Financial Accounting

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Student ID: 21993408

Exam: 061580RR – Accounting for Merchandising

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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

 

1. If ending inventory in Period 1 is overstated, gross profit in Period 2 is A. not affected.

B. overstated.

C. understated.

D. the same as in Period 1.

 

2. The major difference in the statement of retained earnings between a service business and a merchandising business is A. that the retained earnings statement of a merchandising business includes Dividends.

B. nothing. There are no differences between the two.

C. that the retained earnings statement of a service business includes Dividends.

D. that the retained earnings statement of a merchandising business shows the Cost of Goods Sold.

 

3. The cost of goods sold equals A. beginning inventory minus net purchases plus ending inventory.

B. beginning inventory plus net purchases minus ending inventory.

C. ending inventory plus net purchases minus beginning inventory.

D. beginning inventory plus net sales minus ending inventory.

 

4. If an employee overbills a company for travel, this would be considered a/an A. check tampering scheme.

B. cash register scheme.

C. disbursement scheme.

D. expense scheme.

 

5. A/An _______ is used to determine the amount of inventory actually on hand at the end of the accounting period. A. inventory layer

B. footnote

C. physical inventory count

D. inventory shrinkage

 

 

 

6. A method of valuing inventory based on the average of units is called the A. FIFO method.

B. LIFO method.

C. specific cost method.

D. average cost method.

 

7. Beginning inventory plus net purchases equals A. gross profit.

B. cost of goods sold.

C. ending inventory.

D. cost of goods available for sale.

 

8. If there is a difference between the physical count and the perpetual record, the account in which the difference is recorded is the A. Sales.

B. Revenue.

C. Cost of Goods Sold.

D. Inventory Expense.

 

9. Under the average cost method, the flow of costs through the accounting records will _______ to the physical flow of goods through the business. A. exactly match

B. match closely

C. be nearly opposite

D. have no relationship

 

10. Olympic Enterprises has the following inventory data:

Assuming FIFO, what is the cost of goods sold for June 14?

Date Quantity Unit Cost

June 1 Beginning inventory 5 $52

June 4 Purchase 10 $55

June 7 Sale 12

June 11 Purchase 9 $58

June 14 Sale 8

A. $456

B. $455

C. $464

D. $440

 

11. If net sales decrease and cost of goods sold increases, the gross profit percentage A. increases.

 

 

B. decreases.

C. will change based upon the change in total assets.

D. remains the same.

 

12. In a FOB destination agreement, when will ownership transfer to the buyer? A. When the goods arrive at the delivery location

B. When the buyer physically touches the goods

C. When the goods leave the seller’s location

D. When the buyer has paid for the goods in full

 

13. An audit opinion in which the auditors are taking exception to a specific treatment of accounting information is the A. qualified opinion.

B. adverse opinion.

C. disclaimer of opinion.

D. unqualified opinion.

 

14. A new car lot would probably cost its inventory using the _______ method of inventory costing. A. moving average

B. specific-identification

C. LIFO

D. FIFO

 

15. Which of the following is not part of the fraud triangle? A. Realization

B. Rationalization

C. Perceived opportunity

D. Perceived pressure

 

16. Gordon the CPA says, “I am unable to give an opinion about the validity of this accounting information.” What kind of opinion is this? A. Adverse

B. Disclaimer

C. Unqualified

D. Qualified

 

17. What does GAAS stand for? A. Goals, assessment activities, and statuses

B. Generally accepted auditing standards

C. Goals, accruals, audits, and standards

D. General accounts and statuses

 

18. Which of the following would probably not need to be disclosed in a footnote?

 

 

End of exam

A. Change of inventory methods

B. A material change in estimated shrinkage

C. A change in depreciation method

D. A 10% increase in sales

 

19. Goods available for sale are $350,000; beginning inventory is $24,000; ending inventory is $32,000; and cost of goods sold is $275,000. What is the inventory turnover? A. 8.59

B. 9.82

C. 12.50

D. 11.46

 

20. _______ occurs if a disgruntled employee convinces another to steal from the company. A. Monitoring

B. The control environment

C. A control activity

D. Collusion

 
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Value Line Publishing

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In addition to the written memo, please provide your calculated historical 1997-2001 financial ratios for Lowe’s as well as a forecast for Lowe’s for 2002-2006. 

 

 

 

Within the written memo, be sure to well address the following questions:

 

 

 

  1. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide?  Complete and compare a similar analysis for Lowe’s using the Excel Template provided – Lowe’s Financial Ratios.
  2. Who deserves the “management of the year” award in the retail-building-supply industry?  Provide a detailed explanation including support for your position.

 

 

 

  1. Assumptions drive the financial forecasting models like that of Home Depot in Exhibit 8.  By putting the assumptions all at the top of the model, the analyst can also easily alter the assumptions and measure the impact.  What do you think of Galeotafiore’s forecast for Home Depot? Are there any “red flags” in Galeotafiore’s work?

 

4.  Prepare a forecast for Lowe’s using the Excel Template provided – Lowe’s Forecast. Articulate and explain your choice of key assumptions within the memo. Draw upon the case dialogue about future growth opportunities and financial forecast for Lowes, as well as overall economic, demographic or sector/industry trends evidenced in the exhibits.

Lowe’s Ratio Analysis

Ratio Analysis for Lowes
Fiscal Year
1997 1998 1999 2000 2001
Working capital (CA – NIBCL*)
Fixed assets
Total capital
Tax rate
NOPAT (EBIT x (1-tax rate))
PROFITABILITY
Return on capital (NOPAT/total capital)
Return on equity (net earnings/equity)
MARGINS
Gross margin (gross profit/sales)
Cash operating expenses/sales
Depreciation/sales
Depreciation/P&E
Operating margin (EBIT/sales)
NOPAT margin (NOPAT/sales)
TURNOVER
Total capital turnover (sales/total capital)
P&E turnover (sales/P&E)
Working capital turnover (sales/WC)
Receivable turnover (sales/AR)
Inventory turnover (COGS/inventory)
Sales per store ($ millions)
Sales per sq. foot ($)
Sales per transaction ($)
GROWTH
Total sales growth
Sales growth for existing stores
Growth in new stores
Growth in sq. footage per store
LEVERAGE
Total capital/equity
* The author has altered the Working capital (Net Working Capital as its identified in the text) equation from CA – CL to that of Current Assets – Non-interest Bearing Current Liabilities. This is not uncommon.

Lowe’s Forecast

Financial Forecast for Lowes
Fiscal Year
2001 2002E 2003E 2004E 2005E 2006E
ASSUMPTIONS
Growth in new stores
Sales growth for existing stores
Total sales growth
Gross margin
Cash operating expenses/sales
Depreciation/sales
Income-tax rate
Cash & ST Inv. / sales
Receivable turnover
Inventory turnover
P&E turnover
Payables/COGS
Other curr. Liab./sales
FORECAST
Number of stores
Net sales
Cost of sales
Gross profit
Cash opertating expenses
Depreciation & amortization
EBIT
NOPAT
Cash and ST investments
Accounts receivable
Merchandise inventory
Other current assets
Total current assets
Accounts payable
Accrued salaries & wages
Other current liabilities
Non-int.-bearing current liab.
Working capital
Net property and equipment
Other assets
Total capital
Return on capital
 
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Financial Market Institutions

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Name _________________________

Problem Set 3

Interest Rates and Security Prices

1. Western Enterprises’ bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon rate is 9 percent. The bonds have a yield to maturity of 7 percent. What is the current market price of these bonds?

2. Calculate the fair present value of the following bonds, all of which have a 10 percent coupon rate (paid semiannually), face value of $1,000, and a required rate of return of 8 percent.

a. The bond has 10 years remaining to maturity.

b. The bond has 15 years remaining to maturity.

c. The bond has 20 years remaining to maturity.

d. What do your answers to parts (a) through (c) say about the relation between time to maturity and present values?

3. Compute the stock valuation in the following cases.

a. Financial analysts forecast Safeco Corp. (SAF) growth for the future to be 10 percent. Safeco’s recent dividend was $1.20. What is the fair present value of Safeco stock if the required rate of return is 12 percent?

b. A stock you are evaluating just paid an annual dividend of $2.50. Dividends have grown at a constant rate of 1.5 percent over the last 15 years and you expect this to continue.

i. If the required rate of return on the stock is 12 percent, what is its fair present value?

ii. If the required rate of return on the stock is 15 percent, what should the fair value be four years from today?

c. A stock you are evaluating is expected to experience supernormal growth in dividends of 8 percent over the next six years. Following this period, dividends are expected to grow at a constant rate of 3 percent. The stock paid a dividend of $5.50 last year and the required rate of return on the stock is 10 percent. Calculate the stock’s fair present value.

4. A bond has a par value of $1000 and a coupon rate of 8%, which is paid annually. The maturity of the bond is four years and the coupon payments are reinvested at the current rates listed below. The required rate of return is 6 percent. What is the bonds duration?

Year Rate
1 4%
2 3%
3 5%
4 6%

5. What is the duration of a five-year, $1,000 Treasury bond with a 10 percent semiannual coupon selling at par? Selling with a yield to maturity of 12 percent? 14 percent? What can you conclude about the relationship between duration and yield to maturity? Plot the relationship. Why does this relationship exist?

6. MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent coupon, $1,000 bonds that sell at par.

a. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? What will be the new prices if market yields change immediately by ± 2.00 percent?

b. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule? What is the amount of error between the duration prediction and the actual market values?

 
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Taxation

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American InterContinental University ACCT430-Taxation Quiz 2 Review

 

Name___________________________________

 

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

 

1. On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except

 

A) alimony. B) moving expenses.

C) home mortgage interest. D) student loan interest.

 

2. Donald sells stock with an adjusted basis of $38,000 to his son, Kiefer, for its fair market value of $30,000. Kiefer sells the stock three years later for $32,000. Kiefer will recognize a gain on the subsequent sale of

 

A) ($8,000). B) $2,000. C) ($6,000). D) $-0-.

 

3. Wayne and Maria purchase a home on April 1 of the current year. To obtain a thirty-year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home?

 

A) $4,580 B) $4,400 C) $11,600 D) $7,200

4. This year, Marcia, who is single, finished graduate school and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $63,000?

 

A) $3,000 for AGI B) $2,000 for AGI C) $500 for AGI D) $2,500 for AGI

 

5. Wang, an employee of Skye Architects, incurred the following unreimbursed expenses this year:

Subscription to architectural journals $800

Dues to Professional Architecture Society 400

Tax return preparation 600

Investment advice 500

 

Wang’s AGI is $75,000. What is his net deduction for miscellaneous itemized deductions?

 

A) $800 B) $1,500 C) $1,900 D) $0

 

6. Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted’s deductible interest is

 

A) $850. B) $3,200. C) $1,100. D) $2,950.

 

7. Grace has AGI of $60,000 in 2012 and 2013. She makes cash contributions to public charities of $34,000 in 2012 and $31,000 in 2013. Grace’s charitable contribution carryover to 2014 is

 

A) $0. B) $1,000. C) $5,000. D) $4,000.

 

8. Which of the following is not required substantiation for a noncash charitable contribution?

 

A) date and location of property donated

B) method used to determine the donated property’s fair market value

C) name and address of charitable organization

D) use of donation by charitable organization

 

9. Liz, who is single, lives in a single family home and owns a second single family home that she rented for the entire year at a fair rental rate. Liz had the following items of income and expense during the current year.

Income:

Gross salary and commissions from Ace Corporation $50,000
Rent received from tenant in Liz’s rental house 13,000
Dividends received on her portfolio of stocks 5,000

 

Expenses:

Unreimbursed professional dues 200
Subscriptions to newsletters recommending stocks 900
Taxes, interest and repair expenses on rental house 3,500
Depreciation expense on rental house 2,300

 

What is her adjusted gross income for the year?

 

A) $62,200 B) $52,700 C) $61,100 D) $68,000

 

10. Generally, deductions for adjusted gross income on an individual’s tax return include all the following types of expenses except those

 

A) incurred in a trade or business.

B) incurred in the production of royalty income.

C) incurred in the production of rent income.

D) incurred in gambling activities.

 

11. During the current year, Martin purchases undeveloped land as an investment. Martin intends to rent the land as pastureland and hopefully sell it later for a profit. In the current year, Martin receives no rent but he does pay taxes of $2,800, mortgage interest of $900 and liability insurance of $500. How much of these expenses can Martin deduct (before any limitations) on his current tax return?

 

A) $0 B) $4,200 C) $1,400 D) $3,700

 

12. Jason sells stock with an adjusted basis of $66,000 to JJ Inc., his 60% owned corporation, for its fair market value of $60,000. JJ Inc. sells the stock three years later for $67,000. JJ Inc.’s recognized gain or loss on the sale will be

 

A) $-0-. B) $4,000. C) $1,000. D) ($3,000).

 

 

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