Final Exam Fundamentals of Accounting

Final Exam: Chapters 1-15 Financial Accounting, Fifth Edition Name _ Instructor Section # _ Date Part I II III IV V VI VII VIII Total Points 90 25 14 15 12 15 14 15 200 Score PART I — MULTIPLE CHOICE (90 points) Instructions Designate the best answer for each of the following questions Questions and are based on the following information: Cain Company recently incurred the following costs: (1) Purchase price of land and dilapidated building (2) Real estate broker's commission 14,000 (3) Net demolition costs of dilapidated building 39,000 (4) Excavation costs for new building 44,000 (5) Architect's fees and building permits 30,000 (6) Costs associated with new building construction 950,000 (7) Costs associated with new furniture and equipment 250,000 (8) Actual interest costs during building construction 168,000 (9) Actual interest cost after completion of building construction 120,000 (10) Costs of walks, driveways, and parking lot The building should be recorded on Cain's books at a $980,000 b $1,024,000 c $1,063,000 d $1,192,000 Land should be recorded on Cain's books at a $250,000 b $264,000 c $303,000 d $333,000 $250,000 55,000 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition FE-2 Benson Supply bought equipment at a cost of $24,000 on January 2, 2000 It originally had an estimated life of ten years and a salvage value of $4,000 Benson uses the straight-line depreciation method On December 31, 2003, Benson decided the useful life likely would end on December 31, 2007, with a salvage value of $2,000 The depreciation expense recorded on December 31, 2003, should be a $2,000 b $2,200 c $3,200 d $4,400 In order to be relevant, accounting information must a be neutral b be verifiable c help predict future events d be a faithful representation Riodan Company sold old equipment for $25,000 The equipment had a cost of $50,000 and accumulated depreciation of $30,000 The entry to record the sale of the equipment would include a a loss on disposal of $25,000 b gain on disposal of $25,000 c loss on disposal of $5,000 d gain on disposal of $5,000 The cost of intangible assets should be a amortized over the assets' estimated useful life, or 20 years, whichever is shorter b amortized over a period not exceeding years c amortized over the assets' estimated useful life d charged to an expense account at acquisition In a period of rising prices, the inventory method that results in the lowest income tax payment is a LIFO b FIFO c average cost d specific identification On November 30, Thatcher Company issued a $8,000, 6%, 4-month note to the National Bank The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for a $8,000 b $8,480 c $8,160 d $8,320 The inventory methods that result in the most current costs in the income statement and balance sheet are Income Statement Balance Sheet a FIFO FIFO b LIFO FIFO c LIFO LIFO d FIFO LIFO 10 The following information is available for Lighten Company: Final Exam Sales $130,000 Ending Merchandise Inventory 12,000 Purchases 90,000 Freight-in Purchase Returns and Allowances Beginning Merchandise Inventory FE-3 $10,000 5,000 15,000 Lighten’s cost of goods sold is a $115,000 b $110,000 c $98,000 d $95,000 11 If ending inventory is understated, net income and assets will be Net Income Assets a Understated Understated b Overstated Overstated c Understated Unaffected d None of the above 12 One of the two constraints in accounting is a comparability b materiality c reliability d relevance 13 The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the a economic entity assumption b going concern assumption c monetary unit assumption d time period assumption 14 All of the following are intangible assets except a patents b land improvements c goodwill d franchises 15 A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles? a Documentation procedures b Segregation of duties c Establishment of responsibility d Independent internal verification 16 When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a a debit to an expense account b credit to an expense account c credit to the Allowance account d debit to the Allowance account Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition FE-4 17 Shipping terms of FOB destination mean that the a purchaser is responsible for the shipping charges b shipping charges are debited to Freight-Out c items should be in the purchaser's inventory account at year-end if the items are in transit d both (a) and (c) above 18 Helig Company has a $150,000 balance in Accounts Receivable and a $1,000 debit balance in Allowance for Doubtful Accounts Credit sales for the period totaled $900,000 What is the amount of the bad debt adjusting entry if Helig uses a percentage of receivables basis (at 10%)? a $15,000 b $14,000 c $16,000 d $15,200 19 The constraint of conservatism is best expressed as a the cost of applying an accounting principle should not exceed its benefit b only material items should be recorded and reported c when in doubt, choose the method that will least likely overstate assets and net income d the lower of cost or market method should be used for inventories 20 If merchandise is sold for $1,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a a credit to Sales Discounts for $20 b credit to Cash for $980 c credit to Accounts Receivable for $20 d none of the above 21 Barker Company's records show the following for the month of January: Total Retained Earnings at January $400,000 Total Retained Earnings at January 31 500,000 Total Revenues 670,000 Total Dividends Declared 30,000 Total expenses for January were a $740,000 b $770,000 c $570,000 d $540,000 Final Exam FE-5 22 Jetson Company's financial information is presented below Sales $ ???? Sales Returns and Allowances 30,000 Net Sales 250,000 Beginning Merchandise Inventory ???? Purchases 170,000 The missing amounts above are: Sales Beginning Inventory a $280,000 $45,000 b $220,000 $45,000 c $280,000 $60,000 d $220,000 $60,000 Purchase Returns and Allowances $ 15,000 Ending Merchandise Inventory 35,000 Cost of Goods Sold 180,000 Gross Profit ???? Gross Profit $70,000 $100,000 $70,000 $100,000 23 The necessity of making adjusting entries relates mostly to the a economic entity assumption b time period assumption c going concern assumption d monetary unit assumption 24 The preparation of closing entries a is an optional step in the accounting cycle b results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions c is necessary before financial statements can be prepared d results in transferring the balances in all temporary accounts to Retained Earnings 25 Allowance for Doubtful Accounts is reported in the a balance sheet as a contra asset b balance sheet as a contra liability account c income statement under other expenses and losses d income statement under other revenues and gains 26 Current liabilities are obligations that are reasonably expected to be paid from Existing Creation of Other Current Assets Current Liabilities a No No b Yes Yes c Yes No d No Yes 27 Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was a not posted at all b posted as a debit to Cash and a credit to Accounts Payable c posted as a debit to Cash and a debit to Accounts Payable d posted as a debit to Accounts Receivable and a credit to Cash Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition FE-6 28 The primary accounting standard-setting body in the United States is the a Securities and Exchange Commission b Accounting Principles Board c Financial Accounting Standards Board d Internal Revenue Service 29 Lawford Company's equipment account increased $400,000 during the period; the related accumulated depreciation increased $30,000 New equipment was purchased at a cost of $700,000 and used equipment was sold at a loss of $20,000 Depreciation expense was $100,000 Proceeds from the sale of the used equipment were a $210,000 b $250,000 c $280,000 d $320,000 30 Which of the following would not be included in the operating activities section of a statement of cash flows? a Cash inflows from returns on loans (i.e., interest) b Cash inflows from returns on equity securities (i.e., dividends) c Cash outflows to governments for taxes d Cash outflows to reacquire treasury stock 31 Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively? Liquidity Profitability Solvency a Inventory turnover Inventory turnover Times interest earned b Current ratio Inventory turnover Debt to total assets c Receivable turnover Return on assets Times interest earned d Average days collection Payout ratio Return on assets 32 Nadine Manufacturing declared a 10% stock dividend when it had 150,000 shares of $5 par value common stock outstanding The market price per common share was $12 per share when the dividend was declared The entry to record this dividend declaration includes a credit to a Retained Earnings of $75,000 b Paid-in Capital in Excess of Par for $105,000 c Common Stock for $75,000 d Retained Earnings for $180,000 33 Which of the following pairs of terms in the area of financial statement analysis are synonymous? a Ratio — Trend b Horizontal — Trend c Vertical — Ratio d Horizontal — Ratio Final Exam FE-7 34 Which of the following statements is true? a Trading securities are debt securities that the investor has the intent to hold to maturity b Trading securities are securities bought and held primarily for sale in the near term c Trading securities are securities that may be sold in the future d Trading securities are reported at cost in the balance sheet 35 Dividends received are credited to what account under the equity method and cost method, respectively? Equity Method Cost Method a Stock Investments Dividend Revenue b Dividend Revenue Dividend Revenue c Stock Investments Stock Investments d Dividend Revenue Stock Investments 36 In accounting for available-for-sale securities, the Unrealized Loss—Equity account should be classified as a a liability on the balance sheet b loss on the income statement c deduction in the stockholders' equity section of the balance sheet d contra asset on the balance sheet 37 Boon Corporation has the following stock outstanding: 6% Preferred, $100 Par Common Stock, $50 Par $1,000,000 2,000,000 No dividends were paid the previous years If Boon declares $400,000 of dividends in the current year, how much will preferred stockholders receive if the preferred stock is cumulative? a $220,000 b $120,000 c $60,000 d $180,000 38 The statement of cash flows is a(n) a required supplemental financial statement b required basic financial statement c optional basic financial statement d optional supplementary statement 39 The directors of Chandler Corp are trying to decide whether they should issue par or no par stock They are considering two alternatives for their new stock, which they are assuming will be issued at $8 per share The alternatives are: (A) $5 par value and (B) no par, no stated value If 120,000 shares are issued, what amount will be credited to the common stock account in each of these cases? (A) (B) a $120,000 $960,000 b $120,000 $960,000 c $960,000 $960,000 d $600,000 $960,000 FE-8 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition 40 Fison Corp purchased 15,000 shares of its $2 par common stock at a cost of $13 per share on April 30, 2003 The stock was originally issued at $11 per share The entry to record the purchase of the stock should include a debit to a Common Stock for $30,000 b Treasury Stock for $30,000 c Common Stock for $195,000 d Treasury Stock for $195,000 41 What is the effect on total paid-in capital of a stock dividend and a stock split, respectively? Stock Dividend Stock Split a Increase No effect b No effect No effect c Decrease No effect d Decrease Decrease 42 Which of the following should be classified as an extraordinary item? a Effects of major casualties not infrequent in the area b Write-off of a significant amount of receivables c Loss from the expropriation of facilities by a foreign government d Losses due to a bitter, lengthy labor strike 43 A Discount on Bonds Payable account a is a contra account to Bonds Payable b will cause interest expense to be less than cash interest payable c is increased over the life of the bond until it equals the bond's face value d is an adjunct account to Bonds Payable 44 In order to be considered extraordinary, an item must be a frequent and uninsured b unusual and uninsured c uninsured and infrequent d infrequent and unusual 45 If the market rate of interest is lower than the stated rate, bonds will sell at an amount a equal to face value b not determinable from the given information c lower than face value d higher than face value Final Exam FE-9 PART II — MATCHING (25 points) Instructions Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided No letter should be used more than once A B C D E F G H I J K L M N O P Q R S T U V W Additions and improvements Allowance method Amortization Available-for-sale securities Average cost method Book value Capital expenditure Cash debt coverage ratio Consistency Contra asset account Cost method Credit memorandum Debit memorandum Declining-balance method Depreciable Cost Depreciation Direct write-off method Discontinued operations Earnings per share Economic entity assumption Equity method Extraordinary items First-in, first-out method X Y Z AA AB AC AD AE AF AG AH AI AJ AK AL AM AN AO AP AQ AR AS AT Full disclosure principle Going-concern assumption Held-to-maturity securities Internal control Last-in, first-out method LIFO reserve Matching principle Materiality Monetary unit assumption Net purchases Periodic inventory system Permanent accounts Perpetual inventory system Ratio analysis Relevance Reliability Revenue expenditure Revenue recognition principle Stock dividend Stock split Temporary accounts Time period assumption Units-of-activity method _ The periodic write-off of an intangible asset _ The total amount subject to depreciation _ The principle that efforts be matched with accomplishments _ An expenditure charged against revenues as an expense when incurred _ The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold _ Use of the same accounting principles and methods from period to period by the same business enterprise _ A measure of solvency calculated as cash provided by operating activities divided by average total liabilities _ An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold _ An assumption that economic events can be identified with a particular unit of accountability FE-10 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition PART II — MATCHING (cont.) _ 10 A characteristic of information that means it is capable of making a difference in a decision _ 11 An assumption that the economic life of a business can be divided into artificial time periods _ 12 This method of accounting for uncollectible accounts is required when bad debts are significant in size _ 13 An accounting method in which cash dividends received are credited to Dividend Revenue _ 14 Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds _ 15 The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments _ 16 A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period _ 17 The difference between inventory reported using LIFO and inventory reported using FIFO _ 18 The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records _ 19 Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period _ 20 A technique for evaluating financial statements that expresses the relationship among selected financial statement data _ 21 A depreciation method that applies a constant rate to the declining balance book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset _ 22 A pro rata distribution of a corporation’s own stock to its stockholders _ 23 Events and transactions that are unusual in nature and infrequent in occurrence _ 24 The disposal of a significant segment of a business _ 25 The net income earned by each share of outstanding common stock Final Exam FE-11 PART III — ADJUSTING ENTRIES (14 points) The trial balance of Diamond Company shows the following balances for selected accounts on November 30, 2005: Prepaid Insurance Equipment Accumulated Depreciation $ 5,000 40,000 8,800 Unearned Revenue Notes Payable Interest Payable $ 1,800 24,000 400 Instructions Using the additional information given below, prepare the appropriate monthly adjusting entries at November 30 Show computations A Revenue earned for services rendered to customers, but not yet billed, totaled $5,000 on November 30 B The note payable is a 6%, 1-year note issued October 1, 2005 C The equipment was purchased on January 2, 2004, for $40,000 It has an estimated life of years and an estimated salvage value of $4,000 Stone uses the straight-line depreciation method D An insurance policy was acquired on June 30, 2005; the premium paid for years was $6,000 E Quartz received $1,800 of revenue in advance from a customer on November 1, 2005 Twothirds of this amount was earned by November 30 PART IV — BANK RECONCILIATION (15 points) FE-12 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition A review of the November 30 bank statement and other data of Conan Company reveals the following: Balance per bank statement on November 30 Balance per books on November 30 NSF Check from J Smith in payment of account Collection of $2,500, 4-month, 12% note with a $25 collection fee No interest had been accrued Deposits in transit at November 30 Outstanding checks at November 30 A check written by Conan to Green for equipment on November 10 was recorded at $463 but correctly cleared the bank at $436 A check drawn on the account of Conehead Company for $200 was mistakenly charged against Conan’s account by the bank $20,400 $14,488 $190 2,575 1,800 5,500 Instructions Prepare the November 30 (a) bank reconciliation (omit heading) and (b) related journal entries (a) (b) BANK RECONCILIATION: Balance per bank statement Amount $20,400 Balance per books Amount $14,488 Adjusted balance per bank $ Adjusted balance per books $ ENTRIES: Account Titles Debit Credit PART V — INVENTORY (12 points) Potter Company had a beginning inventory of 200 units at a cost of $12 per unit on August Final Exam FE-13 During the month, the following purchases and sales were made Purchases August 250 units at $13 August 15 350 units at $15 August 28 200 units at $14 Sales August 150 units August 11 100 units August 17 300 units August 24 200 units Griffin uses a periodic inventory system Instructions Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO (a) Average cost: Ending inventory = $ ; cost of goods sold = $ _ (b) FIFO: Ending inventory = $ _; cost of goods sold = $ (c) LIFO: Ending inventory = $ _; cost of goods sold = $ PART VI — DEPRECIATION (15 points) Drafter Company purchased equipment for $400,000 cash on January 1, 2006 The estimated life FE-14 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition is years or 1,000,000 units; salvage value is estimated at $20,000 Actual activity was 180,000 units in 2006, and 200,000 units in 2007 Instructions Compute the annual depreciation expense for 2006 and 2007, and book value at December 31, 2007, under the following depreciation methods: (a) straight-line, (b) double-declining-balance, and (c) units-of-activity (a) Straight-line 2006 depreciation = $ _ 2007 depreciation = $ _ 12/31/07 book value = $ _ (b) Double-declining-balance 2006 depreciation = $ _ 2007 depreciation = $ _ 12/31/07 book value = $ _ (c) Units-of-activity 2006 depreciation = $ _ 2007 depreciation = $ _ 12/31/07 book value = $ _ Final Exam FE-15 PART VII — RATIO ANALYSIS (14 points) The condensed financial statements of Eastward Corporation for 2005 are presented below Eastward Corporation Balance Sheet December 31, 2005 Assets Current assets Cash and temporary investments Accounts receivable Inventories Total current assets Property, plant, and equipment (net) Total assets Eastward Corporation Income Statement For the Year Ended December 31, 2005 $ 40,000 70,000 140,000 250,000 750,000 $1,000,000 Revenues Expenses Cost of goods sold Selling and administrative expenses Interest expense Total expenses Income before income taxes Income tax expense Net income $2,000,000 1,080,000 495,000 50,000 1,625,000 375,000 150,000 $ 225,000 Liabilities and Stockholders' Equity Current liabilities $ 100,000 Long-term liabilities 300,000 Common stockholders' equity 600,000 Total liabilities and stockholders' equity $1,000,000 Additional data as of December 31, 2004: Inventory = $100,000; Total assets = $800,000; Common stockholders' equity = $400,000 Instructions Compute the following listed ratios for 2005 showing supporting calculations (a) Current ratio = _ (b) Debt to total assets = _ (c) Times interest earned = _ (d) Inventory turnover = (e) Profit margin ratio = (f) Return on common stockholders' equity = _ (g) Return on assets = _ FE-16 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition PART VIII — STATEMENT OF CASH FLOWS (15 points) Presented below is information related to the operations of Karlson Corporation December 2007 2006 2007 Cash $ 58,000 $ 40,000 Sales $408,000 Accounts receivable 55,000 48,000 Cost of goods sold 190,000 Inventory 35,000 22,000 Gross profit 218,000 Prepaid expenses 15,000 20,000 Depreciation expense 14,000 Land 36,000 20,000 Other operating expenses 141,000 Building 100,000 100,000 Income from operations 63,000 Accumulated depreciation— Loss on equipment sale 2,000 building (17,000) (8,000) Income before income taxes 61,000 Equipment 58,000 80,000 Income tax expense 19,000 Accumulated depreciation— Net income $ 42,000 equipment (15,000) (20,000) Total $325,000 $302,000 Accounts payable Bonds payable Common stock Retained earnings Total $ 35,000 200,000 90,000 $325,000 $ 39,000 100,000 100,000 63,000 $302,000 Additional information: (a) In 2007, Karlson declared and paid a cash dividend (b) The company converted $100,000 of bonds into common stock (c) Equipment with a cost of $22,000 and a book value of $12,000 was sold for $10,000 Land was acquired for cash (d) Prepaid expenses pertain to operating expenses; accounts payable pertains to merchandise purchases Instructions Solve either (a) or (b), but not both (a) Prepare a statement of cash flows in proper form for 2007, using the indirect method (b) Prepare a statement of cash flows in proper form for 2007, using the direct method Final Exam FE-17 PART VIII — STATEMENT OF CASH FLOWS (cont.) FE-18 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition Solutions — Final Exam: Chapters 1-14 PART I — MULTIPLE CHOICE (90 points) d c c c d a a c 10 11 12 13 14 15 16 b c a b b b d d 17 18 19 20 21 22 23 24 b c c c d c b d 25 26 27 28 29 30 31 32 a b c c a d c b 33 34 35 36 37 38 39 40 b b a c d b d d 16 17 18 19 20 AH AC AA AR AK 21 22 23 24 25 N AP V R S 41 42 43 44 45 a c a d d PART II — MATCHING (25 points) C O AD AN W 10 I H AB T AL 11 12 13 14 15 AS B K M Y PART III — ADJUSTING ENTRIES (14 points) A B C D E Accounts Receivable Service Revenue 5,000 Interest Expense ($24,000 × 6% × 1/12) Interest Payable 120 Depreciation Expense [($40,000 - $4,000) ÷ 72] Accumulated Depreciation 500 Insurance Expense ($6,000 ÷ 24) Prepaid Insurance 250 Unearned Revenue ($1,800 × 2/3) Service Revenue 1,200 5,000 120 500 250 1,200 PART IV — BANK RECONCILIATION (15 points) (a) BANK RECONCILIATION: Balance per bank statement Add: Deposits in transit Bank error Less: Outstanding checks Adjusted balance per bank Amount $20,400 1,800 200 $22,400 (5,500) $16,900 Balance per books Add: Error in recording check Note collection Less: NSF check Adjusted balance per books Amount $14,488 $ 27 2,575 2,602 $17,090 (190) $16,900 Final Exam (b) ENTRIES: Account Titles Cash Miscellaneous Expense Notes Receivable Interest Revenue Debit 2,575 25 FE-19 Credit 2,500 100 Accounts Receivable Cash 190 Cash Equipment 27 190 27 PART V — INVENTORY (12 points) (a) Average cost ending inventory: 250 × $13.70 = $3,425 Average cost of goods sold: Cost of goods available for sale Less: Ending inventory Cost of goods sold $13,700 3,425 $10,275 (b) FIFO ending inventory: 200 × $14 = $2,800 50 × $15 = 750 $3,550 FIFO cost of goods sold: Cost of goods available for sale Less: Ending inventory Cost of goods sold $13,700 3,550 $10,150 (c) LIFO ending inventory: 200 × $12 = $2,400 50 × $13 = 650 $3,050 LIFO cost of goods sold: Cost of goods available for sale Less: Ending inventory Cost of goods sold $13,700 3,050 $10,650 $13,700 Average cost = ————- = $13.70 1,000 PART VI — DEPRECIATION (15 points) Depreciable cost: $400,000 - $20,000 = $380,000 (a) Straight-line 2002 depreciation [($400,000 - $20,000) ÷ 5] 2003 depreciation [($400,000 - $20,000) ÷ 5] 12/31/03 book value [$400,000 - ($76,000 + $76,000)] $76,000 $76,000 $248,000 (b) Double-declining-balance 2002 depreciation ($400,000 × 4) 2003 depreciation [($400,000 - $160,000) × 4] 12/31/03 book value [$400,000 - ($160,000 + $96,000)] $160,000 $96,000 $144,000 (c) Units-of-activity 2002 depreciation [180,000 × ($380,000 ÷ 1,000,000)] 2003 depreciation (200,000 × 38) 12/31/03 book value [$400,000 - ($68,400 + $76,000)] $68,400 $76,000 $255,600 FE-20 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition PART VII — RATIO ANALYSIS (14 points) (a) $250,000 Current ratio = ———— = 2.50:1 $100,000 (b) $400,000 Debt to total assets = ————— = 40% $1,000,000 (c) $425,000 Times interest earned = ———— = 8.5 times $50,000 (d) $1,080,000 Inventory turnover = ————— = times $120,000 (e) $225,000 Profit margin ratio = ————— = 11.25% $2,000,000 (f) $225,000 Return on common stockholders' equity = ———— = 45% $500,000 (g) $225,000 Return on assets = ———— = 25% $900,000 PART VIII — STATEMENT OF CASH FLOWS (15 points) (a) Indirect Method SYERS CORPORATION Statement of Cash Flows For the Year Ended December 31, 2003 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Increase in accounts receivable Increase in inventory Decrease in prepaid expenses Decrease in accounts payable Loss on sale of equipment Depreciation expense Net cash provided by operating activities Cash flows from investing activities Sale of equipment Purchase of land Net cash used by investing activities Cash flows from financing activities Declaration and payment of dividends Net cash used by financing activities Net increase in cash Cash at beginning of period Cash at end of period Noncash financing activity Conversion of bonds payable into common stock $ 42,000 $ (7,000) (13,000) 5,000 (4,000) 2,000 14,000 (3,000) 39,000 10,000 (16,000) (6,000) (15,000) (15,000) 18,000 40,000 $ 58,000 $100,000 Test Bank for Financial Accounting: Tools for Business Decision Making FE - 22 PART VIII — STATEMENT OF CASH FLOWS (cont.) (b) Direct Method SYERS CORPORATION Statement of Cash Flows For the Year Ended December 31, 2003 Cash flows from operating activities Cash receipts from customers ($408,000 - $7,000) Cash payments To suppliers ($190,000 + $13,000 + $4,000) For operating expenses ($141,000 - $5,000) For income taxes Net cash provided by operating activities Cash flows from investing activities Sale of equipment Purchase of land Net cash used by investing activities Cash flows from financing activities Declaration and payment of dividends Net cash used by financing activities Net increase in cash Cash at beginning of period Cash at end of period Noncash financing activity Conversion of bonds payable into common stock $401,000 $207,000 136,000 19,000 362,000 39,000 10,000 (16,000) (6,000) (15,000) (15,000) 18,000 40,000 $ 58,000 $100,000 [...]... inventory Cost of goods sold $13,700 3,425 $10,275 (b) FIFO ending inventory: 200 × $14 = $2,800 50 × $15 = 750 $3,550 FIFO cost of goods sold: Cost of goods available for sale Less: Ending inventory Cost of goods sold $13,700 3,550 $10,150 (c) LIFO ending inventory: 200 × $12 = $2,400 50 × $13 = 650 $3,050 LIFO cost of goods sold: Cost of goods available for sale Less: Ending inventory Cost of goods sold... inventory of 200 units at a cost of $12 per unit on August 1 Final Exam FE-13 During the month, the following purchases and sales were made Purchases August 4 250 units at $13 August 15 350 units at $15 August 28 200 units at $14 Sales August 7 150 units August 11 100 units August 17 300 units August 24 200 units Griffin uses a periodic inventory system Instructions Determine ending inventory and cost of. .. of 6 years and an estimated salvage value of $4,000 Stone uses the straight-line depreciation method D An insurance policy was acquired on June 30, 2005; the premium paid for 2 years was $6,000 E Quartz received $1,800 of revenue in advance from a customer on November 1, 2005 Twothirds of this amount was earned by November 30 PART IV — BANK RECONCILIATION (15 points) FE-12 Test Bank for Financial Accounting: ... on sale of equipment Depreciation expense Net cash provided by operating activities Cash flows from investing activities Sale of equipment Purchase of land Net cash used by investing activities Cash flows from financing activities Declaration and payment of dividends Net cash used by financing activities Net increase in cash Cash at beginning of period... double-declining-balance, and (c) units -of- activity (a) Straight-line 2006 depreciation = $ _ 2007 depreciation = $ _ 12/31/07 book value = $ _ (b) Double-declining-balance 2006 depreciation = $ _ 2007 depreciation = $ _ 12/31/07 book value = $ _ (c) Units -of- activity 2006 depreciation = $ _ 2007 depreciation = $ _ 12/31/07 book value = $ _ Final Exam FE-15 PART VII... (e) Profit margin ratio = (f) Return on common stockholders' equity = _ (g) Return on assets = _ FE-16 Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition PART VIII — STATEMENT OF CASH FLOWS (15 points) Presented below is information related to the operations of Karlson Corporation... dividend (b) The company converted $100,000 of bonds into common stock (c) Equipment with a cost of $22,000 and a book value of $12,000 was sold for $10,000 Land was acquired for cash (d) Prepaid expenses pertain to operating expenses; accounts payable pertains to merchandise purchases Instructions Solve either (a) or (b), but not both (a) Prepare a statement of cash flows in proper form for 2007, using... Solve either (a) or (b), but not both (a) Prepare a statement of cash flows in proper form for 2007, using the indirect method (b) Prepare a statement of cash flows in proper form for 2007, using the direct method Final Exam FE-17 PART VIII — STATEMENT OF CASH FLOWS (cont.) ... $16,900 Final Exam (b) ENTRIES: Account Titles Cash Miscellaneous Expense Notes Receivable Interest Revenue Debit 2,575 25 FE-19 Credit 2,500 100 Accounts Receivable Cash 190 Cash Equipment 27 190 27 PART V — INVENTORY (12 points) (a) Average cost ending inventory: 250 × $13.70 = $3,425 Average cost of goods sold: Cost of goods... Financial Accounting: Tools for Business Decision Making, Fifth Edition A review of the November 30 bank statement and other data of Conan Company reveals the following: 1 2 3 4 5 6 7 8 Balance per bank statement on November 30 Balance per books on November 30 NSF Check from J Smith in payment of account Collection of $2,500, 4-month, 12% note with a $25 collection fee No interest had been ... disposal of a significant segment of a business _ 25 The net income earned by each share of outstanding common stock Final Exam FE-11 PART III — ADJUSTING ENTRIES (14 points) The trial balance of. .. reacquire treasury stock 31 Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively? Liquidity Profitability Solvency a Inventory... Earnings of $75,000 b Paid-in Capital in Excess of Par for $105,000 c Common Stock for $75,000 d Retained Earnings for $180,000 33 Which of the following pairs of terms in the area of financial