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

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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

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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

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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
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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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