Grade Details – All Questions
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1. Question : (TCO A) Below you will find selected information (in millions) from Coca-Cola Co.’s 2012 Annual Report:
Income Taxes Payable $471
Short-term Investments and Marketable Securities 8,109
Other non-current Liabilities 10,449
Common Stock 1,760
Other Current Assets 2,973
Long-term Investments 10,448
Other Non-current Assets 3,585
Property, Plant and Equipment 23,486
Other Intangible Assets 20,810
Allowance for Doubtful Accounts 53
Accumulated Depreciation 9,010
Accounts Payable 8,680
Short Term Notes Payable 17,874
Prepaid Expenses 2,781
Other Current Liabilities 796
Long-Term Liabilities 14,736
Paid-in-Capital in Excess of Par Value 11,379
Retained Earnings 55,038
Treasury Stock 35,009
Other information taken from the Annual Report:
Sales Revenue for 2012 $48,017
Cost of Goods Sold for 2012 19,053
Net Income for 2012 9,019
Inventory Balance on 12/31/11 3,092
Net Accounts Receivable Balance on 12/31/11 4,920
Total Assets on 12/31/11 79,974
Equity Balance on 12/31/11 31,921
1. Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also separate the current liabilities from the non-current liabilities and provide a total for each.
2. Using the Balance Sheet from your answer above calculate; Current Ratio, Days in Inventory, Average Collection Period, Return on Assets Ratio, Debt to Total Assets and Return on common stockholders’ equity ratio. (Make sure to show all your work)
2. Question : (TCO B) The following selected data was retrieved from the Wal-Mart, Inc. financial statements for the year ending January 31, 2013:
Accounts Payable $38,080
Accounts Receivable 6,768
Common Stock 3,952
Cost of Goods Sold 352,488
Income Tax Expense 7,981
Interest Expenses 2,064
Membership Revenues 3,048
Net Sales 466,114
Operating, Selling and Administrative Expenses 88,873
Retained Earnings 72,978
Using the information provided above:
1. Prepare a multiple-step income statement
2. Calculate the Profit Margin, and Gross profit rate for the company. Be sure to provide the formula you are using, show your calculations, and discuss your findings/results.
3. Question : (TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the 2 questions below:
Cash flow from operating activities In millions In millions
For the year ended 2012 For the year ended 2011
Net (loss) earnings $(12,650) $7,074
Depreciation and amortization 5,095 4,984
Impairment of goodwill and purchased intangible assets 18,035 885
Stock-based compensation expense 635 685
Provision for doubtful accounts 142 81
Provision for inventory 277 217
Restructuring charges 2,266 645
Deferred taxes on earnings (711) 166
Excess tax benefit from stock-based competition (12) (163)
Other, net 265 (46)
Accounts and financing receivables 1,269 (227)
Inventory 890 (1,252)
Accounts payable (1,414) 275
Taxes on earnings (320) 610
Restructuring (840) (1,002)
Other assets and liabilities (2,356) (293)
Net cash provided by operating activities 10,571 12,639
Cash flows from investing activities:
Investment in property, plant, and equipment (3,706) (4,539)
Proceeds from sale of property, plant, and equipment 617 999
Purchases of available-for-sale securities and other investments (972) (96)
Maturities and sales of available-for-sale securities and other investment 662 68
Payments in connection with business acquisitions, net of cash acquired (141) (10,480)
Proceeds from business divestiture, net 87 89
Net cash used in investing activities (3,453) (13,959)
Cash flow from financing activities:
(Payments) issuance of commercial paper and notes payable, net (2,775) (1,270)
Issuance of debt 5,154 11,942
Payment of debt (4,333) (2,336)
Issuance of common stock under employee stock plans 716 896
Repurchase of common stock (1,619) (10,117)
Excess tax benefit from stock-based compensation 12 163
Cash dividends paid (1,015) (844)
Net cash used in financing activities (3,860) (1,566)
Increase (decrease) in cash and cash equivalents 3,258 (2,886)
Cash and cash equivalents at beginning of period 8,043 10,929
Cash and cash equivalents at end of period $11,301 $8,043
1) Please calculate the percentage increase or decrease in cash for the operating, investing, and financing sections and explain the major reasons for the increase or decrease for each of these sections.
2) Please calculate the free cash flow for 2012 and explain the meaning of this ratio.
4. Question : (TCO D) You are CFO of Goforit, Inc., a wholesale distribution company specializing in emerging technologies. Your CEO is a brilliant marketer, but relies on you to explain issues and choices in accounting and finance. She has heard from other members of a CEO organization to which she belongs that a company’s net income can vary widely depending on which accounting choices are made from the “GAAP menu.”
Assuming the goal is to maximize net income, choose an accounting treatment from each of the following scenarios, and explain to your CEO why the choice will produce the desired effect on reported Net Income for the current year. Include in your answer the effect of the choice on both the income statement and balance sheet.
a. Goforit carries significant electronics inventory in a competitive environment where prices are actually falling. Which inventory valuation method would you choose—LIFO, FIFO, or average cost? Assume that unit purchases exceed unit sales.
b. Goforit has a large investment in warehouse equipment including conveyor belts, forklifts, and automated packaging systems. Which depreciation method would you choose: Straight line (SL) or double declining balance (DDB)?
5. Question : (TCO F) Please review the following real-world ratios for Johnson & Johnson and Pfizer for the year ended 2012 and address the 2 questions below.
Ratio Name Johnson & Johnson Pfizer
Profit margin 16.1% 24.7%
Inventory turnover ratio 3.1 1.7
Average collection period 59.4 days 69.1 days
Cash debt coverage ratio .27 .16
Debt to Total assets 46.6% 127.5%
1) Please explain the meaning of each of the Pfizer ratios above.
2) Please state which company performed better for each ratio.
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1. Question : (TCO A) A corporation has which of the following sets of characteristics?
Student Answer: 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. Question : (TCO A) When a corporation distributes a dividend, _____.
Student Answer: the most common form of distribution is a cash dividend
the Dividends account will be increased with a credit
the Retained Earnings account will be directly increased with a debit
the Dividends account will be decreased with a debit
3. Question : (TCOs A, B) Below is a partial list of account balances for Kerner Company:
Prepaid insurance 1,000
Accounts receivable 5,000
Accounts payable 4,000
Notes payable 6,000
Common stock 2,000
What did Kerner Company show as total credits?
Student Answer: $43,000
4. Question : (TCOs B, E) Using accrual accounting, expenses are recorded and reported only _____.
Student Answer: when they are incurred, whether or not cash is paid
when they are incurred and paid at the same time
if they are paid before they are incurred
if they are paid after they are incurred
5. Question : (TCO D) In a period of increasing prices, which inventory cost flow assumption will result in the lowest amount of income tax expense?
Student Answer: FIFO
The average cost method
Income tax expense for the period will be the same under all assumptions.
6. Question : (TCOs A, E) Equipment with a cost of $192,000 has an estimated salvage value of $18,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
Student Answer: $48,000
7. Question : (TCOs D, G) Lopez Corporation issues 500 ten-year, 8%, $1,000 bonds dated January 1, 2007, at 96. The journal entry to record the issuance will show a _____.
Student Answer: debit to Cash of $500,000
credit to Discount on Bonds Payable for $20,000
credit to Bonds Payable for $480,000
debit to Cash for $480,000
8. Question : (TCO C) Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _____.
Student Answer: $120,000
9. Question : (TCO F) One variation of the horizontal analysis is known as _____.
Student Answer: nonlinear analysis
10. Question : (TCO F) Comparisons of data within a company are an example of the following comparative basis.
Student Answer: Industry averages
11. Question : (TCO F) In vertical analysis, the base amount for studying salary and wages expense is generally _____.
Student Answer: net sales
salary and wages expense in a previous year
12. Question : (TCO F) Short-term creditors are usually most interested in assessing _____.
Student Answer: solvency
13. Question : (TCO F) Return on common stockholder’s equity ratio is affected by _____.
Student Answer: net income
dividend paid to preferred stock, if any
leverage (debt-to-assets ratio)
All of the above
14. Question : (TCO G) To calculate the market value of a bond, we need to use the time-value-of-money concept called _____.
Student Answer: compounding
None of the above
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