Old Exam Packet – Spring 2004
Answer Keys
Question #
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Exam 1
C
D
D
B
D
A
B
D
C
C
A
A
C
B
C
C
D
B
D
B
D
D
A
C
B
C
A
C
A
C
Exam 2
C
C
D
B
B
A
D
D
D
A
C
C
D
C
D
A
D
B
D
B
B
B
C
C
A
C
A
A
C
A
Final Exam
A
C
A
A
C
A
D
C
B
B
D
A
A
C
C
B
D
B
B
A
B
D
B
A
B
B
A
C
C
B
B
D
D
C
A
B
B
C
D
A
B
D
C
D
A
D
A
C
B
D
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Exam 1
1.
On a balance sheet, assets are listed in the order of
a. dollar amount (largest first).
b. date of acquisition (earliest first).
c. ease of conversion to cash.
d. importance to the operation of the business.
2.
The separate entity assumption states that
a. assets should be recorded at their initial acquisition cost.
b. each business is considered to be part of its owners.
c. The monetary unit should be U.S. dollars.
d. for measurement purposes, the resources, debts, and activities of a business should be kept
separate from those of the owners.
3.
On the statement of cash flows, a company would report the purchase of machinery as cash used
in
a. operating activities.
b. financing activities.
c. purchasing activities.
d. investing activities.
4.
a. business's balance sheet cannot be used to accurately predict what the business might be sold for
because
a. it identifies all the revenues and expenses of the business.
b. assets are generally listed on the balance sheet at their historical cost, not their current value.
c. it gives the results of operations for the current period.
d. some of the assets and liabilities on the balance sheet may actually be those of another entity.
5.
The two categories of stockholders' equity usually found on the balance sheet of a corporation are
a. contributed capital and long-term liabilities.
b. contributed capital and property, plant, and equipment.
c. retained earnings and notes payable.
d. contributed capital and retained earnings.
6.
The primary difference between revenues and gains is
a. gains are increases in net assets from peripheral activities while revenues are increases from
ongoing activities
b. generally accepted accounting principles makes no distinction between them since they both
increase income
c. revenues cause increases in net assets as a result of peripheral activities and gains cause
increases through ongoing activities
d. both revenues and gains cause a decrease in net assets from ongoing and peripheral
transactions respectively
7.
Most businesses earn revenues
a. when they collect accounts receivable.
b. through sales of goods or services to customers.
c. by borrowing money from a bank.
d. by selling shares of stock to shareholders.
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8.
What are the categories of cash flows that appear on a statement of cash flows?
a. cash flows from investing, financing, and service activities.
b. cash flows from operating, production, and internal activities.
c. cash flows from financing, production, and growth activities.
d. cash flows from operating, investing, and financing activities.
9.
The amount of rent expense reported on the income statement is
a. the amount of cash paid for rent in the current period.
b. the amount of cash paid for rent in the current period less any unpaid rent at the end of the
period.
c. the amount of rent used up (incurred) in the current period to help generate revenue.
d. an increase in net income.
10.
If you wanted to know what accounting rules a company follows related to its inventory, where
would you look?
a. the balance sheet.
b. the income statement.
c. the notes to the financial statements.
d. the headings to the financial statements.
11.
What financial statement would you look at to determine the total expenses of a business?
a. income statement.
b. statement of retained earnings.
c. statement of cash flows.
d. balance sheet.
12.
Abrahams Corporation reported the following amounts at the end of the first year of operations,
December 31, 2003: contributed capital $50,000; sales revenue $200,000; total assets $150,000;
$10,000 dividends; and total liabilities $80,000. Retained earnings and total expenses would be
a. retained earnings $20,000 and expenses $170,000
b. retained earnings $30,000 and expenses $160,000.
c. retained earnings $70,000 and expenses $120,000.
d. retained earnings $80,000 and expenses $110,000
13.
The government regulatory agency that has the legal authority to prescribe financial reporting
requirements for corporations that sell their securities in interstate commerce is the
a. FASB.
b. FTC.
c. SEC.
d. APB.
14.
An examination of the financial statements of a business to ensure that they conform with
generally accepted accounting principles is called
a. a certification.
b. an audit.
c. a verification.
d. a validation.
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15.
One of the disadvantages of a corporation when compared to a partnership is that
a. the stockholders have limited liability.
b. the stockholders are treated as a separate legal entity from the corporation.
c. the corporation and its stockholders are subject to double taxation.
d. the corporation must account for the business's transactions separate and apart from those of
the owners.
16.
Failure to make an adjusting entry to recognize accrued income taxes payable would cause an
a. understatement of expenses, liabilities and stockholders' equity.
b. overstatement of expenses and liabilities.
c. understatement of expenses and liabilities and an overstatement of stockholders' equity.
d. understatement of assets and stockholders' equity.
17.
In the text, the financial leverage ratio for Papa John's was 1.67 in 2000 while its competitor Uno
Restaurant's ratio was 1.96 for the same year. The lower ratio for Papa John's indicates (HINT:
the financial leverage ratio is equal to average total assets divided by average total stockholders’
equity)
a. Papa John's uses less debt than equity financing to acquire its assets.
b. Uno Restaurant finances its assets using more debt relative to equity than does Papa John’s.
c. Papa John's has a lower level of financial risk than Uno Restaurant.
d. all of the above are correct.
18.
Which of the following is not a liability?
a. accounts payable.
b. Retained earnings.
c. Notes payable.
d. Unearned revenue.
19.
adjusting entries
a. are primarily used to change account balances because of accounting errors that have been
made.
b. usually are recorded as of the last day of the accounting period.
c. always change at least one income statement account balance and one balance sheet account
balance.
d. only B and C are correct.
20.
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.
21.
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. timing principle.
d. matching principle.
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22.
When a company buys equipment for $60,000 and pays for one third in cash and the other two
thirds is financed by a note payable, the following are the effects on the equation
a. equipment increases by $60,000
b. liabilities increase by $40,000
c. total assets increase by $40,000
d. all of the above effects occur on the equation
23.
The accounts payable account has a beginning balance of $2,000 and we purchased $5,000 of
inventory on credit during the month. The ending balance was $1,200. How much did we pay our
creditors during the month?
a. $5,800
b. $3,800
c. $800
d. None of the above amounts is correct.
24.
Calculate the effective tax rate for a company that reports income tax expense of $5.0 million, net
income of $15.0 million, and income before taxes of $20 million.
a. 33.3%
b. 28.5%
c. 25.0%
d. 22.1%
25.
Payment of a liability would
a. Decrease stockholders' equity.
b. Decrease assets.
c. Not affect assets.
d. Increase stockholders' equity.
26.
The asset turnover ratio is used to assess (HINT: the asset turnover ratio is equal to net sales
revenue divided by average total assets)
a. whether the company can pay their bills currently due with their existing cash and receivables
b. whether the company can borrow money from the bank
c. whether the company is using its assets effectively in generating sales revenue
d. all of the above can be assessed by the asset turnover ratio
27.
If Gilden Company paid $500 for the telephone bill, this would
a. decrease assets.
b. increase assets.
c. decrease expenses.
d. increase liabilities.
28.
For each transaction recorded in an accounting system, the two basic equalities that must be
maintained at all times are
a. (1) Assets = Liabilities + Stockholders' Equity. (2) Net Income = Revenues + Expenses.
b. (1) Cash Increase = Cash Inflows - Cash Outflows. (2) Net income = Revenues + Expenses.
c. (1) Assets = Liabilities + Stockholders' Equity. (2) Debits = Credits.
d. (1) Net Income = Revenues + Expenses. (2) Debits = Credits.
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29.
On April 1, 2003, the premium on a one-year insurance policy on equipment was paid amounting
to $1,800. at the end of 2003 (end of the accounting period), the financial statements for 2003,
would report
a. Insurance expense, $1,350; Prepaid insurance $450.
b. Insurance expense, $1,800; Prepaid insurance $0.
c. Insurance expense, $0; Prepaid insurance $1,800.
d. Insurance expense, $450; Prepaid insurance $1,350.
30.
Which group of accounts contains only those that normally have a debit balance?
a. Accounts receivable; Accumulated depreciation; Fees earned.
b. Bond investment; Cash; Contributed capital.
c. Cash; Inventory; Cost of Goods Sold.
d. Notes receivable; Wages payable; Operating expenses.
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Exam 2
1.
The 2003 records of Thomasville Company showed beginning inventory, $50,000; cost of goods
sold, $100,000; and ending inventory, $60,000. The purchases for 2003 equal
a. $100,000
b. $90,000
c. $110,000
d. $120,000
2.
Which of the following is an example of a typical institutional investor.
a. The officers of Callaway Golf who own shares of stock in the company
b. Employees who participate in a stock option plan and own shares of Callaway Golf
c. The mutual funds managed by Fidelity Management and Research
d. All of the above are institutional investors
3.
On December 31, 2003, the end of the accounting period, Dunn Company has on hand 5,000 units
of a resale item which cost $21 per unit when purchased on June 15, 2003. The selling price is $35
per unit. On December 30, 2003, the cost had dropped to $20 per unit. In view of the large
quantity of units on hand, no purchases are anticipated in the next six to nine months. At what
inventory amount should the 5,000 units be reported?
a. $175,000.
b. $110,000.
c. $105,000.
d. $100,000
4.
The Securities and Exchange Commission's (SEC report that is required to be filed if any special
event occurs that is material in amount is the
a. Form 10K
b. Form 8K
c. Form 10Q
d. Prospectus
5.
On March 1, Chapine Company purchased a new stamping machine for $5,000. Chapine paid cash
for the machine. Other costs associated with the machine were: transportation costs, $300; sales
tax paid $200; and installation cost, $100. The cost recorded for the machine was
a. $5,200.
b. $5,600.
c. $5,500.
d. $5,000.
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6.
Page 7
Johnstone Co. uses the periodic inventory system. The following information about their
inventory of Model ZZ Mountain Bicycles is available:
Date
1/1
4/12
7/8
9/22
Transaction
Beginning Inventory
Purchase
Purchase
Purchase
Number of Units
50
80
75
90
Cost per Unit
$800
$820
$840
$850
During the year, 235 bicycles were sold at a price of $1,500 each. Round final answers to the
nearest dollar. What was ending inventory and cost of goods sold on 12/31 under the FIFO cost
flow assumption? Round final answers to the nearest dollar.
a.
b.
c.
d.
$51,000 and $194,100
$48,200 and $196,900
$49,851 and $195,249
None of the above.
7.
The primary qualities of accounting information that increase the usefulness to decision makers
are
a. relevance and cost-benefit.
b. reliability and comparability.
c. materiality and relevance.
d. reliability and relevance.
8.
Which of the following condition(s) must be met for an item to be disclosed as extraordinary on
the income statement?
a. It must be unusual in nature.
b. Extraordinarily large in comparison to other items on the income statement.
c. Infrequent in occurrence.
d. Both A and C.
9.
Which of the following statements is true?
a. Depreciation expense is added to net income in the operating activities section of the
statement of cash flows because it had no cash effect on net income under the indirect method.
b. Depreciation is a non-cash expense that reduces net income but involves no outflow of cash.
c. The only cash effect for depreciation is the tax savings provided by its deduction to derive
taxable income.
d. All of the above are true.
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10.
Which of the following describes the conservatism constraint?
a. Avoid overstating assets and revenues and avoid understating expenses and liabilities.
b. The benefits of accounting for and reporting information should outweigh the costs.
c. Amounts that are large enough to influence a user's decisions.
d. Differences due to long-standing and accepted accounting and reporting in a particular
industry.
11.
In 1998, Delta Air Lines had a fixed asset turnover of 1.63 compared to Southwest Airlines of
1.10. What is the most likely cause of Delta's higher ratio? (FATO = Sales / Average Net Fixed
Assets)
a. Delta is less efficient in generating net sales from its operational assets.
b. Delta is more efficient at generating net income from employing its operational assets.
c. Delta is able to generate greater sales from its operational assets.
d. Delta is able to generate less net income from its operational assets.
12.
Under the FIFO cost flow assumption during a period of inflation, which of the following is false?
a. Income tax expense will be higher than under LIFO.
b. Gross margin will be higher than under LIFO.
c. Ending inventory will be lower than under LIFO.
d. Cost of goods sold will be lower than under LIFO.
13.
Waves Inc. issues 100,000 shares of its $.10 par stock for $20 per share. Which of the following
would NOT be an effect of that sale?
a.
b.
c.
d.
Cash would increase by $2,000,000
Total stockholders’ equity would increase by $2,000,000
Common stock would increase by $10,000
Capital paid in excess of par (Paid in Capital) would increase by $2,000,000
14.
Bethany Company plans to depreciate a new building using declining-balance depreciation with
200 percent acceleration rate. The building cost $400,000. The estimated residual value of the
building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's
depreciation expense was recorded properly, what would be the amount of depreciation expense
for the second year?
a. $15,360.
b. $16,000.
c. $29,440.
d. $32,000.
15.
If a company increases their inventory turnover ratio from last year to the current year, which of
the following would cause that increase? (ITO= COGS/ Average Inventory)
a. Reduction of inventory levels
b. Speedier production processes
c. Increasing sales at a faster rate than the growth in inventory while maintaining a constant
gross profit percentage
d. All of the above
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16.
When preparing the monthly bank reconciliation, the accountant for Tiffany Toys noted that a
check received from a customer last month for $89 was marked NSF and returned along with the
bank statement. In reconciling the bank balance with the company's cash account, the $89 should
be
a. deducted from the company's cash balance.
b. added to the bank balance.
c. deducted from the bank balance.
d. added to the company's cash balance.
17.
Intangible assets include
a. Natural resources, patents, and trademarks.
b. Accounts receivable, franchises, and trademarks.
c. Copyrights, licenses, and land.
d. Leaseholds, patents and copyrights.
18.
Bangor Industries purchased a car for $35,000 on January 1, 2003. The car had an estimated useful
life of 80,000 miles and an estimated residual value of $8,000. In the second year of ownership
(2004), the car was driven 25,000 miles. Using the units of production method, the amount of
depreciation expense for 2004 was
a. $10,938.
b. $ 8,438.
c. $ 9,538.
d. $11,238.
19.
When goods are sold to a customer with credit terms of 2/15, n/30, the customer will
a. receive a 15% discount if they pay within 2 days.
b. receive a 2% discount if they pay 15% of the amount due within 30 days.
c. receive a 15% discount if they pay within 30 days.
d. receive a 2% discount if they pay within 15 days.
20.
In 2001, Toys “ R” Us had an accounts payable turnover ratio of 5.65; in 2000, 5.49 and 6.08 in
1999. Which statement is true about what the ratios indicate? (PTO = COGS / Average Accounts
Payable)
a. Toys “R” Us is taking longer to pay its vendors in 2001 versus 2000.
b. Toys “R” Us is taking more time to pay vendors in 2001 than in 1999.
c. Toys “R” Us appears to be paying off their accounts payable in about 30 days on average.
d. Both B and C are true.
21.
Amgen and Genentech are competitors in the biotechnology market. In 2000, Amgen reported a
gross profit percentage of 87.2% while Genentech's percentage was 71.5%. What is the most
likely cause of Amgen's higher gross profit percentage? (GP% = Gross Profit/ Net Sales)
a. Lower product selling prices for Amgen.
b. Lower product costs for Amgen.
c. Genentech's inability to control selling and administrative expenses.
d. Both B and C led to a higher gross profit percentage for Amgen
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22.
A company recorded net purchases of $20.3 billion for 2004. In 2003, ending accounts payable
was $1.2 billion and in 2004, it was $1.6 billion. How much cash was paid to suppliers in 2004?
a. $18.7 billion
b. $19.9 billion
c. $21.9 billion
d. $20.7 billion
23.
On January 31, 2004, Low Company wrote off an uncollectible account of $2,000. The allowance
method is used. The write-off would cause bad debt expense to
a. decrease $2,000.
b. increase $2,000.
c. be unchanged.
d. None of the above is correct.
24.
A contingent liability that is “reasonably possible” but “cannot reasonably be estimated”
a. must be recorded and reported as a liability.
b. does not need to be recorded or reported as a liability.
c. must only be disclosed as a note to the financial statements.
d. must be reported as a liability, but not recorded.
25.
On September 30, 2003, Mixx Inc. sold a used industrial crane for $800,000 cash. The original
cost of the crane was $5.0 million and its accumulated depreciation equaled $3.8 million on
December 31, 2002; they had been using the straight-line depreciation method. The estimated
residual value was zero and its useful life was 25 years. What is the gain or loss on the equipment
on September 30, 2003? (Hint: remember to depreciate up to the date of sale)
a. $250,000 loss
b. $400,000 gain
c. $200,000 loss
d. $200,000 gain
26.
A company had credit sales of $5.0 million for the year and estimates their bad debts to be 1% of
net credit sales. Accounts receivable has a $450,000 balance and the allowance for doubtful
accounts has a credit balance of $3,000 prior to adjustment. The transaction analysis entry to
adjust the books when the net credit sales method is used to account for bad debts will be:
a. An increase to the bad debts expense account for $50,000 and an increase to accounts
receivable for $50,000.
b. An increase to bad debts expense for $47,000 and a decrease to the allowance for doubtful
accounts for $47,000.
c. An increase to bad debts expense for $50,000 and an increase to the allowance for doubtful
accounts for $50,000.
d. An increase to bad debts expense for $47,000 and a decrease to accounts receivable for
$47,000.
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- Use the following Time Value of Money tables to complete the next two questions-Present Value Factor of $1, i=6%, t=5………………….0.7473
Present Value Factor of a $1 Annuity, i=6%, t=5………4.2124
Future Value Factor of $1, i=6%, t=5…………………..1.3382
Future Value Factor of a $1 Annuity, i=6%, t=5……….5.6371
27.
How much would Jordan have to deposit in the bank today if she will be earning a 6% annual rate
of return and wants to have $5,000 in the bank at the end of five years? (Round to the nearest
dollar).
a. $3,737.
b. $4,212.
c. $4,737.
d. $5,637.
28.
How much would Jordan have to deposit in the bank at the end of each of the next five years if
she wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning
6% annual rate of return? (Round to the nearest dollar).
a. $ 887.
b. $ 943.
c. $1,000.
d. $1,187.
---------------------End of TVM Questions ----------------------
29.
In 2000, Timberland reported a receivables turnover ratio of 11.8 and their competitor, Wolverine
World Wide, reported a ratio of 4.2. Which of the following is false? (RTO = Sales / Average
Accounts Receivable)
a. Wolverine needs to increase their ratio in order to improve collection time.
b. Wolverine needs to focus on improving their credit and collection process.
c. Wolverine has done a better job of collecting their receivables than Timberland.
d. All of the above are true.
30.
Goodman Company borrowed $100,000 cash on September 1, 2004, and signed a one-year 12%,
interest-bearing note payable. The required adjusting entry at the end of the accounting period,
December 31, 2004, would be
a.
Interest expense
4,000
Interest payable
4,000
b. Interest expense
12,000
Interest payable
12,000
c.
Notes payable
100,000
Interest expense
12,000
Cash
112,000
d. Interest payable
4,000
Interest expense
4,000
Old Exams – Spring 2004
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Page 12
Final Exam
1.
Abrahams Corporation reported the following amounts at the end of the first year of operations,
December 31, 20A: contributed capital $50,000; sales revenue $200,000; total assets $150,000;
$10,000 dividends; and total liabilities $80,000. Retained earnings and total expenses would be
a.
b.
c.
d.
2.
Borrowing $100,000 of cash from First National Bank would
a.
b.
c.
d.
3.
retained earnings $20,000 and expenses $170,000
retained earnings $30,000 and expenses $160,000.
retained earnings $70,000 and expenses $120,000.
retained earnings $80,000 and expenses $110,000
increase cash by a credit and increase notes payable by a debit.
increase notes payable by a debit and increase cash by a debit.
increase notes payable by a credit and increase cash by a debit.
decrease cash by a debit and decrease notes payable by a credit.
The accounts payable account has a beginning balance of $2,000 and we purchased $5,000 of
inventory on credit during the month. The ending balance was $1,200. How much did we pay
our creditors during the month?
a. $5,800
4.
c. $800
d. None of the above amounts is correct.
On April 1, 20D, the premium on a one-year insurance policy on equipment was paid amounting
to $1,800. At the end of 20D (end of the accounting period., the financial statements for 20A,
would report
a.
b.
c.
d.
5.
b. $3,800
Insurance expense, $1,350; Prepaid insurance $450.
Insurance expense, $1,800; Prepaid insurance $0.
Insurance expense, $0; Prepaid insurance $1,800.
Insurance expense, $450; Prepaid insurance $1,350.
On January 31, 20A, Low Company wrote off an uncollectible account of $2,000.
allowance method is used. The write-off would cause bad debt expense to
a. decrease $2,000.
b. increase $2,000.
c. be unchanged.
d. None of the above is correct.
The
Old Exams – Spring 2004
Acct 284
6.
When a depositor receives a bank statement indicating a “NSF check”, he should
a.
b.
c.
d.
7.
LIFO will result in lower net income and a higher inventory valuation than will FIFO.
LIFO will result in higher net income and lower inventory valuation than will FIFO.
FIFO will result in lower net income and a lower inventory valuation than will LIFO.
FIFO will result in higher net income and a higher inventory valuation than will LIFO.
None of the above is correct.
A $15,000 overstatement of the 20B ending inventory was discovered after the financial
statements for 20B were prepared. The effect of the inventory error on the 20B financial
statements was
a.
b.
c.
d.
9.
credit the cash account for the amount of the check.
record the amount as an expense of the current period.
credit a special receivable for the amount of the check.
debit sales revenue.
When prices are rising:
a.
b.
c.
d.
e)
8.
current assets were overstated and net income was understated.
current assets were understated and net income was understated.
current assets were overstated and net income was overstated.
current assets were understated and net income was overstated.
Simpkins Co. disposed of an asset at the end of year 8 of the asset's life originally estimated to be
10 years. The original cost was $50,000 with an estimated residual value of $5,000 and it was
being depreciated under the straight-line method. It was sold for $10,000 cash. What was the
gain or loss on the disposal at the end of year 8?
a. $1,000 gain
10.
Page 13
b. $4,000 loss
c. No gain or loss
d. None of the above is correct
You have been asked to compute the cash equivalent price of a machine assuming the cost
(including principal and interest) is to be paid in two equal payments after the acquisition date.
The interest concept that best describes this application is
a. present value of a single amount.
b. present value of an annuity.
c. future value of a single amount.
d. future value of an annuity.
Old Exams – Spring 2004
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11.
If Lynch Corporation sells and issues 100 shares of its $10 par value common stock at $11 per
share, the entry to record the sale will not include a
a.
b.
c.
d.
12.
Debit to cash of $1,100.
Credit to contributed capital in excess of par of $100.
Credit to common stock of $1,000.
Credit to retained earnings of $100.
Which of the following entries would be recorded when a company reissues 1,000 shares of
treasury stock for $25 per share when they were reacquired at a cost of $22 per share and have a
$1 par value?
A) Cash
Treasury Stock
Paid in capital, treasury stock
B) Cash
Treasury Stock
Gain on sale of stock
C) Cash
Common Stock
Paid in capital, common stock
D) Cash
Treasury Stock
Investment income on treasury stock
a.
b.
c.
d.
13.
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25,000
22,000
3,000
25,000
22,000
3,000
25,000
1,000
24,000
25,000
22,000
3,000
Entry A
Entry B
Entry C
Entry D
In the case of a cash dividend, a dividend liability comes into existence on the
a.
b.
c.
d.
date of declaration.
date of record.
date of dividend payment.
last day of the month in which the dividend is declared.
Old Exams – Spring 2004
Acct 284
14.
Page 15
Slick Willie, Inc., had the following shares outstanding during 20C:


Preferred stock, 6%, $50 par value, cumulative, 1,000 shares with dividends in arrears for
20A and 20B.
Common stock, $100 par value, 2,000 shares.
The total dividends declared for the current year were $21,000. The total amount of dividends to
which the preferred stockholders are entitled is
a.
b.
c.
d.
15.
Page Company owns 60% of the outstanding voting stock of Parsons Corporation. Page should
use the following method to account for the investment
a.
b.
c.
d.
16.
market value method.
equity method.
consolidated financial statement method.
Either a or b.
Which of the following transactions would not create a cash flow?
a.
b.
c.
d.
17.
$ 3,000.
$ 6,000.
$ 9,000.
$12,000.
The company purchased some of its own stock from a stockholder.
Amortization of patent for the period.
Payment of a cash dividend.
Sale of equipment at book value (i.e. no gain or loss).
Which of the following would not be a cash flow from investing activities?
a.
b.
c.
d.
Purchase of long-term investments.
Sale of a patent.
Collection of principal of a note receivable.
Collection of interest revenue on a long-term note.
Old Exams – Spring 2004
Acct 284
18.
Page 16
Jackson Company gathered the following data to prepare its 20B statement of cash flows:
Net income
Depreciation expense
Accounts receivable decrease
Wages payable increase
Amortization of patent
Income tax payable decrease
$40,000
5,000
3,000
4,000
1,000
2,000
Based only on the above data. the net cash inflow from operating activities during 20B was
a.
b.
c.
d.
19.
On January 1, 20a, Tom Company acquired 40% of the outstanding voting stock of Jerry
Company as a long-term investment. On December 31, 20a, Jerry reported net income of $10,000
and dividends declared and paid of $4,000. For 20a, Tom Company should report “Revenue from
long-term investments” of
a.
b.
c.
d.
20.
$ 3,000.
$ 4,000.
$ 2,400.
$10,000.
Johnson Company issued $50,000 bonds payable, 9% annual interest, maturity in ten years. The
bonds were sold at 96. Johnson uses straight-line amortization. The amount of interest expense
each full year would be
a.
b.
c.
d.
21.
$43,000.
$51,000.
$53,000.
$45,000.
$4,700.
$4,300.
$4,500.
$4,680.
If a bond payable is sold (issued. at a discount, the amount of the carrying value (the long-term
liability) reported on the subsequent balance sheets
a.
b.
c.
d.
remains constant.
increases each year.
decreases each year.
changes from year to year depending upon the market rate of interest each year.
Old Exams – Spring 2004
Acct 284
22.
Page 17
On January 1, 20a. A-Ace Corp. issued $3,000,000 par value 12%, 10 year bonds which pay
interest each December 31. If the market rate of interest was 14%, the issue price of the bonds
should be? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697.
The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is
5.2161.)
a.
b.
c.
d.
$3,339,084
$2,843,172
$3,000,000
$2,686,896
Old Exams – Spring 2004
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Page 18
The following information is for questions 23-25.
The City of Catalyst issued a bond. The following amortization table was prepared for the bond.:
Cash Paid
Interest Expense
Balance
January 1, 2003
968.31
End of Year - 2003
90
96.83
975.14
End of Year - 2004
90
97.51
982.65
End of Year - 2005
90
98.26
990.91
End of Year - 2006
90
99.09
1000.00
23.
What is the issuance price of the bond?
a.
b.
c.
d.
24.
What is the effective interest rate?
a.
b.
c.
d.
25.
$1,000
$968.31
$90.00
$96.83
10%
9%
11%
8%
What amount would be on the income statement in 2004?
a.
b.
c.
d.
$1,000
$97.51
$982.65
$90
Old Exams – Spring 2004
Acct 284
Page 19
Use the 2002 financial statements of PepsiCo, Inc.(CLICK HERE) to answer questions 2650.
26.
What is the effective tax rate for PepsiCo for 2002?
a.
b.
c.
d.
27.
Quick assets are defined as cash and cash equivalents, short-term investments, and receivables.
Compute and interpret the quick ratio at the end of 2002? (Hint: Use Accts and notes receivable,
net for net Accts receivable)
a.
b.
c.
d.
28.
21.7 times per year
26.7 times per year
28.3 times per year
12.8 times per year
What is the profit margin for the year ended December 28, 2002?
a.
b.
c.
d.
30.
The company has $0.72 of quick assets to every $1 of current liabilities
72 % of all assets are quick assets
The company has $1.72 of quick assets to every $1 of current liabilities
Quick assets generate $1.72 of income per share
What is the times interest earned ratio for the year ended December 28, 2002?
a.
b.
c.
d.
29.
25%
32%
45%
70%
9.7%
12.4%
13.2%
16.1%
What is the largest use of cash by investing activities during 2002?
a.
b.
c.
d.
Short term borrowings
Share repurchases - common
Cash dividends paid
Proceeds from exercises of stock options
Old Exams – Spring 2004
Acct 284
31.
What is the debt to equity ratio as of December 28, 2002?
a.
b.
c.
d.
32.
0 shares
26 million shares
60 million shares
1,782 million shares
What amount of income taxes payable are reported at the end of 2002?
a.
b.
c.
d.
36.
5.5 times per year
6.8 times per year
7.2 times per year
8.7 times per year
How many shares of treasury stock does PepsiCo have at the end of 2002? (Hint: Common Shares
Only)
a.
b.
c.
d.
35.
one item in 2000
one item in 2001
one item in 2002
There were no extraordinary items in the 3 years
What is the inventory turnover for the year ended December 28, 2002?
a.
b.
c.
d.
34.
0.40
1.52
1.97
2.41
Did PepsiCo report any extraordinary items in 2000, 2001, or 2002?
a.
b.
c.
d.
33.
Page 20
$ 492 million
$ 752 million
$1,555 million
$4,868 million
How much depreciation and amortization expense was recognized during 2002?
a.
b.
c.
d.
$ 138 million
$1,112 million
$4,868 million
$7,390 million
Old Exams – Spring 2004
Acct 284
37.
By what amount did cash and cash equivalents change during 2002?
a.
b.
c.
d.
38.
1.4
1.9
2.4
2.8
Assuming a market price of $38, what is the price-earnings ratio? (Round to the nearest tenth.)
a.
b.
c.
d.
42.
$19.00
$27.79
$40.64
$42.07
What is the quality of income for the year ended December 28, 2002?
a.
b.
c.
d.
41.
$ 4,418 million
$ 6,413 million
$ 7,390 million
$23,474 million
What is the average price paid per share for the shares of treasury stock held as of December 28,
2002? (Round to the cent).
a.
b.
c.
d.
40.
decreased by $955 million
increased by $955 million
increased by $1,638 million
decreased by $1,638 million
What is the net book value of property, plant, and equipment at the end of 2002?
a.
b.
c.
d.
39.
Page 21
19.8
20.1
22.4
25.1
What is the gross profit ratio reported by PepsiCo for 2002?
a.
b.
c.
d.
39.7%
42.8%
48.7%
54.2%
Old Exams – Spring 2004
Acct 284
43.
What is return on assets (ROE) for PepsiCo for the year ended December 28, 2002? (Hint:
Common Shareholders Equity)
a.
b.
c.
d.
44.
it took nearly 5 days to collect an account receivable.
it took approximately 30 days to collect an account receivable.
it took approximately 3 days to collect an account receivable.
it took just over 34 days to collect an account receivable.
$11,529 million
$11,497 million
$ 1,342 million
$ 1,310 million
Have dividends been paid by PepsiCo during 1998,1999, or 2002?
a.
b.
c.
d.
47.
14.95;
14.95;
10.75;
10.75;
Estimate the net amount of purchases made during 2002?
a.
b.
c.
d.
46.
24.0%
28.5%
36.9%
49.8%
The accounts receivable turnover of
for 2002 means that
. (Hint: assume a 365
day year and that all sales are on credit and use Accts receivable and notes receivable, net as accts
receivable, net)
a.
b.
c.
d.
45.
Page 22
Dividends were paid in 1998 only.
Dividends were paid in 1999 only.
Dividends were paid in 2002 only.
Dividends were paid in all 3 of these years.
According to the current ratio, has the company’s liquidity increased or decreased during the year?
a.
b.
c.
d.
Liquidity decreased reflected in a 2002 current ratio which is lower than the 2001 current
ratio.
Liquidity decreased reflected in a 2002 current ratio which is higher than the 2001 current
ratio.
Liquidity increased reflected in a 2002 current ratio which is lower than the 2001 current
ratio.
Liquidity increased reflected in a 2002 current ratio which is higher than the 2001 current
ratio.
Old Exams – Spring 2004
Acct 284
48.
What amount of cash was spent on property, plant, and equipment purchases during 2002?
a.
b.
c.
d.
49.
$836 million
$1,205 million
$1,437 million
$2,868 million
How many shares of common stock were outstanding at the end of 2002?
a.
b.
c.
d.
50.
Page 23
1,485 million shares
1,722 million shares
1,782 million shares
1,842 million shares
What total amount of accumulated other comprehensive loss was reported at the end of 2002?
a.
b.
c.
d.
$4,868 million
$3,313 million
$2,589 million
$1,672 million
Old Exams – Spring 2004
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RATIO/ITEM
Page 24
BASIC COMPUTATION
TESTS OF PROFITABILITY:
1.
Income
Return on equity (ROE)
2.
Net income + Interest expense (net of tax)
Return on assets (ROA)
3.
Financial leverage (ROE - ROA)
4.
Average total assets
Return on
equity
Return on
assets
Net income
Earnings per share
5.
Average owners’ equity
Quality of income
6.
Profit margin
7.
Weighted average number of shares of
common shares outstanding
Cash flow from operating activities
Net income
Income (before extraordinary items)
Net sales revenue
Net sales revenue
Fixed asset turnover ratio
Average net fixed assets
TESTS OF LIQUIDITY:
8.
Cash and cash equivalents
Cash ratio
9.
Current ratio
10.
Quick ratio
11.
Receivable turnover
12.
Current liabilities
Current assets
Current liabilities
Quick assets
Current liabilities
Net credit sales
Average net trade receivables
Cost of goods sold
Inventory turnover
TEST OF SOLVENCY AND EQUITY POSITION:
13.
Times interest earned
14.
Cash coverage
Average inventory
Net income + Interest and income tax expense
Interest expense
Cash flow from operating activities
(before interest and tax expense)
Interest paid
Total liabilities
15.
Debt/equity ratio
Owners’ equity
MARKET TESTS AND SHARE DATA:
Current market price per share
16.
Price/earnings ratio
Earnings per share
Old Exams – Spring 2004
Acct 284
RATIO/ITEM
BASIC COMPUTATION
Dividends per share
17.
Dividend yield ratio
18.
Market price per share
Gross Profit
Gross Profit Ratio
Net Sales Revenue
Page 25