____.

a debit to Discount on Bonds Payable

a credit to Premium on Bonds Payable

a credit to Loss on Bonds Payable

a debit to Gain on Bonds Payable

Question 8. Accounts receivable arising from sales to customers amounted to $75,000 and $90,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $100,000. Based on these transactions, the cash flows from operating activities to be reported on the statement of cash flows would be _____.

$115,000

$85,000

$175,000

$190,000

Question 9. If you are calculating the percentage change between 2 years worth of sales data, you are conducting a _____.

common-size analysis

vertical analysis

horizontal analysis

ratio analysis

Question 10. Vertical analysis is also known as _____.

ratio analysis

linear analysis

common-size analysis

linear analysis

Question 11. Which one of the following is typically analyzed via financial statement ratio analysis?

The design of a new product

The internal control failure rate

The leverage of the firm

The effectiveness of a marketing campaign

Question 12. A common ratio to measure profitability is the _____.

quick ratio

inventory turnover

days' sales in receivables

asset turnover

Question 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:

1. 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/results.

Question 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.

Question 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)?

Question 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

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.