Devry ACCT 504 Final Exam-December 2016

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Devry ACCT 504 Final Exam-December 2016

Question

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 A) 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. (30 points) (2) Calculate the current ratio and debt ratio and explain your findings. (6 points) (Points : 20)

Question 4. 4.(TCO B) The Delta Company gathered the following condensed data for the year ended December 31, 2014: Cost of goods sold $300,000 Net sales 525,000 Administrative expenses 110,000 Interest expense 18,000 Common stock dividends paid 25,000 Selling expenses 52,000 Income tax percentage 33% 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. Delta Company’s assets at the beginning of the year were $800,000, and the total assets were $1,000,000 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 : 20)

Question 5. 5.(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 : 20)

Question 6. 6.(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) 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 $20,000. Employees are owed for 4 days of a 5-day work week.  The unadjusted balance of the Supplies account is $1,200. The total cost of supplies remaining is $300. (f) Equipment was purchased at the beginning of the year for $25,000. The equipment’s useful life is 5 years, and the residual value is $5,000. Record the depreciation for this year.  (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 : 20)

Question 7. 7.(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 : 20)

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