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1. (TCO A) A corporation has which of the following sets o

1. (TCO A) A corporation has which of the following sets of characteristics? (Points : 5) Shared control tax advantages increased skills and resources Simple to set up and maintains control with the founder Easier to transfer ownership and raise funds no personal liability for stockholders Harder to raise funds and gives owner control 2. (TCO A) The Dividends account _____. (Points : 5) is increased with a debit is decreased with a credit is not an expense account All of the above 3. (TCOs A B) Denton Company showed the following balances at the end of its first year: Cash $7000 Prepaid insurance 700 Accounts receivable 3500 Accounts payable 2800 Notes payable 4200 Common stock 1400 Dividends 700 Revenues 21000 Expenses 17500 What did Denton Company show as total credits on its trial balance? (Points : 5) $30100 $29400 $28700 $30800 4. (TCOs B E) Under the accrual basis of accounting _____. (Points : 5) cash must be received before revenue is recognized net income is calculated by matching cash outflows against cash inflows events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles 5. (TCO D) In a period of increasing prices which inventory cost flow assumption will result in the lowest amount of income tax expense? (Points : 5) FIFO LIFO The average cost method Income tax expense for the period will be the same under all assumptions. 6. (TCOs A E) Equipment was purchased for $60000. Freight charges amounted to $2800 and there was a cost of $8000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5) $14160 $11760 $9840 $9600 7. (TCOs D G) Mendez Corporation issues 2000 ten-year 8% $1000 bonds dated January 1 2007 at 103. The journal entry to record the issuance will show a _____. (Points : 5) debit to Cash of $2000000 debit to Premium on Bonds Payable for $60000 credit to Bonds Payable for $2000000 credit to Cash for $2060000 8. (TCO C) Accounts receivable arising from sales to customers amounted to $40000 and $35000 at the beginning and end of the year respectively. Income reported on the income statement for the year was $110000. Exclusive of the effect of other adjustments the cash flows from operating activities to be reported on the statement of cash flows is _____. (Points : 5) $110000 $105000 $115000 $150000 9. (TCO F) One variation of the horizontal analysis is known as _____. (Points : 5) nonlinear analysis vertical analysis trend analysis common-size analysis 10. (TCO F) Comparisons of data within a company are an example of the following comparative basis. (Points : 5) Industry averages Intercompany Intracompany Interregional 11. (TCO F) Which one of the following is not a characteristic generally evaluated in ratio analysis? (Points : 5) Liquidity Profitability Marketability of the product Solvency 12. (TCO F) A common measure of liquidity is _____. (Points : 5) return on assets current ratio profit margin debt to equity 13. (TCO F) Long-term creditors are usually most interested in evaluating _____. (Points : 5) liquidity marketability profitability solvency 14. (TCO G) To calculate the market value of a bond we need to _____. (Points : 5) find out the present value of all of the future cash payments promised by the bond calculate the present value of the principal only calculate the present value of the interest only multiply the bond price by the interest rate 1. (TCO A) The partial financial statement items below were taken from the financial statements of Prone Inc. This information can be used to correctly solve each of the ratios below. The information is in alphabetical order. Accounts payable $ 28000 Net income $ 48000 Accounts receivable 66000 Other current liabilities 17000 Cash 54000 Total assets 250000 Gross profit 160000 Total liabilities 200000 Income before income taxes 54000 Wages payable 5000 Additional information: The number of average common shares outstanding during the year was 40000. Instructions: Compute the following. a) Current ratio b) Working capital c) Earnings per share d) Debt-to-total-assets ratio To earn full credit you must show the formula you are using show your computations and explain the meaning of each of your ratio results. (Points : 30) 2. (TCOs B E) These financial statement items are for Snyder Corporation at year-end July 31 2010. Salaries payable $ 2580 Salaries expense 48700 Utilities expense 22600 Equipment 21000 Accounts payable 4100 Commission revenue 61100 Rent revenue 8500 Long-term note payable 1800 Common stock 16000 Cash 24200 Accounts receivable 9780 Accumulated depreciation 6000 Dividends 5000 Depreciation expense 4000 Retained earnings (beginning of the year) 35200 Instructions: Prepare an income statement and a retained earnings statement for the year. (Points : 30) 3. (TCO D) The Oxford Company has budgeted sales revenues as follows. Jan Feb Mar Credit sales $240000 $192000 $144000 Cash sales 144000 408000 312000 Total sales 384000 600000 456000 Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit with 60% paid in the month of purchase and 40% in the month following purchase. Budgeted inventory purchases are $520000 in January $360000 in February and $168000 in March. Other budgeted cash receipts include (a) the sale of plant assets for $98800 in February and (b) the sale of new common stock for $134800 in March. Other budgeted cash disbursements include (a) operating expenses of $54000 each month (b) selling and administrative expenses of $100000 each month (c) dividends of $152000 to be paid in February and (d) purchase of equipment for $48000 cash in March. The company has a cash balance of $80000 at the beginning of February and wishes to maintain a minimum cash balance of $80000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of February 1. Requirements: Use this information to prepare a schedule of expected cash collections from customers for the months of February and March only. (Points : 30) 4. (TCO D) Your friend Dean has hired you to evaluate the following internal control procedures. a) Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls. b) For the weaknesses you also need to state a recommendation for improvement. Bonding of the cashiers is not required because all of the cashiers have significant experience. The treasurer is the only one allowed to sign checks. All employees may operate cash registers. Blank checks are stored in the safe. Supervisors count cash receipts daily. (Points : 30) 5. (TCOs D E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited along with the dollar amount of the debit and credit. a) Investors invested $100000 in exchange for 10000 shares of common stock. b) Company paid a utility bill for $600 c) Company received cash of $15000 for services performed d) Company made payment on account for $1000 e) Company received $12000 for services not yet performed (Points : 30) 6. (TCO C) Please 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. a) Issuance of capital stock b) Depreciation of machinery c) Purchased land to operate the business d) Decrease in accounts payable e) Payment of dividends (Points : 30)

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