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Rider University

Fundamental of Accounting (PMBA 8020)


Fall 2014
Dr. Larry M. Prober
Problem 1 (14 Points)
1. In its 2013 annual report, Kohls Corporation reported the following (in millions):
Total assets
Total shareholders equity
Total liabilities

$13,905
$ 6,048
$ 7,857

What proportion of Kohls Corporation is financed by nonowners?


A)
B)
C)
D)
E)

56.5%
54.2%
43.5%
77.0%
None of the above

2. As inventory and property plant and equipment on the balance sheet are consumed, they are
reflected:
A)
B)
C)
D)
E)

As a revenue on the income statement


As an expense on the income statement
As a use of cash on the statement of cash flows
On the balance sheet because assets are never consumed
Both B and C because the financial statements articulate

3. How would cash collected in advance for services affect the balance sheet?
A)
B)
C)
D)

Increase liabilities and decrease equity


Decrease liabilities and increase equity
Increase assets and increase liabilities
Increase assets and increase equity

4. A statement of cash flows usually does not include which of the following?
A)
B)
C)
D)
E)

Net income
Increase in accounts receivable
Contributed capital
Depreciation expense
None of the above

5. Sams Club (part of the WalMart consolidated operations) collects annual non-refundable membership
fees from customers. When should Sams Club 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 Sams has discharged its obligation to the customer
E) Pro rata over the customers actual purchasing pattern

6. Life Technologies Corporation and Affymetrix Inc. are competitors in the life sciences and clinical
healthcare industry. Following is a table of Total revenue and R&D expenses for both companies.
(in thousands)

Total revenue
R&D expenses

Life Technologies Corporation


2012
2011
2010

2012

Affymetrix Inc
2011

2010

$3,798,510

$3,775,672

$3,588,094

$295,623

$267,474

$310,746

$341,892

$377,924

$375,465

$57,881

$63,591

$67,934

Which of the following is true?


A) Life Technologies Corporation is the more R&D intensive company of the two.
B) Life Technologies Corporation has become more R&D intensive over the three years.
C) Affymetrix is more R&D intensive in 2012 than in 2011.
D) Affymetrix is less R&D intensive in 2012 than in 2011.
E) None of the above
7.

Assume that Barber Co. uses the LIFO inventory costing method for both tax and financial reporting
purposes. The balance sheet reports inventories at $198 million. Then, in its footnotes, the company
reports that inventories would have been $218 million had the company used the FIFO method.
The difference between these two numbers ($20 million) is referred to as:
A) LIFO reserve
B) LIFO conformity rule
C) LIFO holding gain
D) Inventory temporary difference
E) None of the above

Problem 2 (6 Points)
Record the following transactions in the financial statement effects template below:

Balance Sheet

Transaction

Cash Asset +

Noncash
Assets

Liabilities

Income Statement

Contrib.
Capital

Earned
Capital

Revenues Expenses =

Issued stock for


$40,000

Paid $1,850 for


rent

Performed
services for
$2,500 cash

Net
Income

Problem 3 (20 Points)


The following is an alphabetical list of accounts from 2013 financial statements of Collins, Inc. (in
thousands).
Accounts payable
Accrued liabilities
Cash from operating activities
Cash for financing activities
Cash for investing activities
Cash, 12/31/2012
Cash, 12/31/2013
Common stock
Cost of goods sold
Current portion of LT debt
Goodwill
Inventories
Investment income, net
Long-term debt
Long-term receivables

$285,477
479,709
761,780
-629,099
-34,259
140,975
239,397
769,725
3,591,839
832,491
58,800
287,798
27,087
1,180,736
725,957

Marketable securities
Net revenue

733,522
5,824,686

Other long-term assets

172,291

Other non-operating expenses


Other operating income, net
Prepaid expenses
Property and equipment, net
Receivables, net
Retained earnings
SG&A expense
Tax expense
Treasury stock

5,367
210,724
47,501
1,024,469
2,245,415
5,460,629
841,051
581,087
(3,473,617)

Required:
Prepare a balance sheet at December 31, 2013. (You do not need to use all of these accounts)

Problem 4 (8 Points)
Use the accounts below for Stanley Black and Decker to prepare an income statement for the year
ended December 28, 2013. ($ millions)
Cost of goods sold
Sales
Other operating expenses
Selling, general and administrative expenses
Income tax expense
Interest and other nonoperating expenses, net
Net (loss) earnings from discontinued operations
Net (loss) attributable to noncontrolling interests

$7,068.3
11,001.2
497.8
2,700.9
69.3
147.6
(28.0)
(1.0)

Problem 5 (12 Points)


Below are several financial statement items for two grocery chains, Whole Foods Market, an upscale
organic grocer, and The Kroger Co. a mainstream grocer. ($ millions)
a. Calculate each companys return on assets (ROA) and return on equity (ROE). Comment on any
differences you observe.
b. Disaggregate the ROA for each company into profit margin (PM) and asset turnover (AT). Explain
why Whole Foods has a higher ROA, is it because of PM or AT or both?
Whole Foods
The Kroger
Market
Co.
Net income
$ 246
$ 1,133
Sales
9,006
82,189
Average assets
3,885
23,316
Average stockholders equity
2,001
5,112

Problem 5 (6 Points)
James Corporation has aged its accounts receivable and estimated uncollectible accounts as follows
(in millions):
Age of Receivables
Current
30-60 days past due
61-90 days past due
Over 90 days past due
Total

Balance
$5,600
1,400
860
430
$8,290

Estimated % uncollectible
1%
3%
5%
10%

a. Determine the appropriate allowance for uncollectible accounts.


b. How will James Corporation report its accounts receivable on the balance sheet?

Problem 6 (12 Points)


Presented below are select financial data from the General Electric Companys annual report:
Amounts in millions
Balance sheet
Ave. Accounts receivable (net)
Ave. Inventory

Year 1

Year 2

$14,233
9,778

$14,851
10,474

Income statement
Net sales
Cost of goods sold

$84,705
61,759

$92,589
66,814

A. Calculate the following ratios:


1. Accounts receivable turnover
2. Receivable collection period (days)
3. Inventory turnover
4. Inventory-on-hand period (days)
B. Evaluate General Electrics accounts receivable and inventory management.

Problem 7 (10 Points)


Elk Co. has 18 units in beginning inventory (costing $15 each) and purchases 6 more for $18 each.
If Elk sells 10 units, calculate cost of goods sold and ending inventory if the company uses a) FIFO
method, b) average cost method and c) LIFO method.
Since prices are rising, which of the above three methods would produce the highest net income?

Problem 8 (6 Points)
The Lowes Theatre purchased a new projector costing $72,000 on January 1, 2014. Because of
changing technologies, the projector is estimated to last four years after which it will be obsolete and
have a salvage value of $4,000 as a collectors item. Compute the depreciation expense for 2014
using:
a. The straight-line method (SL)
b. Would this amount of depreciation expense in 2014 under (SL) be higher or lower than that
calculated under the double-declining balance method.

Problem 9 (6 Points)
How do companies use accounts receivables to shift income? Explain why managers engage in this
sort of activity.