MID TERM EXAM

BSMM 8110

1. Which of the following groups would likely not be interested in the financial statements of a large public
company such as Procter & Gamble?

A) Shareholders
B) Employees
C) Competitors
D) Taxing agencies
E) None of these are correct

2. A company’s net cash flow will equal its net income …

A) Almost always

B) Rarely

C) Occasionally

D) Only when the company has no investing cash flow for the period

E) Only when the company has no investing or financing cash flow for the period

3. Kelty Company’s year-end financial statements reported the following (in millions):

Total assets $41,278

Total liabilities 29,465

Total shareholders’ equity 11,813

Dividends 205

Net income (loss) 3,160

Retained earnings, Jan. 1 11,425

What did Kelty Company report for retained earnings at December 31?

A) $14,380 million

B) $14,768 million

C) $14,790million
 D) $14,585 million

E) There is not enough information to determine the answer.

4. In its 2019 annual report, Snap-Tite Incorporated reported the following (in millions):

Current assets $1,884.0

Total shareholders’ equity $2,635.2

Total liabilities $2,088.0

What did Snap-Tite report as total assets at year-end?

A) $6,607.2 million

B) $2,839.2 million

C) $3,972.0 million

D) $4,723.2 million

E) None of these are correct.

5. Trio Company’s December 31, Year 2, financial statements reported the following (in millions).

Cash December 31 $1,698

Cash from operating activities $2,256

Cash from investing activities $(1,460)

Cash from financing activities $(1,313)

What did Trio Company report for cash on its December 31, Year 1 balance sheet?

A) $2,215 million

B) $3,422 million

C) $ 517 million

D) $1,181 million

E) None of these are correct

6. On its year-end balance sheet, Blue Corporation, reported cash of $354 million at year-end. The
statement of cash flows reports that cash increased by $92 million during the year and that net cash
flow from operating activities was $1,306 million.

What was the cash flow from investing activities during the year?

A) $ 446 million cash outflow

B) $1,044 million cash inflow

C) $ 446 million cash inflow

D) $1,044 million cash outflow

E) There is not enough information to determine the amount.

7. On its year-end balance sheet, Hasten Inc., reported cash and cash equivalents at the start of the
year of $43,315 thousand. By the end of the year, the cash and cash equivalents had decreased to
$40,931 thousand. The company’s statement of cash flows reported cash from operating activities of
$249,540 thousand, cash from financing activities of $(184,163) thousand.

What amount did the company report for cash from investing activities?

A) $62,993 thousand cash inflow

B) $62,993 thousand cash outflow

C) $67,761 thousand cash inflow

D) $67,761 thousand cash outflow

E) None of these are correct.

8. On its annual statement of cash flows, Bell Inc. reports the following (in millions):

Net cash from operating activities $1,778

Net cash from investing activities (25,005)

Cash at the beginning of the year 5,261

Change in cash during the year 2,318

What did Bell report for “Net cash from financing activities” during the year?

A) $25,545 million cash inflow

B) $25,545 million cash outflow

C) $28,488 million cash inflow

D) $28,488 million cash outflow

E) None of these are correct.

9. How would cash collected on accounts receivable affect the balance sheet?

A) Increase liabilities and decrease equity

B) Decrease liabilities and increase equity

C) Increase assets and decrease assets

D) Increase assets and increase equity

10. How would a purchase of inventory on credit affect the income statement?

A) It would increase liabilities

B) It would decrease retained earnings

C) It would increase assets

D) Both A and C, above

E) None of these are correct.

11. During the year, Decker Corporation reported Net income of $1,448.0 million and paid dividends of
$496.4 million.

Which of the following describes how these transactions would affect Decker’s equity accounts? (in
millions)

A) Increase contributed capital by $1,448.0 and decrease earned capital by $496.4

B) Decrease contributed capital by $496.4 and increase earned capital by $1,448.0
C) Increase contributed capital by $951.6
D) Increase earned capital by $951.6
E) None of these are correct.

12. Cari’s Bakery, Inc., began operations in October. The owner contributed cash of $14,400 and a
delivery truck with fair value of $19,200 to the company.

Which of the following describes how these transactions would affect the company’s equity accounts?

A) Increase contributed capital by $33,600

B) Increase earned capital by $33,600
C) Increase contributed capital by $14,400 and earned capital by $19,200
D) Increase earned capital by $14,400 and contributed capital by $19,200
E) None of these are correct.

13. An accrual of wages expense would have what effect on the balance sheet?

A) Decrease liabilities and increase equity

B) Increase assets and increase liabilities
C) Increase liabilities and decrease equity
D) Decrease assets and decrease liabilities
E) None of these are correct.

14. During its first three months of operations, Cari’s Bakery, Inc. purchased supplies such as plates,
napkins, bags, and cutlery for $7,200 and recorded this as supplies inventory. Supplies on hand at
the end of the first quarter, amount to $4,480.

To prepare financial statement for the first quarter, the company must record which of the following
accounting adjustments?

A) Increase Supplies expense by $2,720 and decrease Supplies inventory by $2,720

B) Increase Supplies expense by $4,480 and decrease Supplies inventory by $4,480
C) Increase Supplies inventory by $4,480 and decrease Supplies expense by $4,480
D) Increase Supplies inventory by $2,720 and decrease Supplies expense by $2,720
E) None of these are correct.
15. As inventory and PPE assets on the balance sheet are consumed, they are reflected:

A) As a revenue on the income statement

B) As an expense on the income statement
C) As a cash flow outflow on the Statement of Cash flows
D) Both B and C
E) Assets are never consumed.

16. ROE is computed as:

A) Net income attributable to controlling interest / Average equity attributable to controlling interest

B) Net income attributable to controlling interest / Net sales

C) [RNOA + (FLEV × Spread)] x NCI ratio

D) A and B

E) A and C

17. The year-end balance sheet of Pointe Company shows average Pointe shareholders’ equity
attributable to controlling interest of $7,997 million, net operating profit after tax of $2,308 million, net
income attributable to Pointe of $2,513 million, and common shares issued of 760.035 million.

Assume the company has no preferred shares issued. Pointe’s return on equity (ROE) for the year is:

A) 28.9%

B) 30.2%

C) 31.4%

D) 32.9%

E) There is not enough information to calculate the ratio.

18. The year-end financial statements of Time Company reveal average shareholders’ equity attributable
to controlling interest of $669,826 thousand, net operating profit after tax of $48,032 thousand, net
operating profit after tax of $29,068 thousand, and average net operating assets of $283,531
thousand.

The company’s return on equity (ROE) for the year is:

A) 4.3%

B) 10.3%

C) 7.2%
D) 16.9%

E) There is not enough information to calculate the ratio.

19. The year-end balance sheet of Star Inc. shows total assets of $6,617 million, operating assets of
$5,253 million, operating liabilities of $2,822 million, and shareholders’ equity of $2,950 million.

The company's year-end net operating assets are:

A) $9,39million

B) $5,253 million

C) $2,431 million

D) $8,075 million

E) None of these are correct.

20. The current ratio is used to assess:

A) Solvency

B) Bankruptcy position

C) Liquidity

D) Financial leverage

E) None of these are correct.

21. Which of the following items creates complications related to revenue recognition?

A) Bonuses tied to sales goals

B) Long-term construction contracts

C) Multiple element sales contracts

D) Consignment goods

E) All of the above

22. On December 31 of the current year, State Construction Inc. signs a contract with the state of
West Virginia Department of Transportation to manufacture a bridge over the New River. State
Construction anticipates the construction will take three years.

The company’s accountants provide the following contract details relating to the project:

Contract price $624 million

 Estimated construction costs $480 million

Estimated total profit $144 million

During the three-year construction period, State Construction incurred costs as follows:

Year 1 $ 48 million

Year 2 $288 million

Year 3 $144 million

State Construction uses the cost-to-cost method to recognize revenue.

Which of the following represent the revenue recognized in Year 1, Year 2, and Year 3?

A) $62 million, $374 million, $187 million

B) $62 million, $312 million, $250 million

C) $0 million, $0 million, $624 million

D) $60 million, $376 million, $188 million

E) None of these are correct.

23. In spring of this year, Parmac Engineering Company signed a $192 million contract with the city of
Parkersburg, to construct a new city hall. Parmac expects to construct the building within two years
and incur expenses of $144 million. The city of Parkersburg paid $48 million when the contract was
signed, $196 million within the next six months, and the final $48 million exactly one year from the
signing of the contract. Parmac incurred $58 million in costs during the year and rest in the following
year to complete the contract on time.

Using the cost-to-cost method how much revenue should Parmac recognize in the current year?

A) $ 48 million

B) $ 77 million

C) $ 86 million

D) $144 million

E) None of these are correct.

24. Costco Wholesale Corporation collects annual non-refundable membership fees from customers.
When should Costco recognize revenue for these membership fees?

A) Immediately when cash is received because the fees are nonrefundable

B) Evenly over the membership year

C) Evenly over the current fiscal year

D) At the end of the membership year when Costco has discharged its obligation to the customer

E) Pro rata over the customer’s actual purchasing pattern

25. Ticketmaster contracts with the producer of Blue Man Group to sell tickets online. Ticketmaster
charges each customer a fee of $18 per ticket and receives $44 per ticket from the producer.
Ticketmaster does not take control of the ticket inventory. Average ticket price for the event is $210.

How much revenue should Ticketmaster recognize for each Blue Man Group ticket sold?

A) $18 because the $44 from the producer is similar to a negative cost of goods sold

B) $210 because the $166 is cost of goods sold paid to the Blue Man Group producer

C) $62 because both the fee from the customer and the Blue Man Group producer are earned

D) $228 because the $166 is cost of goods sold paid to the Blue Man Group producer

E) None of these are correct.

26. The 2016 annual report of Leahy Enterprises included the following disclosure:

During fiscal 2016, the U.S. dollar strengthened relative to the other principal currencies in
which we transact business with the exception of the Indian rupee.

What effect did these currency fluctuations have on Leahy Enterprises’ 2016 consolidated income
statement?

A) Net profit of the Indian subsidiary will be higher

B) Net profit of the Indian subsidiary will be lower

C) Net assets of the subsidiaries that report in the other principal currencies will be higher

D) Net assets of the subsidiaries that report in the other principal currencies will be lower

E) Both A and D
27. On December 31 of the current year, State Construction Inc. signs a contract with the state of West
Virginia Department of Transportation to manufacture a bridge over the New River. State
Construction anticipates the construction will take three years.

(in millions) Year 2 Year 1

Allowance for doubtful accounts $14.4 $18.6

Total accounts and other receivables, net $973.2 $1,040.4

What are the company’s current gross accounts and other receivables at the end of Year 2?

A) $973.2 million

B) $958.8 million

C) $987.6 million

D) $977.4 million

E) None of these are correct.

28. On December 31 of the current year, State Construction Inc. signs a contract with the state of West
Virginia Department of Transportation to manufacture a bridge over the New River. State
Construction anticipates the construction will take three years.

Total accounts and other receivables at December 31 consisted of the following:

(in millions) Year 2 Year 1

Total accounts and other receivables $444.4 $476.6

Allowance for doubtful accounts (6.0) (8.4)

Total accounts and other receivables, net $438.4 $468.2

The balance sheet reports total assets of $2,984.1 million at December 31, 2016.

The common-size amount for gross accounts and other receivables are:

A) $438.4 million

B) $444.4 million

C) 14.9%
D) 14.7%

E) None of these are correct.

29. The income statement of Pratt Inc. reports net sales of $3,749.9 million for the current year. The
balance sheet reports accounts receivable, net of $535.3 million at December 31 of the current year
and $572.2 million at December 31 of the previous year.

The days sales outstanding in the current year are:

A) 54 days

B) 7 days

C) 52 days

D) 9 days

E) None of these are correct.

30. The financial statements of Calico Corporation, for the May 31, year-end, included the following
information relating to their allowance for doubtful accounts: Balance in allowance at the beginning of
the year $360 million, accounts written off during the year of $151 million, balance in allowance at the
end of the year $351 million.

What did Calico Corporation report as bad debt expense for the year?

A) $200 million

B) $209 million

C) $142 million

D) $160 million

E) None of these are correct.

31. At what amount will accounts receivable be reported on the balance sheet if the gross receivable
balance is $55,000 and the allowance for uncollectible accounts is estimated at 16% of gross
receivables?

A) $8,800

B) $46,200

C) $55,000

D) $37,400
32. Thomas Company receives information that requires the company to increase its expectations of
uncollectible accounts receivable.

Which of the following does not occur on the company’s financial statements?

A) Bad debt expense is increased

B) Accounts receivables (gross) is reduced

C) Net income is reduced

D) The allowance account is increased

E) None of these are correct.

33. Heller Corporation has aged its accounts receivable and estimated uncollectible accounts as follows
(in thousands). What bad debt expense should the company report for the current period?

Age of Receivables A/R Balance Estimated % uncollectible

Current $12,100 1%

30-60 days past due 2,640 3%

61-90 days past due 1,870 6%

Over 90 days past due 924 10%

A) $7,260 thousand

B) $ 405 thousand

C) $ 121 thousand

D) $ 284 thousand

E) There is not enough information to determine the amount.

34. The year-end financial statements of Rally Company for the current year, report total revenues of
$19,829 million, accounts receivable of $1,399 million at the current year-end, and $1,318 million for
the prior year-end..

The company’s accounts receivable turnover for the year is:

A) 14.6 times

B) 14.2 times

C) 15.0 times

D) 15,4 times

E) None of these are correct.

35. On its annual income statement, Star Laboratories reported research and development expense of
$1,564,200,000.

Which of the following statements must be true?

A) Star Laboratories spent $1,564,200,000 in cash to develop new products and improve old
products.

B) Research and development expense reduced Star Laboratories annual net income by
$1,564,200,000.

C) Star Laboratories capitalized at least $1,564,200,000 of research and development costs in for
the year.

D) The 1,564,200,000 included amortized research and development costs from prior years that
were not previously expensed, because Star Laboratories incurs such expenses each year.

E) None of these are correct.

36. Other than raw materials and manufacturing overhead, what is the third component of inventories for
manufacturing companies?

A) Direct labor

B) Indirect labor

C) Equipment cost

D) Processing cost

E) All of the above

37. Aiello, Inc. had the following inventory in fiscal year. The company uses the FIFO method of
accounting for inventory.

Beginning Inventory, January 1: 104 units @ $15.00

Purchase 160 units @ $18.00

Purchase 40 units @ $13.50

Purchase 88 units @ $15.75

Ending Inventory, December 31: 96 units

The company’s cost of goods sold for fiscal year is:

A) $4,926.00
 B) $4,854.00

C) $4,244.60

D) $4,872.00

E) None of these are correct.

38. The year-end financial statements of Collette, Inc. reported the following information (in thousands):

Year 2 Year 1

Cost of sales $1,441,527 $1,453,051

Inventories, net 585,764 546,745
LIFO reserve 4,345 4,094

The Year 2 average days inventory outstanding is:

A) 148.3 days

B) 143.4 days

C) 142.8 days

D) 144.4 days

E) None of these are correct.

39. The year-end financial statements of City Health Corporation reported the following information (in
millions):

Year 2 Year 1

Net sales $168,650 $145,626

Cost of sales 141,236 120,424

Inventories, net 14,760 14,001

The inventory turnover ratio for Year 2 is:

A) 9.82

B) 11.73

C) 9.57

D) 9.10
E) None of these are correct.
40. Car Facts Inc. reports sales of $15,081,362 thousand and cost of sales of $13,691,824 thousand for
the fiscal year ended February 28.

The gross profit for the year is:

A) $1,391,144 thousand

B) $1,389,538 thousand

C) 9.20%

D) 90.8%

E) There is not enough information to determine gross profit.

41. Hasten Corporation has the following metrics for the yera.

Amount in days

Days sales outstanding 34.7

Days payables outstanding 23.6

Days inventory outstanding 56.1

The cash conversion cycle for the year is:

A) 2.2 days

B) 58.3 days

C) 67.2 days

D) 45.0 days

E) None of these are correct.

42. Which of the following estimates are not always required when calculating depreciation expense?
Select all that apply.

A) Depreciation rate

B) Useful life

C) Depreciation method

D) Salvage value

E) None of these are correct.

43. Central Supply purchased a new printer for $64,125. The printer is expected to operate for nine (9)
years, after which it will be sold for salvage value (estimated to be $6,413).

How much is the first year’s depreciation expense if the company uses the double-declining-balance
method?

A) $14,250

B) $ 7,125

C) $17,100

D) $12,825

E) None of these are correct.

44. One difference between straight-line and double-declining-balance depreciation methods is that:

A) Straight-line method will fully depreciate the asset more quickly.

B) Double-declining-balance method will fully depreciate the asset more quickly.

C) Income taxes paid will be lower under the double-declining-balance method.

D) Losses on disposal will be lower under the straight-line method.

E) None of these are correct.

45. Contingent Liabilities must have the following criteria – select all that apply.

A) The obligation is certain to require payment at some point in the future.

B) The obligation will probably require payment at some point in the future.

C) The obligation is estimable.

D) The obligation will possibly require payment at some point in the future.

E) None of these are correct.

46. Which of the following does not affect the current liabilities section of the balance sheet?

A) Purchase of inventory on credit

B) Wages owing to employees but not yet paid

C) Insurance bill to be paid next month

D) Sale of goods on credit

E) A probable legal obligation, due within 12 months

47. Which one of the following would be considered a contingent liability?

A) A company estimates that it will probably have to pay $75,000 to the EPA for a chemical spill.

B) A company owes $35,000 on inventories purchased on credit.

C) A company has access to a line of credit with a bank in the amount of $120,000.

D) A company believes that it is reasonably possible it will lose a lawsuit and damages could be
$100,000.

E) None of these are correct.

48. Which of the following would not require the company to record an accrual on the balance sheet?

A) The company owes $43,000 in wages to its employees for the previous two weeks.

B) Interest will be paid when a note payable matures in the following accounting period.

C) Management believes a lawsuit against the company is meritless because they have never had a
single complaint about dangerous side effects of their drug in two years.

D) The company knows that they will be fined for pollution as a result of their manufacturing process
and can estimate the amount of the obligation.

E) None of these are correct.

49. Which of the following does not represent a current liability?

A) Accrual of taxes payable

B) Short-term loan

C) Purchase of inventory on credit

D) Bond issue

E) None of these are correct.

50. EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all
scooters. During the year, the company recorded net sales of $1,520 million. Historically, about 4% of
all sales are returned under warranty and the cost of repairing and or replacing goods under warranty
is about 30% of retail value. Assume that at the start of the year EZ Wheels’ balance sheet included
an accrued warranty liability of $13.0 million and at the end of the year the accrued warranty liability
balance was $9.9 million.

What was EZ Wheels Corporation’s warranty expense for the year?

A) $21.3 million

B) $60.8 million

C) $18.2 million

D) $ 9.9 million

E) None of these are correct.

51. EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all
scooters. During the year, the company recorded net sales of $1,520 million. Historically, about 4% of
all sales are returned under warranty and the cost of repairing and or replacing goods under warranty
is about 30% of retail value. Assume that at the start of the year EZ Wheels’ balance sheet included
an accrued warranty liability of $13.0 million and at the end of the year the accrued warranty liability
balance was $9.9 million.

How much did EZ Wheels pay during the year to repair and/or replace scooters under warranty?

A) $ 9.9 million

B) $21.3 million

C) $18.2 million

D) $60.8 million

E) None of these are correct.

52. Chang, Inc. issued a 120-day note in the amount of $288,000 on December 16 of this year with an
annual rate of 5%. What amount of interest has accrued as of December 31 of this year?

A) $ 600.00

B) $ 591.78

C) $ 580.65

D) $4,800.00

E) $4,734.25

53. Chang, Inc. issued a 3-month note in the amount of $288,000 on December 16 of this year with an
annual rate of 5%. What amount of interest has accrued as of December 31 of this year?

A) $3,600

B) $1,140

C) $ 950

D) $1,200

E) $3,420
54. On January 1, Bloomingdale, Inc. borrows $73,600 from First Estate Bank. The loan is due in one
year along with 4% interest. The company is preparing its quarterly report for March 31. Which of the
following best describes the necessary accrual for interest expense?

A) $ 736 increase liabilities, increase expenses

B) $2,944 decrease liabilities, decrease cash

C) $2,944 increase expenses, decrease cash

D) $2,944 increase liabilities, decrease expenses

E) $ 736 decrease liabilities, decrease cash

55. Hudson Corp. sells $240,000 of bonds to private investors. The bonds have a 7% coupon rate and
interest is paid semiannually. The bonds were sold to yield 10%.

What periodic interest payment does Hudson make to its investors?

A) $ 8,400

B) $24,000

C) $16,800

D) $12,000

E) None of these are correct.

56. Pinto Corp. sells $240,000 of bonds to private investors. The bonds have a 4% coupon rate and
interest is paid semiannually. The bonds were sold to yield 5%.

What periodic interest payment does Pinto make to its investors?

A) $6,000

B) $3,000

C) $2,400

D) $4,800

E) None of these are correct.

57. Why might a company repurchase its own stock?

A) It believes that the market undervalues its shares

B) To offset dilutive effects of employee stock options granted

 C) To recognize an economic gain when the treasury shares are later sold for a profit

D) To improve earnings per share by reducing the denominator

E) All of the above

58. Which best describes par value for a stock?

A) An arbitrary amount set by the company for each share of stock

B) The value of the stock if it is not sold for a premium or discount

C) The current market value of the stock

D) The value at which stock shares were originally issued

E) None of these are correct.

59. Which one of the following items is not a component of contributed capital?

A) Preferred stock

B) Retained earnings

C) Common stock

D) Additional paid-in capital

E) All of the above

60. In June, Newcastle Inc. announced a 3-for-1 stock split. On the split date, Newcastle had about 65.5
million shares outstanding.

After the split the number of shares outstanding was:

A) 21.8 million

B) 131.0 million

C) 196.5 million

D) 43.7 million

E) None of these are correct.