MBA 503 Final Examination-40 Questions Contained

(1.) The inventory system that uses computer software to keep a running record of inventory on hand is the:
A- Hybrid inventory system
B- Periodic inventory system
C- Costs of goods inventory system
D- Perpetual inventory system

(2.) When a LIFO liquidation occurs:
A- The company must dip into the older layers of inventory cost to compute the cost of goods sold
B- And prices are rising, newer, higher, costs are shifted into cost of goods sold
C- Net income decreases
D- Income taxes decrease
(3.) Given the following data, calculate the dollar amount of ending inventory using the average cost method. Round ending inventory to the nearest dollar.

Date                             Item                                                         Unit
1/1                               Beginning Inventory                              40 units @ $12 per unit
3/5                               Purchase of Property                            18 units @ $14 per unit
5/30                             Purchase of Inventory                           24 units @ $18 per unit
12/31                           Ending Inventory                                    20 units

A- $1,419
B- $852
C- $1,164
D- $284

(4.) The inventory turnover ratio:
A- Will be lower for companies that have many low-priced items in the inventory.
B- Shows how many times the company sold its average level of inventory.
C- Should be high for a company that sells high-priced inventory items.
D- Is determined by dividing costs of goods sold by net sales.
(5.) Company B purchased some land and is preparing the land for a new building. Company B should include which of the following in the cost of the land?
A- Cost of sprinkler system for the shrubbery.
B- Grading and cleaning the land.
C- Costs of driveways.
D- Cost of fencing.
(6.) Which of the following should be included in the costs of equipment?
A- Freights costs to deliver the equipment.
B- Installation costs for the equipment.
C- Testing costs to get the equipment ready for use.
D- All of the above.
(7.) Costs that do not extend the assets capacity or it’s useful life, but merely maintain the asset or restore it to working order are recorded as:
A- Additions
B- Improvements
C- Expenses
D- Capital Expenditures
(8.) The process of allocating the cost of a plant asset to expense over the period in which the asset is used is called:
A- Allocation
B- Disclosure
C- Depreciation
D- Amortization
(9.) At the end of an asset’s useful life, the balance in accumulated depreciation will be the same as the:
A- Salvage value
B- Cumulative depreciation expense
C- Book value
D- Tax liability
(10.) Thomas company trades in a printing press for a newer model. The cost of the old printing press was $61,500, and accumulated depreciation up to the date of the trade-in amounts to $38,000. The company also pays $41,200 cash for the newer printing press. The journal entry to acquire the new printer, press will require a debit to Equipment for:
A- $41,200
B- $64,700
C- $102,700
D- $61,500
(11.) The future value of 1 will always be:
A- Less than 1
B- Equal to 1
C- Equal to the interest rate
D- Greater than 1
(12.) Which of the following discount rates will produce the smallest present value?
A- 8%
B- 10%
C- 6%
D- 4%
(13.) Failure to record an accrued liability causes a company to:
A- Overstate assets
B- Understate liabilities
C- Understate income
D- Understate owner’s equity
(14.) Sales taxes collected by a retailer as reported are:
A- Current liabilities
B- Current assets
C- Revenues
D- Contingent liabilities
(15.) The market interest rate is also referred to as the:
A- Start rate
B- Contractural rate
C- Coupon rate
D- Effective rate
(16.) On January 1, Multichip Corporation issued $2,000,000, 10-year, 8% bonds at 102. The journal entry to record this transaction would include a :
A- Debit to cash $2,000,000.
B- Credit to bond payable $2,040,000.
C- Debt to discount on bonds payable $40,000.
D- Credit to premium on bonds payable $40,000.
(17.) A disadvantage of using bonds as a method of long-term financing is that:
A- Issuing bonds results in higher earnings per share.
B- Interest’s expense is tax deductible.
C- Bond holders do not have voting rights.
D- Interest must be paid regardless of earnings.
(18.) If a corporation issues 5,000 shares of $5 par value common stock for $95,000, the entry would include a credit to:
A- Common stock for $70,000.
B- Paid-in capital in Excess of Par for $95,000.
C- Paid-in Capital in Excess of Par for $70,000.
D- Common stock for $95,000.
(19.) ABC Corporation purchases 40,000 shares of its own $10 par value, common stock for $25 per share. What will be the effect of stockholders equity?
A- Decrease $1,000,000.
B- Decrease $400,000.
C- Increase $400,000.
D- Increase $1,000,000.
(20.) If a corporation declares a $1,000,000 cash dividend, the account to be debited on the date of declaration is:
A- Paid-in Capital in Excess of Par.
B- Common stock.
C- Dividends payable.
D- Retained Earnings.
(21.) An increase in the number of authorized, issues and outstanding shares of stock along with a proportional reduction in the stock in the par value is a:
A- Stock dividend
B- Stock split
C- Cash dividend
D- Deficit
(22.) In general, the order of reporting stockholder’s equity on the balance sheet is:
A- Preferred stock, Common stock, Paid-in Capital, Retained Earnings, Treasury Stock.
B- Common Stock, Preferred Stock, Paid-in Capital, Retained Earnings, Treasury Stock.
C- Preferred Stock, Common Stock, Treasury Stock, Paid-in Capital, Retained Earnings.
D- Retained Earnings, Preferred Stock, Common Stock, Paid-in Capital, Treasury Stock.
(23.) Income tax payable appears on the:
A- Statement of stockholder’s equity.
B- Tax returns.
C- Balance Sheet.
D- Income Statement.
(24.) Changes in accounting estimates:
A- Require prior financial statements to be restated.
B- Are not allowed under GAAP.
C- Are a prior period adjustment.
D- Are reported for the current and future periods on the new basis.
(25.) Wildcat corporation reported net income for the current year of $700,000. Wildcat had 5,000 shares of $100 par value, 10% preferred stock outstanding and $40,000 shares of $1 par value common stock outstanding for the entire year. Earnings per share was:
A- $16.25
B- $17.50
C- $18.75
D- $16.67
(26.) A statement of cash flows:
A- May be combined with the balance sheet.
B- May be combined with the income statement at the option of management.
C- Is a basic financial statement recruited for publicly- held companies.
D- Is typically prepared for request of major creditors.
(27.) In addition to preparing the income statement, balance sheet, and statement of retained earnings, which of the following is also a required financial statement?
A- Statement of Cash flows.
B- Cash Reconciliation Statement.
C- Statement of cash inflows and outflows.
D- Cash Reform Statements.
(28.) Cash received from customers would be reported on the statement of cash flows under:
A- Investing activities.
B- Financing activities.
C- Operating Activities.
D- Non-cash activities.
(29.) The receipt of interest on loans would be reported on a statement of cash flows under:
A- Inventory activities
B- Financing Activities
C- Operating Activities
D- Non-cash activities
(30.) Horizontal analysis is performed on:
A- Only the income statement.
B- Only the balance sheet.
C- Only the statements of retained earnings.
D- The income statement, the balance sheet, and the statement of retained earnings.
(31.) Tech support corporation reports the following data:
Net Sales                         $275,000
Costs of goods sold       $175,000
Gross profit                     $100,000

In a vertical analysis, the gross profit percentage is closest to:
A- 36%
B- 63%
C- 57%
D- 157%
(32.) In performing a vertical analysis, the base for interest expense is:
A- Net income.
B- Net sales.
C- Total operating expenses.
D- Interest incomes.
(33.) Depots Clothing Store had an accounts receivable balance of $420,000 at the beginning of the year and a year –end balance of $510,000. Net sales of the year totaled $2,100,000. The average collection period for the receivables was:
A- 162 days
B- 51 days
C- 41 days
D- 81 days
(34.) Thames, Inc’s inventory records for a particular development program shows the following at July 31:
Data Table
July 1 Beginning Inventory ……………….. 4 units @$150 = $600
        15 Purchases…………………………….. 5 units @ 150 = $750
         26 Purchases…………………………….. 9units @ 160 = $1,440
Requirements

(1.) Compute the costs of goods sold and ending inventory, using each of the following methods:
a.) Specific unit costs, with one $150 units and seven $160 units still on hand at the end.
b.) Average cost
c.) Firs-in, First-out
d.) Last-in, First-out
(2.) Which method produces the highest cost of goods sold?
What causes the difference in costs of goods sold?

Requirement 1: Compute the costs of goods sold and ending inventory, using each if the following for inventory methods:

First, calculate the total units and the cash goods available for sale:

July 1 Beginning Inventory    [email protected] $150 = $ 600
        15 Purchase                     [email protected] $150 = 750
        26 Purchase                     [email protected] $160 = 1,440
Goods available for sale:
(a.) Compute ending inventory and costs of goods sold using specific costs method with one $150 units and seven $160 units still on hand at the end.
Costs available for sale      ___________________
Less. Total ending inventory   ______________
Costs of goods sold   _______________________-
(b.) Compute ending inventory and costs of goods sold using the average costs method. Begin by calculating the average costs per unit. ( Round the average costs per unit to the nearest cent).
The average cost per unit is $ _______-

Calculate the ending inventory and costs of goods sold. ( Use the average costs per unit to calculate ending inventory and costs of goods sold. Round your final answer to the nearest whole dollar).

Costs of goods available for sale    ____________________________
Less. Total ending inventory          ______________________________
Costs of goods sold                         _______________________________

(c.) Compute ending inventory and costs of goods sold, using the First-in, First-out method.

Costs of goods available for sale      ____________________________
Less. Total ending inventory            ____________________________
Costs of goods sold                            __________________________

(d.) Compute ending inventory and costs of goods sold using the Last-in, First-out method.

Costs of goods available for sale   ___________________________
Less. Total ending inventory          __________________________
Costs of goods sold                         __________________________

Requirement 2. Which method produces the highest costs of goods sold? Which method produces the lowest costs goods sold? Which causes the difference in costs of goods sold?
Which method produces the highest costs of goods sold?  “FIFO, LIFO, or Specific Unit Cost” Please choose one.
Which method produces the lowest costs of goods sold? “FIFO, LIFO, or specific Unit Cost” Please choose one.

The difference in costs of goods sold under the two methods identified above was caused by:  “ the decrease in inventory costs, the increase in inventory costs, or the difference in the number of units sold”, Please choose one.

(35.) Little Town’s Pizza- bought a used Toyota delivery van onJan2, 2012 for $18,000. The van was expected to remain in service for four years (39,250 miles). At the end of its useful life, Little Town’s officials estimated that the van’s residual value would be $2,300. The van traveled 13,000 miles the first year, 11,250 miles the second year, 6,000 miles the third year, and 9,000 miles in the fourth year.
Requirement 1: Prepare a schedule of depreciation expense per year for the van under the three depreciation methods. (For units-of –production, and double-declining-balance, round to the nearest two decimals after each step of the calculation. For years with $0 depreciation, make sure to enter “0” in the appropriate columns).
Year             Straight-Line                Units-of-production                  Double-declining-balance
2012            ____________            _______________                    __________________
2013            ______________        _____________                         _________________
2014            ______________        _____________                         _________________
2015            ______________        ________________                  ________________
Total           _______________      ________________                  ___________________

Requirements:
(1.) Prepare a schedule of depreciation expense per year for the van under the three depreciation methods.
(2.) Which method best tracks the wear and tear on the van?
(3.) Which methods would Little Town prefer to use for income tax purposes? Explain in detail why Little Town’s prefers this method?
Requirement 2:
Which method best tracks the wear and tear on the van?
The (double-declining-balance/straight-line or/units of production) please choose one, method tracks the wear and tear on the van most closely?
Requirement 3:
Which method would Little Town prefer to use for income tax purposes?
Explain in detail why Little Town’s prefer this method.
For income tax purposes, Little Town’s would prefer the please choose one, ( the double-declining balance/ straight-line/ or units-of-production)-method because it produces the, please choose one, (least or/most) depreciation, and thus, the, please choose one, ( largest, smallest) tax deductions in the early life of the asset.

(36.) Calculate the present value of the following amounts:
(1.) $5,000 at the end of ten years at 8%
(2.) $5,000 a year at the end of the next ten years at 8%
(Round your answers to the nearest whole dollar)

Future Value of $1

Periods    6%      8%       10%     12%        14%
1            1.060   1.080   1.100   1.120     1.140
2            1.124   1.166   1.210   1.254     1.300
3            1.191   1.260   1.331   1.405     1.482
4            1.262   1.360   1.464   1.574     1.689
5            1.338   1.469   1.611   1.762     1.925
6            1.419   1.587   1.772   1.974     2.195
7            1.504   1.714   1.949   2.211     2.502
8            1.594   1.851   2.144   2.476     2.853
9            1.689   1.999   2.358   2.773    3.252
10          1.791   2.159   2.594   3.106    3.707
15          2.397   3.172   4.177   5.474   7.138
20          3.207   4.661   6.728   9.646   13.743

Present Value of $1

Periods    6%      8%     10%      12%      14%
1           0.943   0.926   0.909   0.893   0.877
2           0.890   0.857   0.826   0.797   0.769
3           0.840   0.794   0.751   0.712   0.675
4           0.792   0.735   0.683   0.636   0.592
5           0.747   0.681   0.621   0.567   0.519
6           0.705   0.630   0.564   0.507   0.456
7           0.665   0.583   0.513   0.452   0.400
8           0.627   0.540   0.467   0.404   0.351
9           0.592   0.500   0.424   0.361   0.308
10         0.558   0.463   0.386   0.322   0.270
15     0.417   0.315   0.239   0.183   0.140
20     0.312   0.215   0.149   0.104   0.073

Future Value of Annuity of $1

         Periods    6%     8%    10%           12%      14%
1                                1.000   1.000   1.000       1.000    1.000
2                                2.060   2.080   2.100       2.120    2.140
3                                3.184   3.246    3.310      3.374    3.440
4                                4.375   4.506    4.641      4.779    4.921
5                                5.637   5.867   6.105       6.353    6.610
6                                6.975   7.336   7.716       8.115    8.536
7                                8.394   8.923   9.487      10.089   10.730
8                                9.897   10.637   11.436   12.300   13.233
9                                11.491 12.488   13.57     14.776   16.085
10                             13.181   14.487   15.937   17.549   19.337
15                             23.276   27.152   31.772    37.280   43.842
20                             36.786   45.762   52.275    72.052   91.025

Present Value of Annuity of $1
Periods         6%          8%      10%           12%                  14%
1              0.943      0.926     0.909       0.893               0.877
2             1.833      1.783      1.736       1.690               1.647
3             2.673      2.577      2.487       2.402                2.322
4            3.465       3.312      3.170      3.037                2.914
5            4.212       3.993     3.791       3.605              3.433
6            4.917       4.623    4.355        4.111             3.889             
7            5.582      5.206      4.868       4.564             4.288
8            6.210      5.747      5.335       4.968            4.639
9          6.802    6.247    5.759       5.328                 4.946
10        7.360    6.710   6.145        5.650                 5.216
15        9.712    8.559    7.606       6.811                 6.142
20        11.470   9.818   8.514       7.469                 6.623

(1.) The present value of $5,000 at the end of ten years at 8% is ___________
(2.) The present value of $5,000 a year at the end of the next ten years at 8% is ___________-

(37.) Assume that Cart Company completed the following note payable transactions.
2012
Jul1        Purchased delivery truck costing $85,000 by issuing a one-year 8% note payable.
Dec 31   Accrued interests on the note payable
2013
Jul 11    Paid the note payable at maturity

Requirement 1. How much interests expense must be accrued at December 31, 2012? (round your answer to the nearest whole dollar).

The interests expense accrued at December 31, 2012 is $_____________

Requirement 2. Determine the amount of Cart’s final payment on July 1, 2013.

The amount of Cart’s final payment on July 1, 2013 is $_______________

Requirement 3. How much interest expense will Cart report for 2012 and for 2013? (Round your answer to the nearest whole dollar)

The company will report interests expense of $____________ in 2012 and $___________in 2013.

(38.) Colonel Sporting Goods is authorized to issue 12,000 shares of common stock. During a two-month period, Colonel completed these stock issuance transactions:
Data Table
July 23        Issued 2,500 shares of $4.00 per common stock for cash of $14.50 per share.
July 12        Received inventory valued at $20,000 and equipment’s with market value of $46,000 for 3,500 shares of the $4.00 per common stock.
Requirement
(1.) Prepare the stockholder’s equity section of Colonel Sporting Good’s balance sheet for the transactions given in this exercise. Retained earnings had a balance of $45,000. Journal entries are not required.

Requirement 1. Prepare the stockholder’s equity section of Colonel Sporting Good’s balance sheet for the transactions given in this exercise. Retained earnings has a balance of $45,000. Journal entries are not required. ( Enter the accounts in the proper order for the stockholders, equity section of the balance sheet.)

Stockholder’s Equity
Stockholder’s Equity    _________________________

_________________________-

______________________________________–

Options To select and use on the balance sheet above:
• 3,000 shares authorized, 500 shares issued
• 12,000 shares authorized, 6000 shares issued
• Additional paid-in capital
• Common stock, $400 par.
• Preferred stock, $7.00, no par.
• Retained earnings
• Total stockholder’s equity
• Treasury stock

(39.) Mc-Taggart-Hicks investments specializes in low-risk government bonds.

Requirement

Identify each of Mc-Taggart-Hicks transactions as operating (O), investing (I), Financing (F), non-cash investing and financing (NIF) , or a transaction that is not reported on the statement of cash flows (N).
Indicate whether each increases (+) or decreases (-) cash. The indirect method is used for operating activities.

(a.) Sale of long-term investments   _________
(b.) Issuance of long-term note payable to borrow cash  __________
(c.) Increase in prepaid expenses   _____________
(d.) Payment of cash dividends  _____________
(e.) Loss of sale of equipment   ___________-
(f.) Decrease in merchandise inventory  _____________
(g.) Acquisition of equipment by issuance of note payable  _____________
(h.) Increase in accounts payable   _____________-
(i.) Amortization of intangible assets    ___________-
(j.) Net income   _____________-
(k.) Payment long-term debt   ______________
(l.) Accrual of salary expense   ______________
(m.) Cash sale of land  ____________-
(n.) Purchase of long-term investment   ___________
(o.) Acquisition of building by cash payment_____________
(p.) Purchase of treasury stock   ____________
(q.) Issuance of common stock for cash   __________-
(r.) Decrease in accrued liabilities   ___________
(s.) Depreciation of equipment   __________

(40.) The financial statement of Homer, Inc. follow:

Homer, Inc
Balance Sheet , (Adapted)
December 31, 2012 and 2011

(Dollars amounts in millions)                 2012             2011             Amount            %        (Inc/Dec)

Assets
Current Assets

Cash and cash equivalents                    $398             $310             $88                  28.4%
Short-term investments                         16                 42                  (26)                 (61.9)
Receivables, net                                       258               262               (4)                    (1.5)
Inventories                                                108              82                  26                     31.7
Prepaid expenses and other assets      262              394                (132)                (33.5)
Total Current assets                                1,042           1,090             (48)                  (4.4)

Property, plant, and equipment, net   3,642            3,306            336                   10.2
Intangible assets                                      1,100            828               272                    32.9
Other assets                                             814                724               90                      12.4
Total Assets                                              $6,598          $5,948          $650                10.9%

Liabilities & stockholder’s Equity

Current Liabilities                                  2012             2011                Amount             %

Accounts Payable                                  $1,326          $1,226            $100                   8.2%
Income tax payable                            30                        78                        (48)               (61.5)
Short-term debt                                  220                      218                      2                    0.9
Other                                                     70                         72                       (2)                 (2.8)
Long-term debt                                   2,328                  1,744                   584                33.5
Other Liabilities                                   1,198                  1,096                   102                9.3
Total Liabilities                                    5,172                    4,434                  738               16.6

Stockholder’s Equity
Common Stock                                    2                           2                              —                 —–
Retained Earnings                             1,574                    1,690                    (116)             (6.9)
Accumulated other comp loss         (150)                    (178)                     28                 15.7
Total stockholder’s equity                1,425                    1,514                   (88)                (5.8)
Total liabilities & Stockholder’s       $6,598                  $5,948                $650              10.9%

(Dollar Amounts In Millions)                                                                   2012                   2011
Revenues                                                                                                 $9,507               $9,309
Expenses
Food & paper (costs of goods sold)                                                    2,200                  2,236
Payroll & Employee Benefits                                                               2,119                  2,181
Occupancy & other operating expenses                                           2,453                  2,375
General & Administrative Expenses                                                   1,207                  1,138
Interest Expense                                                                                     194                     133
Other Expense (Income), net                                                                11                       (36)
Income before income taxes                                                                 1,323                 1,282
Income tax expense                                                                                273                     269
Net income                                                                                              $1,050               $1,013

Compute these profitability measures, for 2012. Show each computation:

(a.) Rate of return on sales
(b.) Asset turnover
(c.) Rate of return on total assets
(d.) Leverage (equity multiplier0 ratios
(e.) Rate of return of common stockholder r’s equity
(f.) Is Homer, Inc’s profitability strong, medium or weak.

(a.) Compute the rate of return on sales for 2012 , (Abbreviation used, SE = stockholder’s equity. Enter amounts in millions. Round your answers to one decimal place.

________________ /__________ = Rate of return on sales

_________________/ ________ = %

(b.) Compute asset turnover. (Abbreviation used, SE = stockholder’s equity. Enter amounts in millions. Round average calculations to the nearest millions. Round your answer to the decimal places.

_________________ / ________________ = Asset Answer
________________ / ______________________ = _____________

(c.) Compute the ratio on total assets for 2012. ( Enter percentages to one decimal place. Enter other components ratio in formula to three decimal places).
________________   X _____________________ = Rate of return on total assets
_________________ %   X _______________- = _______________- %
(d.) Compute the leverage (equity multiplier) ratio. (Abbreviation used , SE = stockholder’s equity. Enter amounts in millions. Round your answers three decimal places:
______________________ / _________________- = Leverage ratio
____________________ / ___________________ = ____________

(e.) Compute the rate of return on common stockholder’s equity, for 2012:

(____________________ —–  __________________) / _____________ = Rate of return common SE