1. (TCO D) Please describe the purpose of the Income Statement and the interrelationship between the income statement and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Income Statement, if any, and which financial statements need to be completed after the Income Statement, if any. (Points : 25)
Question 2. 2. (TCO E) Your friend, Lisa, plans to open a nail salon. Lisa states that she does not have time to develop and implement a system of internal controls.
(a) Explain to Lisa the components of internal control. (10 points)
(b) Explain to Lisa at least 5 internal control procedures she must establish to protect herself against fraud. You should state specific internal control procedures from the textbook, and relate your answer to her nail salon business. (15 points) (Points : 25)
Question 3. 3.(TCO H) ABC Corporation purchased 5, $1,000, 6% bonds of Langley Corporation when the market rate of interest was 8%. Interest is paid semiannually on the bonds, and the bonds mature in 5 years.
Question 4. 4.(TCO A) The following items are taken from the financial statements of PQR Company for 2013:
(1) Create a classified balance sheet in good form for the year ended 2013. (30 points)
(2) Calculate the current ratio and debt ratio and explain your findings. (6 points) (Points : 36)
Question 5. 5.(TCO B) The Alpha Company gathered the following condensed data for the year ended December 31, 2014:
Question 6. 6.(TCO C) This is a 2-part question.
Part 1) Please indicate which section of the statement of cash flows should contain each of the following items, and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing. (30 points)
(a) Sold a building at book value
Part 2) Please explain how to calculate free cash flow, and also explain why some investors have more faith in investing based on free cash flow rather than reported net income. (6 points) (Points : 36)
Question 7. 7.(TCO F) This is a 2-part question.
Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.
(a) The unadjusted balance of the Supplies account is $2,200. The total cost of supplies remaining is $1,000.
Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work. (6 points) (Points : 36)
Question 8. 8.(TCO G) Please review the following 6 ratios for Johnson Company and Lee Enterprises for the year ended 2014, and address the 2 questions below.
(1) Explain the meaning of each of the Johnson Company ratios above. (18 points)
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