Exam (elaborations) Liberty University ACCT 370 Exam 2 Complete solution

Exam (elaborations) Liberty University ACCT 370 Exam 2 Complete solution Liberty University ACCT 370 Exam 2 Complete solution 100% satisfied: solutions 1. The Common Stock account is reported on the balance sheet at the: 2. The time that the performance obligation is satisfied for revenue recognition is usually: 3. When reporting a change in an accounting principle, the general rule requires that the current year’s income from continuing operations reflect: 4. Using the same accounting methods to record and report similar events from period to period demonstrates: 5. If an inventory error is discovered during the reporting year, 6. Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported net income tends to: 7. IFRS accounting for inventory (IAS 2) does not permit which of the following cost flow assumptions? 8. The use of the lower of cost or market (Old-LCM) method to value inventory Liberty University ACCT 370 Exam 2 Complete Solution indicates a probable loss has been sustained. This is an application of the accounting principle of: 9. Which of the following statements regarding inventory accounting is false? 10. The following information pertains to the Fan Company’s inventory item B1008: 20.M a r c h 21. 1 22.Inv ent ory Bal anc e 23.4 0 0 24.u n i t s 25. @ 26. $ 27.3 . 1 0 28. 29. 30. 5 31.Pur cha se 32.1 , 4 0 0 33.u n i t s 34. @ 35. $ 36.3 . 2 0 37. 38. 39. 14 40.Pur cha se 41.2 8 0 42.u n i t s 43. @ 44. $ 45.3 . 2 5 46. 47. 48. 31 49.Inv ent ory 50.5 2 0 51.u n i 52. 53. 54.55. Bal anc e t s 56. 57. In a periodic inventory system, the ending FIFO inventory is 58.Manufacturing costs not considered to be closely associated with production are called: 59. A perpetual inventory system: 60. Goods available for sale needs to be allocated between: 61.When troubled debt is restructured via continuation with modification of debt terms, the original loan is: 62. If a bank sells a mortgage portfolio at a price that yields the purchasers a return that is lower than the average yield on the mortgages in the portfolio, the selling price: 63. Frank Ritter, Inc. enters into an arrangement with Hisker Enterprises whereby Hisker will assume $100,000 of Ritter’s receivables for a 6% fee. These receivables have a related allowance for doubtful accounts of $3,500. 64. Assuming the transaction was a factoring arrangement without recourse, which one of the following entries will Ritter make? 65. If sales terms, customer creditworthiness, and accounting methods remain constant, the percentage change in sales and the percentage change in accounts receivable: 66. An analyst notes that ABC Inc.’s allowance for uncollectible accounts as a percentage of year-end accounts receivable has changed. Which of the following would not be a plausible explanation for the change? 67. Edsel Inc. has the following unadjusted year end trial balance information available for 2018: 72.Credit sales 73.74.6 00 ,0 00 75. 76.Ending accounts receivable balance 77.78.1 80 ,0 00 79. 80.Ending allowance for uncollectibles 81.82.1 ,5 00 83. 84.Estimated uncollectibles 85.86.2 87. % 88. 89. If Edsel uses the gross accounts receivable approach for estimating the bad debt provision, the allowance for uncollectibles account, after the proper adjustments to the accounts are recorded, should show a balance of: 90. In the utilities industry, image advertising and customer safety advertising are: 91. A typical rate formula for a public utility includes: 92. Contract terms: 93.With respect to executive pay, which of the following is not correct? 94. Financial statement forecasts are: 95. A bond that is considered unsecured is referred to as a: 96. Prior to the announcement of unexpected bad earnings (a negative earnings surprise), a firm’s stock price will generally exhibit: 97.Which one of the following is an example of sustainable earnings? 98. In the process of determining fair value, the exit price refers to: 99. By using accruals and deferrals, accrual accounting: 100. The two ways to implement the discounted cash flow valuation approach are: 101. Which of the following statements is false regarding the business valuation process? 102. With respect to financial ratios: 103. Select one of the following statements that best reflects the relationship between the operating cycle and the cash conversion cycle: 104. Which of the following is not correct with respect to computing ROCE? 105. Trend statements are better than common size statements at indicating which of the following? 106. Strategies to gain a competitive advantage include product differentiation and: 107. Manero Company included the following information in its annual report: 108. 109. 2019 110. 111. 2018 112. 113. 2017 114. Sales 115. 116. 178, 40 0 1171.8. 119. 120. 162, 50 0 12112.2. 123. 124. 155, 50 0 125. 126. Cost of goods sold 127. 128. 115, 00 0 .03.1. 132. 102, 50 0 13131.43.5. 136. 100, 00 0 137. 138. Operatin g expenses 139. 140. 50,0 00 .24.3. 144. 50,0 00 .64.7. 148. 45,0 00 149. 150. Operatin g income 151. 152. 13,4 00 .45.5. 156. 10,0 00 .85.9. 160. 10,5 00 161. 162. In a common-size income statement for 2017, the cost of goods sold is expressed as: 163. Manero Company included the following information in its annual report: 164. 165. 2019 166. 167. 2018 168. 169. 2017 170. Sales 171. 172. 178, 40 .47.51.76. 162, 50 17171.87.91.80. 155, 50 181. 0 0 0 182. Cost of goods sold 183. 184. 115, 00 0 .68.7. 188. 102, 50 0 18191.09.1. 192. 100, 00 0 193. 194. Operati ng expenses 195. 196. 50,0 00 .89.9. 200. 50,0 00 .20.3. 204. 45,0 00 205. 206. Operati ng income 207. 208. 13,4 00 .01.1. 212. 10,0 00 .41.5. 216. 10,5 00 217. 218. In a common-size income statement for 2019, the cost of goods sold is expressed as: 219. Condensed financial data are presented below for the Phoenix Corporation: 220. 221. 2 019 222. 223. 2018 224. Accounts receivable 225. 226. 267,50 0 2272.8. 229. 230. 230, 00 0 231. 232. Inventory 233. 234. 312,50 0 .63.7. 238. 257, 50 0 239. 240. Total current assets 241. 242. 670,00 .44.52.46. 565, 247. 0 00 0 248. Intangible assets 249. 250. 50,000 .25.3. 254. 60,0 00 255. 256. Total assets 257. 258. 825,00 0 .06.1. 262. 695, 00 0 263. 264. Current liabilities 265. 266. 252,50 0 .86.9. 270. 200, 00 0 271. 272. Long-term liabilities 273. 274. 77,500 .67.7. 278. 75,0 00 279. 280. Sales 281. 282. 1,640, 000 .48.52.86. 287. 288. Cost of goods sold 289. 290. 982,50 0 .29.32.94. 295. 296. Interest expense 297. 298. 10,000 .00.13.02. 303. 304. Income tax expense 305. 306. 77,500 .80.93.10. 311. 312. Net income 313. 314. 127,50 0 .61.73.18. 319. 320. Cash flow from operations 3213.22. .42.53.26. 327. 71,000 328. Cash flow from investing activities 329. 330. (6,000 331. ) 33323.33.34. 335. 336. Cash flow from financing activities 337. 338. (62,50 0 339. ) 34304.13.42. 343. 344. Tax rate 345. 346. 30 347. % 34384.93.50. 351. 352. The profit margin used to calculate return on assets for 2019 is (rounded): 353. Condensed financial data are presented below for the Phoenix Corporation: 354. 355. 2 019 356. 357. 2018 358. Accounts receivable 359. 360. 267,50 0 36316.2. 363. 364. 230, 00 0 365. 366. Inventory 367. 368. 312,50 0 .07.1. 372. 257, 50 0 373. 374. Total current assets 375. 376. 670,00 0 37373.87.9. 380. 565, 00 0 381. 382. Intangible assets 383. 384. 50,000 .68.73.88. 60,0 389. 00 390. Total assets 391. 392. 825,00 0 .49.5. 396. 695, 00 0 397. 398. Current liabilities 399. 400. 252,50 0 .20.3. 404. 200, 00 0 405. 406. Long-term liabilities 407. 408. 77,500 .01.1. 412. 75,0 00 413. 414. Sales 415. 416. 1,640, 000 .81.94.20. 421. 422. Cost of goods sold 423. 424. 982,50 0 .62.74.28. 429. 430. Interest expense 431. 432. 10,000 43434.43.54.36. 437. 438. Income tax expense 439. 440. 77,500 44144.24.34.44. 445. 446. Net income 447. 448. 127,50 0 44954.05.14.52. 453. 454. Cash flow from operations 455. 456. 71,000 .85.94.60. 461. 462. Cash flow from investing activities 463. 464. (6,000 465. ) 46466.74.68. 469. 470. Cash flow from financing activities 471. 472. (62,50 473. ) 47447.54.76. 477. 0 478. Tax rate 479. 480. 30 481. % 48428.34.84. 485. 486. The days inventory held for 2019 is (rounded): 487. 1 488.Accounting errors or irregularities can occur for which reasons? A. simple oversight. B. misapplication of GAAP. C. management exploitation of the flexibility in GAAP. D. all of these answer choices are correct. 48499.0. 491. 2 492.The accounts receivable turnover ratio: A. is not useful in determining changes in customer payment patterns. B. uses total sales and not just credit sales in the computation. C. is computed using net credit sales and average accounts receivable. D. is computed using net credit sales and ending accounts receivable. 49439.4. 495. 3 496.Accrual accounting decouples measured earnings from operating cash inflows and outflows. 49479.8. 499. 4 500.Accrued liabilities represent: A. income that has not yet been recognized on the income statement. B. expenses that have not yet been recognized on the income statement. C. expenses that have been recognized on the income statement but not yet 50510.2. been paid. D. income that has been recognized on the income statement but not yet collected. 503. 5 504.Activity ratios describe the profitability of a company. 50550.6. 507. 6 508.The Additional Paid-In Capital account is reported on the balance sheet at the: A. current market value of the stock minus par value. B. original sales price of the stock minus the par value. C. net realizable value of the stock minus par value. D. discounted present value of the future dividends minus par value. 50591.0. 511. 7 512.Advanced technology and performance capabilities, consistent quality, availability in multiple colors and sizes, prompt delivery, technical support services, customer financing, distribution channels, or some other feature of importance to customers are examples of: A. competitive advantage. B. differentiation. C. product leadership. D. low-cost leadership. 51531.4. 515. 8 516.All the following disclosures would appear in the Summary of Significant Accounting Policies except: A. inventory method. B. depreciation method. 51571.8. C. revenue recognition method. D. financing method. 519. 9 520.Although a company’s earnings are important, an analysis of its cash flows is central to credit evaluations and lending decisions. 52512.2. 523. 1 524.An analyst interested in learning the degree to which a company’s earnings have fluctuated historically in relation to changes in economic growth would employ cross-sectional analysis. 52552.6. 527.11. 528.A balance sheet prepared under U.S. GAAP includes the following elements except: A. an asset section B. a liabilities section C. an equity section D. a cash flow section .. 531.12. 532.Balance sheets developed under US GAAP: A. may, but are not required to, list assets from most liquid to least liquid. B. must list assets from most liquid to least liquid. C. must list assets from least liquid to most liquid. D. must list assets in alphabetical order. .. 535.13. 536.The Barden Company provides the following trial balance as of December 31, 2018. Debit Credit Cash and cash equivalents 345,000 Accounts receivable 115,000 Inventory 120,000 Prepaid insurance 7,500 Prepaid rent 40,000 Equipment 265,000 Accumulated depreciation - Equipment 65,000 Accounts payable 45,000 Accrued liabilities 10,000 Notes payable, due in 2020 135,000 Common stock 300,000 Additional paid-in capital 87,500 .. Retained earnings 250,000 Total 892,500 892,500 What would Barden report as current assets on its balance sheet? A. $460,000 B. $580,000 C. $892,500 D. $627,500 539. 1 540.The Barden Company provides the following trial balance as of December 31, 2018. Debit Credit Cash and cash equivalents 345,000 Accounts receivable 115,000 Inventory 120,000 Prepaid insurance 7,500 Prepaid rent 40,000 Equipment 265,000 Accumulated depreciation - Equipment 65,000 .. Accounts payable 45,000 Accrued liabilities 10,000 Notes payable, due in 2020 135,000 Common stock 300,000 Additional paid-in capital 87,500 Retained earnings 250,000 Total 892,500 892,500 What would Barden report as total stockholders’ equity on its balance sheet? A. $300,000 B. $387,500 C. $637,500 D. $87,500 543. 1 544.The basic accounting equation may be expressed as assets = liabilities - owners’ equity. .. 547. 1 548.The best measure of a firm’s sustainable income is: .. A. income from continuing operations. B. income before income tax. C. income before unusual items and change in accounting principle. D. net income. 551. 1 552.Both common and preferred stock dividends are subtracted in arriving at net income available to common stockholders. .. 555. 1 556.The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the accrual basis, how much revenue should Canon recognize in November? A. $0 B. $16,000 C. $24,000 D. $40,000 .. 559. 1 560.The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the cash basis, how much revenue should Canon recognize in October? A. $0 B. $16,000 .. C. $24,000 D. $40,000 563. 2 564.Cash-basis accounting provides the most useful measure of future operating performance. .. 567. 2 568.Cash collected from customers can be derived: A. by analyzing changes in the Accounts Payable balance. B. by appropriately adjusting revenue for changes in accounts receivable. Correct C. by appropriately adjusting revenue for changes in accounts payable. D. by analyzing changes to the reserve for doubtful accounts. .. 571. 2 572.The change in equity of an entity during a period from transactions and other events from non-owner sources is known as: A. net income. B. net operating income. C. comprehensive income. D. net change in assets. .. 575. 2 576.The change in equity of an entity during a period from transactions and other events from non-owner sources is known as comprehensive income. .. 579. 2 580.A common-size balance sheet presents each item as a percentage of total assets. .. 583. 2 584.Common-size balance sheets may be used for all the following except: .. A. gaining insights into the nature of a company’s operations. B. analyzing a company’s asset and financial structure. C. determining how management assesses the risks a company faces. D. learning about the underlying economics of an industry. 587. 2 588.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities . . (6,000) Cash flow from financing activities (62,500) Tax rate - 30% If there is no preferred stock, the return on common equity for 2019 is (rounded): A. 25.8% B. 27.9% C. 41.4% D. 43.4% 591. 2 592.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales . . 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% In a common size balance sheet for 2019, accounts receivable is expressed as: A. 86%. B. 116.3%. C. 32.4%. D. 16.3%. 595. 2 596.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 .. Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The accounts receivable turnover for 2019 is (rounded): (Assume all sales are on account.) A. 2.0 times. B. 6.4 times. C. 6.6 times. D. 7.1 times. 599. 2 600.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities . . (62,500) Tax rate - 30% The current ratio for 2019 is (rounded): A. 1.4 to 1 B. 2.0 to 1 C. 2.7 to 1 D. 3.4 to 1 603. 3 604.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 . . Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The days receivable outstanding for 2019 is (rounded): A. 51 days. B. 55 days. C. 60 days. D. 183 days. 607. 3 608.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets . . 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The interest coverage for 2019 is: A. 12.8 times. B. 13.8 times. C. 20.5 times. D. 21.5 times. 611. 3 612.Condensed financial data are presented below for the Phoenix Corporation: . . Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The inventory turnover for 2019 is (rounded): A. 2.61 times. B. 3.12 times. C. 3.45 times. D. 3.80 times. 615. 3 616.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 . . Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The long-term debt to assets for 2019 is (rounded): A. 9.4% B. 10.2% C. 40.0% D. 43.4% 619. 3 620.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales .. 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The quick ratio for 2019 is (rounded): (Assume that total current assets include cash, marketable securities, accounts receivable and inventory). A. 1.1 to 1 B. 1.4 to 1 C. 1.6 to 1 D. 2.8 to 1 623. 3 624.Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 230,000 Inventory . . 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate - 30% The return on assets ratio for 2019 is (rounded): Multiple Choice A. 16.3% B. 16.9% C. 17.7%