Devry ACCT 504 Final Exam-2016

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Devry ACCT 504 Final Exam-2016

Question

1. Please describe the purpose of the Balance Sheet and the interrelationship between the balance sheet 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 Balance Sheet, if any, and which financial statements need to be completed after the Balance Sheet, if any

2. Your friend, John, plans to open a parking garage business. John states that he does not have time to develop and implement a system of internal controls.
(a) Explain to John the objectives of a system of internal control.
(b) Explain to John at least 5 internal control procedures that he must establish to protect himself against fraud. You should state specific internal control procedures from the textbook and relate your answer to his parking garage business.

3. 1. Define and describe what Bonds are to the issuing company

2. Define and describe in detail what the differences between the stated interest rate and the market interest rate.

3. Describe what amortization is and what statement(s) does it affect and how?

4.The following items are taken from the financial statements of PQR Company for 2013:

Cash	$100,000
Inventory	150,000
Accounts Payable	123,000
Accounts Receivable	40,000
Supplies	10,000
Salaries Payable	30,000
Unearned Revenue	75,000
Intangible assets	78,000
Property, plant, and equipment, net	156,000
Long term debt	50,000
Common Stock	25,000
Additional Paid in Capital	175,000
Retained Earnings, 12/31/2012	13,000
Service revenue	402,000
Cost of Goods Sold	250,000
Rent expense	48,000
Supplies expense	25,000
Insurance expense	36,000

Instructions:

(1) Create a classified balance sheet in good form for the year ended 2013.

(2) Calculate the current ratio and debt ratio and explain your findings.

5. The Alpha Company gathered the following condensed data for the year ended December 31, 2014:

Preferred stock dividends paid	$50,000
Net Sales	825,000
Interest revenue	10,000
Selling expenses	225,000
Administrative expenses	125,000
Cost of Goods Sold	400,000
Income tax percentage	30%

Instructions:
(1) Prepare a multiple-step income statement for the year ended December 31, 2014.

(2) Compute the gross margin percentage and net profit margin ratio. Alpha Company’s assets at the beginning of the year were $1,500,000, and the assets were $1,400,000 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. 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.

(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

7.Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.

(a) Beginning prepaid insurance, $500. Payments for insurance during the period are $900. Ending prepaid insurance is $600.
(b) Interest revenue of $1,500 has been earned but not yet received.
(c) Accrued Service Revenue of $12,000
(d) The weekly payroll is $16,000. Payroll is the beginning of next month.
The unadjusted balance of the Supplies account is $1,200. The total cost of supplies remaining is $300.
(f) Record the depreciation of $4,000 for this year.

8. 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.
(2) State which company performed better for each ratio.

9.What inventory method yields the highest net income? Why?

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