Devry ACCT 504 Week 8 Final Exam
Question 1 25 pts
(TCO D) Please describe the purpose of the Statement of Cash Flows and the interrelationship between the statement of cash flows and the other major financial statements we covered in this class. In your answer, please also address which financial statements should be created before the Statement of Cash Flows, if any, and which financial statements need to be completed after the Statement of Cash Flows, if any.
Question 2 25 pts
(TCO E) Your friend James plans to open a barber shop. James states that he does not have time to develop and implement a system of internal controls.
(a) Explain to James the objectives of internal control. (10 points)
(b) Explain to James 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 barber shop business. (15 points)
Question 3 20 pts
(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.
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.
Question 4 36 pts
(TCO A) The following items are taken from the financial statements of SGB Company for 2013:
- Cash $300,000
- Accounts Receivable 150,000
- Inventory 70,000
- Accounts Payable 13,000
- Supplies 20,000
- Salaries Payable 10,000
- Unearned Revenue 25,000
- Intangible assets 98,000
- Property, plant, and equipment, net 176,000
- Common Stock 50,000
- Additional Paid-in Capital 150,000
- Retained Earnings, 12/31/2012 78,300
- Long-term debt 275,000
- Service revenue 483,700
- Cost of Goods Sold 170,000
- Rent expense 50,000
- Supplies expense 15,000
- Insurance expense 36,000
(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)
Question 5 36 pts
(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%
(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)
Question 6 36 pts
(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)
Question 7 36 pts
(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.
(e) 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)
Question 8 36 pts
(TCO G) Please review the following 6 ratios for Simpson Company and ABC Inc. for the year ended 2014, and address the 2 questions below.
Ratio Name Simpson Company ABC Inc.
(a) Days’ sales outstanding 36 30
(b) Inventory turnover 5.6 4.9
(c) Asset turnover 2.02 3.03
(d) Earnings per share $1.50 $1.25
(e) Times-interest-earned 6.1 5.2
(f) Return on common stockholders’ equity 15.6% 12.2%
Instructions: This is a 2-part question.
(1) Explain the meaning of each of the Simpson Company ratios above. (18 points)
(2) State which company performed better for each ratio. (18 points)