Long Island University C.W. Post GBA 521. Final Exam - review

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1 Long Island University C.W. Post GBA 521 Name: _ (Last name) (First name) Date: _ Final Exam - review Multiple Choice Following are 14 multiple choice questions, worth 3 points each. Clearly identify the letter of the choice that best completes the statement or answers the question. Kellogg Corp Kellogg Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $500,000 Purchases 225,000 Inventory (beginning) 16,000 Inventory (ending) 30,000 Operating Expenses 148,000 Income Tax Expense 10,000 Retained Earnings (beginning) 53,000 Dividends 15, Refer to Kellogg Corp. Calculate the cost of goods sold for Kellogg Corp. a. $241,000 b. $211,000 c. $259,000 d. $275, Which inventory costing method results in the lowest income tax expense during a period of decreasing prices? a. Weighted average cost b. FIFO c. LIFO d. Income tax expense is the same regardless of the costing method. 3. The cumulative amount of plant and equipment already expensed is reported on the balance sheet in which account? a. Accumulated Depreciation b. Depreciation Expense c. Accumulated Amortization d. Depletion Expense

2 4. Which of the following is not classified as a noncurrent liability? a. Bonds payable b. Mortgage payable c. Capital lease obligations d. Current portion of long-term debt Exhibit 9-1 Solutions to the following problems require time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. 5. Refer to Exhibit 9-1. If interest is compounded annually, the total amount of interest on an $18,000 note payable for 4 years at 10% is a. $5,706. b. $7,200. c. $8,352. d. $8, Refer to Exhibit 9-1. The total amount of interest compounded quarterly on a $1,500 note payable for 1 year at 12% is a. $ b. $ c. $ d. $ If a company's bonds are callable, a. the investor or buyer of the bonds has the right to retire the bonds. b. the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%. c. the bonds are never allowed to remain outstanding until the maturity date. d. the investor never knows what the redemption price will be until the bonds are actually called. 8. Bonds are a popular source of financing because a. bond interest expense is deductible for tax purposes, while dividends paid on stock are not. b. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. c. a company having cash flow problems can postpone payment of interest to bondholders. d. the bondholders can always convert their bonds into stock if they choose. 9. Budget Company wishes to issue $200,000 of 5-year, 5% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 4%. What information is needed in order to determine the selling price? a. The market rate of interest b. The face amount of the bonds c. The life of the bonds d. All of the above are needed to calculate the selling price of the bonds.

3 10. Which of the following statements regarding leases is false? a. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash. b. Accounting recognizes two types of leases--operating and capital leases. c. If a lessor classifies a lease as a capital lease, then the lessor records a lease liability on its balance sheet. d. If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet. 11. With regard to a corporation's stock, par value is a. the current market price of the stock. b. an arbitrary amount that exists to fulfill legal requirements. c. the amount at which the stock has been repurchased. d. the amount at which treasury stock can be sold. 12. Harvey Corporation shows the following in the stockholders' equity section of its balance sheet: The stated value of its common stock is $0.50 and the total balance in the common stock account is $37,500. Also noted is that 5,000 shares are currently designated as treasury stock. The number of shares outstanding is a. 80,000. b. 75,000. c. 72,500. d. 70, Cash flows from acquiring and disposing of long-term assets are classified as a. operating activities. b. investing activities. c. financing activities. d. purchasing activities. 14. During 2004, the accounts payable balance of Zwick Corp. decreased. Which of the following statements is true? a. This decrease indicates that Zwick paid less during the period than it recognized as expenses on the income statement. b. This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method. c. This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method. d. This decrease is considered only when the operating activities section of a statement of cash flows is prepared under the direct method.

4 Problems Following are 4 open ended questions worth a total of 58 points. Please use the space provided to answer the questions. No scrap paper is allowed. Claiborne Exports The following data is available for one of the products sold by Claiborne Exports, which uses the perpetual inventory system: May 1 On hand, 1,000 units at $2.00 each $2,000 5 Purchased 2,000 units at $2.75 each $5, Sold 2,500 units at $16 each 18 Purchased 2,000 units at $4.00 each $8, Sold 1,500 units at $12 each 30 On hand, 1,000 units 15. Refer to Claiborne Exports. If the moving average method is used, what is the amount assigned to the ending inventory on May 30?

5 16. Sterling Shoes had the following items included in its accounting records. In the space provided, indicate whether each of the items listed is included in an account in the stockholders' equity section of the balance sheet. Item a. Preferred stock issued by Sterling Shoes b. Cash dividend unpaid that was declared last year. c. Earnings accumulated but not distributed by Sterling Shoes d. Amount received in excess of cost when treasury stock is reissued by Sterling Shoes e. Treasury stock purchased f. Dividends in arrears on Sterling Shoes preferred stock. g. Amount received in excess of par value when common stock was issued by Sterling Shoes h. Stock dividend declared but not yet distributed by Sterling Shoes Included in a Stockholders' Equity account? (yes or no)

6 17. Tyco, Inc. purchased slot machines at the beginning of 2004 for $10,000. The machines have an estimated residual value of $1,000 and an estimated life of 5 years or 6,000 hours of operation. The machines are operated for 800 hours in 2004 and 1,300 hours in A. Calculate the following: 1. Accumulated depreciation at December 31, 2005, using the straight-line depreciation method 2. Depreciation expense for 2005 using the units-of-production depreciation method 3. Book value of the equipment at December 31, 2005, using the double decliningbalance depreciation method B. What are the advantages of using straight-line depreciation for financial reporting purposes?

7 Hitchcock Exhibit Use the following selected data and additional information from the records of Hitchcock Corp. to answer the questions that follow. Balance Sheet Data Accounts receivable $36,000 $42,000 Inventories 28,000 25,000 Accounts payable 31,000 35,000 Salaries payable 2,000 1,000 Equipment 60,000 40,000 Accumulated depreciation 12,000 16,000 Bonds payable 50, ,000 Common stock 150, ,000 Retained earnings 38,000 20,000 Income Statement Data 2004 Net sales $420,000 Cost of goods sold 300,000 Operating expenses (excluding depreciation expense) 84,000 Net income 30,000 Gain on sale of equipment (included in net income above) 2,000 Additional information: (a) Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000 during (b) Common stock was issued to retire bonds payable during (c) The only items affecting retained earnings in 2004 were net income and dividends declared and paid. 18. Refer to the Hitchcock Exhibit. Prepare the investing activities section of a statement of cash flows for 2004 for Hitchcock Corp.