Tuesday, March 25, 2014

Conch Republic Electronics is a mid sized electronics manufacturer located in Key West

Conch Republic Electronics is a mid sized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department. One of the major revenue-producing items manufactured by Conch Republic is a personal digital assistant (PDA). Conch Republic currently has one PDA model on the market, and sales have been excellent. The PDA is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch Republic developed a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has performed a marketing study to determine the expected sales figures for the new PDA. Conch Republic can manufacture the new PDA for $200 each in variable costs. Fixed costs for the operation are estimated to run $4.5 million per year. The estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each year for the next five years, respectively. The unit price of the new PDA will be $340. The necessary equipment can be purchased for $16.5 million and will be depreciated on a 5 year straight-line schedule. Net working capital investment for the PDAs will be $6,000,000 the first year of operations. Of course NWC will be recovered at the projects end. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return.

Shelly has asked Jay to prepare a report that answers the following questions:
What is the IRR of the project?
What is the NPV of the project, based on the required rate of return of 12%?

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The stockholders' equity section of Sliver Corporation's balance sheet at December 31, 2014, was as

Question 1


The stockholders' equity section of Sliver Corporation's balance sheet at December 31, 2014, was as follows:

Common stock ($10 par value, authorized 1,000,000
shares, issued and outstanding 900,000 shares) ...

$ 9,000,000
Paid-In capital in excess of par ...................
2,700,000
Retained earnings ..................................
1,300,000
Total stockholders' equity .........................
$13,000,000

On January 2, 2015, Sliver purchased and retired 100,000 shares of its stock for $1,800,000. Sliver records treasury stock using the par value method. Immediately after retirement of these 100,000 shares, the balances in the additional paid-in capital and retained earnings accounts should be

Paid-In Capital Retained
in Excess of Par Earnings

$900,000 $1,300,000

$1,400,000 $800,000

$1,900,000 $1,300,000

$2,400,000 $800,000
0.6 points 
Question 2


To compute the price to pay for a bond, you use

only the present value of $1 concept.

only the present value of an annuity of $1 concept.

both of these.

neither of these.
0.6 points 
Question 3


For a liability to exist,

the identity of the party owed must be known.

the exact amount must be known.

a past transaction or event must have occurred.

an obligation to pay cash in the future must exist.
0.6 points 
Question 4


Bonds usually sell at a premium

when the market rate of interest is greater than the stated rate of interest on the bonds.

when the stated rate of interest on the bonds is greater than the market rate of interest.

when the price of the bonds is greater than their maturity value.

in none of these cases.
0.6 points 
Question 5


On July 31, 2013, Rangers Corporation purchased 500,000 shares of Tigers Corporation. On December 31, 2014, Rangers distributed 250,000 shares of Tigers stock as a dividend to Rangers' stockholders. This is an example of a

liquidating dividend.

investment dividend.

property dividend.

stock dividend.
0.6 points 
Question 6


A company declared a cash dividend on its common stock in December 2013, payable in January 2014. Retained Earnings would

increase on the date of declaration.

not be affected on the date of declaration.

not be affected on the date of payment.

decrease on the date of payment.
0.6 points 
Question 7


Craig Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2013, for $112,000. Craig uses the straight-line method of amortization. On April 1, 2016, Craig reacquired the bonds for retirement when they were selling at 102 on the open market. How much gain or loss should Craig recognize on the retirement of the bonds?

$2,000 loss

$3,900 gain

$6,100 gain

$8,200 loss
0.6 points 
Question 8


If a $1,000, 9 percent, 10-year bond was issued at 96 plus accrued interest one month after the authorization date, how much cash was received by the issuer?

$967.50

$960.00

$1,007.50

$992.50
0.6 points 
Question 9


Which of the following represents a liability?

The obligation to pay for goods that a company expects to order from suppliers next year.

The obligation to provide goods that customers have ordered and paid for during the current year.

The obligation to pay interest on a five-year note payable that was issued the last day of the current year.

The obligation to distribute shares of a company's own common stock next year as a result of a stock dividend declared near the end of the current year.
0.6 points 
Question 10


Which of the following does NOT meet the FASB's definition of a liability?

The signing of a three-year employment contract at a fixed annual salary

An obligation to provide goods or services in the future

A note payable with no specified maturity date

An obligation that is estimated in amount
0.6 points 
Question 11


Which of the following is most likely to be found in state laws regarding payment of dividends?

Dividends may be paid from legal capital.

Retained earnings are available for dividends unless restricted by contract or by statute.

Unrealized capital is available for any type of dividend.

Capital from donated assets is available for dividends.
0.6 points 
Question 12


Which of the following is true of accrued interest on bonds that are sold between interest dates?

It is computed at the effective market rate.

It will be paid to the seller when the bonds mature.

It is extra income to the buyer.

None of these is true.
0.6 points 
Question 13


Adam Corporation owns 1,000 shares of common stock of Rosen, Inc., a large publicly traded company listed on a major stock exchange. If Rosen issues a 20 percent stock dividend when the par value is $10 per share and the market value is $70 per share, how much and what type of income should Adam report?

$0

$2,000 ordinary income


Question 14





  1. On June 1, Continental Company issued 8,000 shares of its $10 par common stock to Divide for a tract of land. The stock had a fair market value of $18 per share on this date. On Divide's last property tax bill, the land was assessed at $96,000. Continental should record an increase in Additional Paid-In Capital of

















    $96,000.

    $64,000.

    $40,000.

    $16,000.

0.6 points


Question 15





  1. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

















    declaration of a stock split.

    purchase of treasury stock.

    declaration of a stock dividend.

    payment in full of subscribed stock.

0.6 points


Question 16





  1. Accrued interest on bonds that are sold between interest dates

















    is ignored by both the seller and the buyer.

    increases the amount a buyer must pay to acquire the bonds.

    is recorded as a loss on the sale of the bonds.

    decreases the amount a buyer must pay to acquire the bonds.

0.6 points


Question 17





  1. The issuance price of a bond does not depend on the

















    face value of the bond.

    riskiness of the bond.

    method used to amortize the bond discount or premium.

    effective interest rate.

0.6 points


Question 18





  1. Select the statement that is incorrect concerning the appropriations of retained earnings.

















    Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant expansion.

    Appropriations of retained earnings do not change the total amount of stockholders' equity.

    Appropriations of retained earnings can be made as a result of contractual requirements.

    Appropriations of retained earnings can be made at the discretion of the board of directors.

0.6 points


Question 19





  1. The net amount of a bond liability that appears on the balance sheet is the

















    call price of the bond plus bond discount or minus bond premium.

    face value of the bond plus related premium or minus related discount.

    face value of the bond plus related discount or minus related premium.

    maturity value of the bond plus related discount or minus related premium.

0.6 points


Question 20





  1. Which of the following is NOT a component of comprehensive income?

















    Asset revaluation reserve

    Net income

    Foreign currency translation adjustment

    Minimum pension liability adjustment

0.6 points


Question 21





  1. Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be

















    $26,750.

    $27,500.

    $28,250.

    $29,500.

0.6 points


Question 22





  1. How would a stock split affect each of the following?

    Total
    Stockholders' Additional
    Assets Equity Paid-In Capital

















    Increase Increase No effect

    No effect No effect No effect

    No effect No effect Increase

    Decrease Decrease Decrease

0.6 points


Question 23





  1. Which of the following presentation formats is permitted by Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"?

















    I.A single statement of income and comprehensive income.
    II.Two statements of income, a traditional income statement ending with net income, and a second statement beginning with net income, all the elements of comprehensive income, and a total of comprehensive income.
    III.Within the statement of changes in stockholders' equity.

















    Only I

    I and III

    I and II

    I, II, and III

0.6 points


Question 24





  1. Romer Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2014, with interest payable on January 1 and July 1 of each year.

    If the bonds were issued on April 1, 2014, the amount of accrued interest on the date of sale is

















    $20,000.

    $10,000.

    $2,500.

    $5,000.

0.6 points


Question 25





  1. Any gains or losses from the early extinguishment of debt should be

















    recognized in income of the period of extinguishment.

    treated as an increase or decrease in Paid-In Capital.

    allocated between a portion that is an increase (decrease) in Paid-In Capital and a portion that is recognized in current income.

    amortized over the remaining original life of the extinguished debt.


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1. Under the corporate form of business organization

MULTIPLE CHOICE 

1. Under the corporate form of business organization 
a. a stockholder is personally liable for the debts of the corporation. 
b. stockholders’ acts can bind the corporation even though the stockholders have not 
been appointed as agents of the corporation. 
c. the corporation’s life is stipulated in its charter. 
d. stockholders wishing to sell their corporation shares must get the approval of other 
stockholders. 
2 Stockholders of a corporation directly elect 
a. the president of the corporation. 
b. the board of directors. 
c. the treasurer of the corporation. 
d. all of the employees of the corporation. 

3 Those most responsible for the major policy decisions of a corporation are the 
a. stockholders. 
b. board of directors. 
c. management. 
d. employees. 

4 The chief accounting officer in a company is known as the 
a. controller. 
b. treasurer. 
c. vice-president. 
d. president. 
5 Which one of the following would not be considered an advantage of the corporate form 
of organization? 
a. Limited liability of stockholders. 
b. Separate legal existence. 
c. Continuous life. 
d. Government regulation. 

6 The two ways that a corporation can be classified by purpose are 
a. general and limited. 
b. profit and not-for-profit. 
c. state and federal. 
d. publicly held and privately held. 

7 The two ways that a corporation can be classified by ownership are 
a. publicly held and privately held. 
b. stock and non-stock. 
c. inside and outside. 
d. majority and minority. 

8 Which of the following would not be true of a privately held corporation? 
a. It is sometimes called a closely held corporation. 
b. Its shares are regularly traded on the New York Stock Exchange. M



c. It does not offer its shares for sale to the general public. 
d. It is usually smaller than a publicly held company. 

9 Which of the following is not true of a corporation? 
a. It may buy, own, and sell property. 
b. It may sue and be sued. 
c. The acts of its owners bind the corporation. 
d. It may enter into binding legal contracts in its own name. 

10 XXXXX XXXXXsen has invested $600,000 in a privately held family corporation. The 
corporation does not do well and must declare bankruptcy. What amount does Hansen 
stand to lose? 
a. Up to his total investment of $600,000. 
b. Zero. 
c. The $600,000 plus any personal assets the creditors demand. 
d. $400,000. 

11 Which of the following statements reflects the transferability of ownership rights in a 
corporation? 
a. If a stockholder decides to transfer ownership, he must transfer all of his shares. 
b. A stockholder may dispose of part or all of his shares. 
c. A stockholder must obtain permission of the board of directors before selling shares. 
d. A stockholder must obtain permission from at least three other stockholders before 
selling shares. 

12 A corporate board of directors does not generally 
a. select officers. 
b. formulate operating policies. 
c. declare dividends. 
d. execute policy. 

13 The officer that is generally responsible for maintaining the cash position of the 
corporation is the 
a. controller. 
b. treasurer. 
c. cashier. 
d. internal auditor. 

14 The ability of a corporation to obtain capital is 
a. enhanced because of limited liability and ease of share transferability. 
b. less than a partnership. 
c. restricted because of the limited life of the corporation. 
d. about the same as a partnership. 

15 Which of the following statements concerning taxation is accurate? 
a. Partnerships pay state income taxes but not federal income taxes. 
b. Corporations pay federal income taxes but not state income taxes. 
c. Corporations pay federal and state income taxes. 
d. Only the owners must pay taxes on corporate income. FINANCIAL ACCOUNTING II – WINTER 2014 – FINAL EXAM





16 Which of the following statements is not considered a disadvantage of the corporate 
form of organization? 
a. Additional taxes. 
b. Government regulations. 
c. Limited liability of stockholders. 
d. Separation of ownership and management. 

17 A disadvantage of the corporate form of organization is 
a. professional management. 
b. tax treatment. 
c. ease of transfer of ownership. 
d. lack of mutual agency. 

18 A disadvantage of the corporate form of business is 
a. its status as a separate legal entity. 
b. continuous existence. 
c. government regulation. 
d. ease of transfer of ownership. 

19 Which of the following phrases is not descriptive of the corporate form of business? 
a. Professional management. 
b. Double taxation on distributed earnings. 
c. Unlimited liability. 
d. Continuous existence. 

20 Which one of the following is not an ownership right of a stockholder in a corporation? 
a. To vote in the election of directors. 
b. To declare dividends on the common stock. 
c. To share in assets upon liquidation. 
d. To share in corporate earnings. 












: FINANCIAL ACCOUNTING II – WINTER 2014 – FINAL EXAM



Problem 1 (20 Points) 
A comparative balance sheet for the Beneteau Corporation is presented below 


BENETEAU CORPORATION 
Comparative Balance Sheet 
2014 2013 
Assets 
Cash $ 37,000 $ 31,000 
Accounts receivable (net) 80,000 60,000 
Prepaid insurance 22,000 17,000 
Land 18,000 40,000 
Equipment 70,000 60,000 
Accumulated depreciation (20,000) (13,000) 
Total Assets $207,000 $195,000 

Liabilities and Stockholders' Equity 
Accounts payable $ 12,000 $ 6,000 
Bonds payable 27,000 19,000 
Common stock 140,000 115,000 
Retained earnings 28,000 55,000 
Total liabilities and stockholders' equity $207,000 $195,000 

Additional information: 
1. Net loss for 2014 is $12,000. Net sales for 2014 are $250,000. 
2. Cash dividends of $15,000 were declared and paid in 2014. 
3. Land was sold for cash at a loss of $2,000. This was the only land transaction during the 
year. 
4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for 
$5,000 cash. 
5. $12,000 of bonds were retired during the year at carrying (book) value. 
6. Equipment was acquired for common stock. The fair value of the stock at the time of the 
exchange was $25,000. 

Instructions 
1. Prepare a statement of cash flows for the year ended 2014 using the indirect method. 
2. Compute the following cash based ratios: 
a. Current cash debt coverage 
b. Cash debt coverage 
FINANCIAL ACCOUNTING II – WINTER 2014 – FINAL EXAM




Problem 2 (20 Points) 
The following items were taken from the financial statements of Kramer Manufacturing, Inc., over a three-year 
period: 
Item 2015 2014 2013 
Net Sales $226,000 $212,000 $200,000 
Cost of Goods Sold 150,000 140,000 125,000 
Gross Profit $ 76,000 $ 72,000 $ 75,000 

Instructions 
Using horizontal analysis and 2013 as the base year, compute the trend percentages for net 
sales, cost of goods sold, and gross profit. Explain whether the trends are favorable or 
unfavorable for each item. 
Problem 3 (20 Points) 
The following items were taken from the financial statements of Mint, Inc., over a three-year 
period: 
Item 2015 2014 2013 
Net Sales $355,000 $336,000 $300,000 
Cost of Goods Sold 214,000 206,000 186,000 
Gross Profit $141,000 $130,000 $114,000 

Instructions 
Compute the following for each of the above time periods. 
a. The amount and percentage change from 2013 to 2014. 
b. The amount and percentage change from 2014 to 2015. 

Problem 4 (20 Points) 
Using these data from the comparative balance sheet of Sunta Fe Spice Company, perform 
horizontal analysis. 
December 31, 2014 December 31, 2013 
Accounts receivable $ 375,000 $ 300,000 
Inventory 780,000 600,000 
Total assets 3,220,000 2,800,000


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