Saturday 4 March 2017

Devry ACCT 504 Final Exam December 2016

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Question
Question 1.1.(TCO D) Please describe the purpose of the Income Statement and the interrelationship between the income statement and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Income Statement, if any, and which financial statements need to be completed after the Income Statement, if any. (Points : 25)
Question 2.2.(TCO E) Your friend, Lisa, plans to open a nail salon. Lisa states that she does not have time to develop and implement a system of internal controls.
(a) Explain to Lisa the components of internal control. (10 points)
(b) Explain to Lisa at least 5 internal control procedures she must establish to protect herself against fraud. You should state specific internal control procedures from the textbook, and relate your answer to her nail salon business. (15 points) (Points : 25)
Question 3.3.(TCO H) Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation when the market rate of interest was 10%. Interest is paid semiannually on the bonds, and the bonds mature in 4 years.
Instructions:
Compute the total price paid by Simpson Inc. for the bonds showing your calculation for the present value of the principal and the present value of the interest payments.
Present value tables (Exhibit 8-14 and Exhibit 8-15) are available on pages 452 and 453 of your Harrison, Horngren, and Thomas textbook. NOTE: Be sure you review the PV Tables completely to ensure you find the correct period and interest rate for the calculation. (Points : 20)
Question 4.4.(TCO A) The following items are taken from the financial statements of BCT Company for 2013:
Cash
$138,800
Accounts Payable
75,000
Supplies
15,000
Accounts Receivable
35,000
Inventory
45,000
Salaries Payable
30,000
Unearned Revenue
45,000
Property, plant, and equipment, net
318,000
Intangible assets
260,000
Common Stock
100,000
Additional Paid-in Capital
400,000
Retained Earnings, 12/31/2012
21,000
Long-term debt
90,000
Service revenue
746,000
Cost of Goods Sold
639,200
Rent expense
30,000
Supplies expense
5,000
Insurance expense
21,000
Instructions:
(1) Create a classified balance sheet in good form for the year ended 2013. (30 points)
(2) Calculate the current ratio and debt ratio and explain your findings. (6 points) (Points : 36)
Question 5.5.(TCO B) The Caldor Company gathered the following condensed data for the year ended December 31, 2014:
Cost of Goods Sold
$500,000
Net Sales
975,000
Selling Expenses
150,000
Interest Expense
25,000
Administrative Expenses
175,000
Common Stock Dividends Paid
50,000
Income tax percentage
35%
Instructions:
(1) Prepare a multiple-step income statement for the year ended December 31, 2014. (30 points)
(2) Compute the gross margin percentage and net profit margin ratio. Caldor Company’s assets at the beginning of the year were $900,000, and the assets were $950,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (6 points) (Points : 36)
Question 6.6.(TCO C) This is a 2-part question.
Part 1) Indicate which section of the statement of cash flows should contain each of the following items, and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing. (30 points)
(a) Amortization of a patent
(b) Increase in accounts payable
(c) Paid cash dividends to common stockholders
(d) Purchased equipment with cash
(e) Increase in inventory
Part 2) Please explain how to calculate free cash flow and the importance of free cash flow to investors. (6 points) (Points : 36)
Question 7.7.(TCO F) This is a 2-part question.
Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.
(a) The unadjusted balance of the Supplies account is $2,200. The total cost of supplies remaining is $1,000.
(b) Accrued Service Revenue of $9,000.
(c) Equipment was purchased at the beginning of the year for $45,000. The equipment’s useful life is 5 years, and the residual value is $5,000. Record the depreciation for this year.
(d) The weekly payroll is $25,000. Employees are owed for 3 days of a 5-day work week.
(e) Beginning unearned service revenue is $7,500, and ending unearned service revenue is $3,500.
(f) The business has interest expense of $750 that is due in January.
(30 points)
Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work. (6 points) (Points : 36)
Question 1.1.(TCO D) Please describe the purpose of the Income Statement and the interrelationship between the income statement and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Income Statement, if any, and which financial statements need to be completed after the Income Statement, if any. (Points : 25)
Question 2.2.(TCO E) Your friend, Lisa, plans to open a nail salon. Lisa states that she does not have time to develop and implement a system of internal controls.
(a) Explain to Lisa the components of internal control. (10 points)
(b) Explain to Lisa at least 5 internal control procedures she must establish to protect herself against fraud. You should state specific internal control procedures from the textbook, and relate your answer to her nail salon business. (15 points) (Points : 25)
Question 3.3.(TCO H) Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation when the market rate of interest was 10%. Interest is paid semiannually on the bonds, and the bonds mature in 4 years.
Instructions:
Compute the total price paid by Simpson Inc. for the bonds showing your calculation for the present value of the principal and the present value of the interest payments.
Present value tables (Exhibit 8-14 and Exhibit 8-15) are available on pages 452 and 453 of your Harrison, Horngren, and Thomas textbook. NOTE: Be sure you review the PV Tables completely to ensure you find the correct period and interest rate for the calculation. (Points : 20)
Question 4.4.(TCO A) The following items are taken from the financial statements of BCT Company for 2013:
Cash
$138,800
Accounts Payable
75,000
Supplies
15,000
Accounts Receivable
35,000
Inventory
45,000
Salaries Payable
30,000
Unearned Revenue
45,000
Property, plant, and equipment, net
318,000
Intangible assets
260,000
Common Stock
100,000
Additional Paid-in Capital
400,000
Retained Earnings, 12/31/2012
21,000
Long-term debt
90,000
Service revenue
746,000
Cost of Goods Sold
639,200
Rent expense
30,000
Supplies expense
5,000
Insurance expense
21,000
Instructions:
(1) Create a classified balance sheet in good form for the year ended 2013. (30 points)
(2) Calculate the current ratio and debt ratio and explain your findings. (6 points) (Points : 36)
Question 5.5.(TCO B) The Caldor Company gathered the following condensed data for the year ended December 31, 2014:
Cost of Goods Sold
$500,000
Net Sales
975,000
Selling Expenses
150,000
Interest Expense
25,000
Administrative Expenses
175,000
Common Stock Dividends Paid
50,000
Income tax percentage
35%
Instructions:
(1) Prepare a multiple-step income statement for the year ended December 31, 2014. (30 points)
(2) Compute the gross margin percentage and net profit margin ratio. Caldor Company’s assets at the beginning of the year were $900,000, and the assets were $950,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (6 points) (Points : 36)
Question 6.6.(TCO C) This is a 2-part question.
Part 1) Indicate which section of the statement of cash flows should contain each of the following items, and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing. (30 points)
(a) Amortization of a patent
(b) Increase in accounts payable
(c) Paid cash dividends to common stockholders
(d) Purchased equipment with cash
(e) Increase in inventory
Part 2) Please explain how to calculate free cash flow and the importance of free cash flow to investors. (6 points) (Points : 36)
Question 7.7.(TCO F) This is a 2-part question.
Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.
(a) The unadjusted balance of the Supplies account is $2,200. The total cost of supplies remaining is $1,000.
(b) Accrued Service Revenue of $9,000.
(c) Equipment was purchased at the beginning of the year for $45,000. The equipment’s useful life is 5 years, and the residual value is $5,000. Record the depreciation for this year.
(d) The weekly payroll is $25,000. Employees are owed for 3 days of a 5-day work week.
(e) Beginning unearned service revenue is $7,500, and ending unearned service revenue is $3,500.
(f) The business has interest expense of $750 that is due in January.
(30 points)
Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work. (6 points) (Points : 36)
Question 8.8.(TCO G) Please review the following 6 ratios for Johnson Company and Lee Enterprises for the year ended 2014, and address the 2 questions below.
Ratio Name
Johnson Company
Lee Enterprises
(a) Accounts receivable turnover
6.5
5.3
(b) Days’ inventory outstanding
40
35
(c) Debt ratio
29.3%
25.7%
(d) Return on common stockholders’ equity
14.7%
10.5%
(e) Current ratio
2.50
3.60
(f) Price/Earnings ratio
10
12
Instructions: This is a 2-part question.
(1) Explain the meaning of each of the Johnson Company ratios above. (18 points)
(2) State which company performed better for each ratio. (18 points) (Points : 36)



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