Assignment
Accounting 6015 Penultimate Celebration of Knowledge Review- A Enjoyable and Fun Learning experience.
"Sometimes bad math happen to good accountants"- Arthur Anderson.
Our penultimate celebration of knowledge consists of 100 questions.
The first 20 questions are true false (Write A for True and B for false). These questions cover the basic accounting equation, basic facts regarding such things as: the balance sheet, income statement, the book value of shareholders' equity versus the market value, accrual accounting, revenue recognition, LIFO v. FIFO (gross profit and inventory), ROE (Du Pont analysis), RNOA, ROA and their components, treasury stock (repurchasing common stock and the Balance sheet effects).
Questions 21-25: The following table on common size (as a percentage of operating revenue) financial statement data applies to questions 21 through 25.For each of these questions, write the following:
a. Firm A
b. Firm B
c. Firm C
d. Firm D
e. Firm E
21. Which firm is the Canadian Commercial Bank?
22. Which firm is the Australian Electric Utility?
23. The products of a particular grocery store chain are very similar to the products of other grocery store chains. There are low barriers to entry in the grocery store industry; an entrant needs merely retail space and access to food distributors. Thus, this industry is subject to extensive competition and nondifferentiated products. Which firm is the Brazilian grocery store chain?
24. Temp agencies provide temporary office services to business and other firms. Operating revenues represent amounts billed to customers for temporary help services, and operating expenses include amounts paid to temporary help employees. Which firm is the Texas-based temp agency?
25. In the pharmaceutical industry, the barriers to entry are high. The government approval process is very costly and lengthy, and patents give firms the right to manufacture and sell the product for a long time. Which firm is the Swiss pharmaceutical company?
Earnings/Revenue Recognition Questions : The following information applies to questions 26 through 29. A simplified version of Tipsy McFrankel Enterprise's 2015 income statement (in millions of dollars) is given below:
|
Revenues
|
$10,000
|
|
Cost of Goods Sold
|
$ 4,000
|
|
Selling and Administrative expenses
|
$ 2,000
|
|
Interest expense
|
$ 400
|
|
Investment (dividend and interest) income
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$ 500
|
|
Purchase of Equipment
|
$2,000
|
|
Income taxes
|
$1,000
|
|
Dividends paid
|
$300
|
26. What is the gross profit for McFrankel's?
27. What is the operating income for McFrankel's?
28. What is the net income for McFrankel's?
29. Assuming McFrankel's sold a McArtery Buster happy meal for $10, on average, assuming cost of goods sold is the only variable cost, how much profit before taxes would the company make on the sale?
30. In accordance with the Principle of Revenue recognition, which of the definitions below best describes revenues:
31. Generally Accepted Accounting Principles (GAAP) allows management to make some choices among reporting and valuation rules. Where would you go to look to determine what choices management has made?
Multiple Choice Questions:
32. Accrual basis accounting requires:
33. Who is primarily responsible for the information provided in a set of financial statements?
34. Tedious, Tiresome & Tongue-Tied Enterprises sells space to advertisers. The company requires an advertiser to pay for services one month before publication. Advertising revenue should be recognized when
35. Which of the following items WOULD NOT appear on an income statement?
36. What types of information cannot be found in the financial statements?
37. What item is probably the least useful when analyzing financial statements?
38. Which of the following best describes the primary objective of external financial reporting?
39. In regards to the current ratio which answer best states the preferences of investors (higher or lower) and creditors (higher or lower) for the magnitude of this ratio (within an acceptable range).
40. Which combination of the following conditions put creditors at the most risk? (TIE = Net Income/Interest Expense) and Debt-to-equity ratio.
41. Which combination of the following conditions put creditors at the most risk? Equity Multiplier and Quick (acid-test) ratio
42. Which of the following conditions put creditors at the most risk? Receivables turnover in days and Inventory turnover in days
Questions 43 to 48 (multiple choice) regarding the analysis and interpretation of the statement of cash flows including which state the company is most likely in the (a) introductory phase, (b) growth phase, (c) maturity phase, or (d) decline phase. For a company to remain viable over the long term, it must generate positive cash flows. Which cash generating activities are most important in this respect?
The data in the table are taken from Milhouse Van Houten Enterprises, a small merchandiser in outdoor recreational equipment.
|
Item
|
2015
|
2014
|
2013
|
|
Sales trend
|
137.0
|
125.0
|
100.0
|
|
Selling expenses to sales
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9.8%
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13.7%
|
15.3%
|
|
Sales to plant assets ratio
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3.5 to 1
|
3.3 to 1
|
3.0 to 1
|
|
Current ratio
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2.6 to 1
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2.4 to 1
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2.1 to 1
|
|
Acid-test or quick ratio
|
0.8 to 1
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1.1 to 1
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1.2 to 1
|
|
Merchandise Inventory turnover
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7.5 times
|
8.7 times
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9.9 times
|
|
Accounts receivable turnover
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6.7 times
|
7.4 times
|
8.2 times
|
|
Total asset turnover
|
2.6 times
|
2.6 times
|
3.0 times
|
|
Profit margin ratio
|
3.3%
|
3.5%
|
3.7%
|
|
Return on total assets
|
8.8%
|
9.4%
|
11.1%
|
|
Return on common equity
|
9.75%
|
11.5%
|
12.25%
|
*There were no issues or retirements of common stock over the three- year period.
For questions 49 through 59, use these data to answer each of the following questions 49 through 59, write A for Yes and B for No.
49. Is it becoming easier for the company to meet its current liabilities on time and to take advantage of any available cash discounts?
50. Is the company collecting its accounts receivable more rapidly?
51. Is the company's investment in accounts receivable decreasing?
52. Is the company's investment in plant assets increasing?
53. Is the owner's investment becoming more profitable?
54. Did the dollar amount of selling expenses decrease during the three-year period?
55. Is the company employing financial leverage to the advantage of the common stockholders?
56. Is it becoming easier for the company to pay its bills as they come due?
57. Are customers paying their bills at least as fast now as they did in 2013?
58. Is the total of the accounts receivable (a) increasing, (b) decreasing, or (c) remaining constant?
59. Is the level of inventory (a) increasing, (b) decreasing, or (c) remaining constant?
60. Which question is least likely to be answered by the statement of cash flows?
61. Which of the following statements regarding product life cycle and profitability is true?
62. Linkages among the four financial statements are an important feature of the accounting system. Which of the following three statements below is or are examples of how the four financial statements are linked within and across periods?
I. The income statement and the balance sheet are linked via retained earnings.
II. Retained earnings, contributed capital, and other equity balances appear both on the statement of stockholders' equity and the balance sheet.
III. The statement of cash flows is linked to the income statement as net income is a component of operating cash flow. The statement of cash flows is also linked to the balance sheet as the change in the balance sheet cash account reflects the net cash inflows and outflows for the period. Items that impact one financial statement ripple through the others.
63. Important financial information about a company is communicated to various decision makers through means other than the four financial statements. Which of the following are examples of this?
I. Management Discussion and Analysis (MD&A)
II. Independent auditor report
III. Financial statement footnotes
IV. Regulatory filings, including proxy statements and other SEC filings
64. American Airlines' 2014 balance sheet reported the following (in millions)
|
Total Assets
|
$25,612
|
|
Total Liabilities
|
35,272
|
|
Contributed Capital
|
$5,361
|
What was American Airlines' total liabilities and stockholders' equity at December 31, 2014?
65. In its 2014 annual report, Mattel Inc. reported the following (in millions):
|
Total liabilities
|
$ 3,188
|
|
Total shareholders' equity
|
$ 3,252
|
What proportion of Mattel is financed by nonowners?
66. Procter & Gamble's June 30, 2013, financial statements reported the following (in millions):
|
Cash, beginning of year
|
$ 4,436
|
|
Cash, end of year
|
$ 5,947
|
|
Cash from operating activities
|
$14,873
|
|
Cash from investing activities
|
$ (6,295)
|
What did Procter & Gamble report for cash from financing activities for the year ended June 30, 2013?
67. In 2013, Caterpillar Inc. reported the following (in millions):
|
Current Assets
|
Long-term Assets
|
Current Liabilities
|
Total Liabilities
|
|
$38,335
|
$46,561
|
$27,297
|
$64,018
|
What amount did Caterpillar report as equity in 2013?
68. Pfizer Inc., a pharmaceutical company, reported net income for fiscal 2013 of $22,003 million, retained earnings at the start of the year of $54,240 million and dividends of $6,511 million. If there were no other transactions during the year that affected retained earnings, what was the balance of retained earnings at the end of the year?
69. Net operating profit after tax (NOPAT) includes operating revenues less expenses such as which items:
70. Which of the following is a measure of liquidity?
71. Which of the following are not examples of accrual accounting estimates?
For questions 72 to 82, classify the events below as they would appear on the statement of cash flows. For operating activities (write A), for investing activities (write B), for financing activities (write C). If the event would not appear on the face of the statement of cash flows write D.
72. Buy back common equity from shareholders (treasury stock)
73. Pay back money (principal) borrowed from the bank
74. Buy Inventory on account (credit) from a supplier
75. Sell Inventory on credit, then collect from the customer
76. Declare and pay a cash dividend to preferred stockholders
77. Declare and distribute a stock dividend to common stockholders
78. Accrue interest on bank loan later pay the interest to the bank
79. Receive money in advance for future services, later provide the services
80. Prepay insurance for upcoming fiscal year
81. Enter into an executory contract with a client which calls for future services in return for future payment.
82. Loaned money to an affiliated company.
Financial Statement Questions - The following items listed below appear in a set of audited GAAP financial statements for McFrankels Inc. Determine the financial statement in which each of the items listed below would be found. Indicate your selection by writing an A for the balance sheet, B for the income statement, C for the cash flow statement, D for the statement of shareholders' equity, and E for the footnotes.
83. Summary of significant accounting policies
84. Commitments and Contingencies
85. Leasehold improvements
86. Comprehensive income
87. Principal balance due on loans
88. Restrictive covenants from loan agreements
89. Dividends declared
90. Total operating expenses
91. Purchases of plant assets during 2015
92. Estimated useful life of plant assets
93. Pending lawsuits
94. Cash paid to suppliers and employees
95. Goodwill
96. Mortgage due to bank
97. Cash paid for taxes
98. Cost of goods sold
99. Subsequent events
100. Deferred revenue.