MBA503 FINAL EXAM-all correct a+

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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
1/1
3/5
5/30
12/31
ABCD-

Item
Beginning Inventory
Purchase of Property
Purchase of Inventory
Ending Inventory

Unit
40 units @ $12 per unit
18 units @ $14 per unit
24 units @ $18 per unit
20 units

$1,419
$852
$1,164
$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
Gross profit

$175,000
$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
15 Purchase
26 Purchase

4@ $150 = $ 600
5@ $150 = 750
9@ $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 doubledeclining 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
1
2
3

6%
8%
10% 12%
1.060 1.080 1.100 1.120
1.124 1.166 1.210 1.254
1.191 1.260 1.331 1.405

14%
1.140
1.300
1.482

4
5
6
7
8
9
10
15
20

1.262
1.338
1.419
1.504
1.594
1.689
1.791
2.397
3.207

1.360
1.469
1.587
1.714
1.851
1.999
2.159
3.172
4.661

1.464
1.611
1.772
1.949
2.144
2.358
2.594
4.177
6.728

1.574 1.689
1.762 1.925
1.974 2.195
2.211 2.502
2.476 2.853
2.773 3.252
3.106 3.707
5.474 7.138
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
1
2
3
4
5
6
7
8
9
10
15
20

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

Present Value of Annuity of $1
Periods
6%
8% 10%
1
0.943
0.926 0.909

12%
0.893

14%
0.877

2
3
4
5
6
7
8
9
10
15
20

1.833
1.783
1.736
1.690
2.673
2.577
2.487
2.402
3.465
3.312
3.170
3.037
4.212
3.993 3.791
3.605
4.917
4.623 4.355
4.111
5.582
5.206
4.868
4.564
6.210
5.747
5.335
4.968
6.802 6.247 5.759
5.328
7.360 6.710 6.145
5.650
9.712 8.559 7.606
6.811
11.470 9.818 8.514
7.469

1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
6.142
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)
(Inc/Dec)

2012

2011

$398
16
258
108
262
1,042

$310
42
262
82
394
1,090

Amount

%

Assets
Current Assets
Cash and cash equivalents
Short-term investments
Receivables, net
Inventories
Prepaid expenses and other assets
Total Current assets

$88
(26)
(4)
26
(132)
(48)

28.4%
(61.9)
(1.5)
31.7
(33.5)
(4.4)

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

10.2
32.9
12.4
10.9%

Liabilities & stockholder’s Equity
Current Liabilities

2012

2011

Accounts Payable
Income tax payable
(61.5)
Short-term debt

$1,326
30

$1,226
78

220

218

Amount
$100

%
8.2%

(48)
2

0.9

Other
(2.8)
Long-term debt
Other Liabilities
Total Liabilities
16.6
Stockholder’s Equity
Common Stock
—-Retained Earnings
(6.9)
Accumulated other comp loss
Total stockholder’s equity
(5.8)
Total liabilities & Stockholder’s
10.9%

70

72

2,328
1,198
5,172

1,744
1,096
4,434

2

1,690

(150)
1,425

(178)
1,514

584
102
738

2

1,574

(2)

$6,598

(Dollar Amounts In Millions)
2011
Revenues
$9,309
Expenses
Food & paper (costs of goods sold)
2,236
Payroll & Employee Benefits
2,181
Occupancy & other operating expenses
General & Administrative Expenses
1,138
Interest Expense
133
Other Expense (Income), net
Income before income taxes
1,282
Income tax expense
269
Net income
$1,013

$5,948

–(116)
28
(88)

15.7

$650
2012
$9,507
2,200
2,119
2,453
1,207

2,375

194
11
1,323
273
$1,050

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

33.5
9.3

(36)

(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

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