BUAD 203 Spring 2022
Practice Final Exam (New Material Only)
Choose the best answer
1. Assume that Warnaco Group Inc. borrowed $100,000 from the bank to be repaid over the next five
years, with principal payments beginning next month. Which of the following
best describes the presentation of this debt in the balance sheet as of today (the date of
borrowing)?
A. $100,000 in the long-term liability section.
B. $100,000 plus the interest to be paid over the five-year period in the long-term liability section.
C. A portion of the $ 100,000 in the current liability section, and the remainder of the principal in
the long-term liability section.
D. A portion of the $100,000 plus interest in the current liability section, and the remainder of the
principal plus interest in the long-term liability section.
2. Assume that Speedo International received $400,000 cash by signing a long-term promissory note.
They are required to make cash interest payments on April 30 and October 31 at an annual rate of
6%. Assuming a 12/31 year end, which of the following journal entries would be required at
December 31.
A. Interest Expense 4,000
Interest Payable 4,000
B. Interest Expense 4,000
Cash 4,000
C. Interest Expense 4,000
Interest Payable 8,000
Cash 12,000
D. Interest Expense 8,000
Interest Payable 4,000
Cash 12,000
3. Which of the following does not impact the cash interest payments to be made to bondholders?
A. Face value of the bond
B. Stated interest rate of the bond
C. Market interest rate
D. The number of payments per year
4. Which of the following is false when bonds are issued at a premium?
A. The bond will have an issue price for an amount above face value
B. Interest expense will exceed the cash payments
C. The market interest rate is lower than the stated interest rate
D. The cash payment will be unaffected by the premium
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
5. To determine if a bond will be issued at a premium or discount, or at face value, one must know
which of the following pairs of information?

A. The face value of the bond and the stated interest rate.
B. The face value and the market interest rate
C. The stated interest rate and the market interest rate on the date the bonds were issued
D. You can’t tell without having more pieces of information

6. Big Hitter Corp is facing a class-action lawsuit in the upcoming year. It is probable the company will
have to pay a settlement of $2,000,000 in the upcoming year. How would this fact be reported, if it
all, in the financial statements at the end of the current year?

A. A loss is immediately recognized on the income statement and a liability is recorded on the
balance sheet.
B. The item is a contingent liability and therefore is not presented in the financial statements
C. The item is presented as a liability on the balance sheet, no gain or loss is recognized because
the settlement has not yet been paid.
D. Only a note is made in the financial statements for the item since it is only probable and not
certain.

7. Failure to make a necessary adjusting entry for accrued interest on a note payable would result in
which of the following?

A. An understatement of both liabilities and stockholders' equity.
B. Net income to be overstated and assets to be understated.
C. Net income to be understated and liabilities to be understated.
D. An overstatement of net income, an understatement of liabilities, and an overstatement of
stockholders' equity.

8. Which of the following statements is incorrect?

A. The currently maturing portion of long-term debt must be classified as a current liability.
B. The non-current portion of long-term debt will remain reported as a long-term liability.
C. Debt is classified as long- or short-term based on the final maturity date, regardless of when
intermediate cash payments are due.
D. The currently maturing portion of long-term debt is a current liability if it is due within the
longer of one-year or the operating cycle.
9. Which feature is not typically applicable to common stock ownership?
A. Right to receive dividends before preferred stock shareholders
B. Right to vote for members of the board of directors
C. Right to receive residual assets of the company should it cease operations
D. All of the above
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
10. Which of the following about stock splits is true?
A. Stock splits are reported on the income statement
B. Stock splits increase total stockholder’s equity
C. Stock splits decrease total stockholder’s equity
D. None of the above
11. If the balance in Prepaid Expenses increased during the year, what action should be taken on the
statement of cash flows when following the indirect method, and why?
A. The change in the account balance should be subtracted from net income, because the net
increase in Prepaid Expenses did not impact net income but did reduce the cash balance.
B. The change in the account balance should be added to net income, because the net increase in
Prepaid Expenses did not impact net income but did increase the cash balance.
C. The net change in Prepaid Expenses should be subtracted from net income, to reverse the
income statement effect that had no impact on cash.
D. The net change in Prepaid Expenses should be added to net income, to reverse the income
statement effect that had no impact on cash.
12. The total change in cash as shown near the bottom of the statement of cash flows for the year
should agree with which of the following?
A. The difference in retained earnings when reviewing two years of balance sheets
B. Net income or loss as found on the income statement
C. The difference in cash when comparing two years of balance sheets
D. None of the above
13. RKJ Company has provided the following:
• 100,000 shares of $5 par value common stock are authorized;
• 70,000 shares have been issued;
• 55,000 shares are outstanding.
Which of the following statements is correct?
A. RKJ has 35,000 shares of treasury stock.
B. RKJ has 30,000 shares of treasury stock.
C. RKJ has 15,000 shares of treasury stock.
D. None of the above.
14. When treasury stock is purchased with cash, what is the impact on the balance sheet equation?
A. No change: The reduction of the asset cash is offset with the addition of the asset treasury
stock.
B. Assets decrease and stockholders’ equity increases.
C. Assets increase and stockholders’ equity decreases.
D. Assets decrease and stockholders’ equity decreases.
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
15. A company issued 100,000 shares of stock with a par value of $1 per share. The stock sold for $20
per share. By what amount will stockholders’ equity increase?
A. $100,000
B. $2,000,000
C. $1,900,000
D. No change
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Equity
On January 1, 2018, the stockholders' equity section of Gibbons Corporation's balance sheet reported
the following:
Common stock, par $10, 100,000 authorized, 10,000 issued $100,000
Additional paid in capital 50,000
Retained earnings 160,000
During 2018, the following selected transactions occurred (assume they occurred in the order given):
(1) Announced a 2-for-1 stock split.
(2) 200 shares of treasury stock were purchased at $11 per share.
(3) Declared and paid a cash dividend of $19,800.
(4) Net income was $30,000.
Prepare the stockholders' equity section of the balance sheet as of December 31, 2018
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Bond Payable
On January 1, 2018, Brunswick Corporation issued 100, 3-year bonds with a stated rate of 12%. At the
time of issuance, similar bonds had an interest rate of 10%. Assume coupon payments every six months
and a $1,000 face value per bond. Prepare a journal entry for the bond issuance on 1/1/2018 and the
final two journal entries required on December 31st of 2020.
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Statement of Cash Flows
Below are the Balance Sheets for December 31, 2017 and December 31, 2018 and the Income
Statement for the Year Ended December 31, 2018 for Spence & Stiglitz, Inc.:
Spence & Stiglitz, Inc.
Balance Sheet
12/31/2018 12/31/2017
Assets
Cash 35,000 13,500
Accounts Receivable (net) 25,000 22,500
Inventory 28,000 31,000
Prepaid Rent 3,000 1,500
Total Current Assets 91,000 68,500
Land 10,000 25,000
PPE (gross) 170,000 185,000
less: Accumulated Depreciation (20,000) (19,000)
Total Assets 251,000 259,500
Liabilities & Stockholders' Equity
Accounts Payable 23,000 20,000
Unearned Revenue 10,000 16,000
Dividends Payable 1,500 0
Total Current Liabilities 34,500 36,000
Bonds Payable 85,000 78,000
Other Long Term Liabilities 10,000 0
Total Liabilities 129,500 114,000
Common Stock 105,000 90,000
Retained Earnings 16,500 55,500
Total Liabilities & Stockholders' Equity 251,000 259,500
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Spence & Stiglitz, Inc.
Income Statement
for the Year Ended 12/31/2018
12/31/2018
Sales Revenue 150,000
Cost of Goods Sold 95,000
Gross Profit 55,000
Bad Debt Expense 2,000
Rent Expense 15,000
Other Operating Expenses 22,000
Depreciation Expense 12,000
Operating Income 4,000
Loss on Sale of Land 2,000
Gain on Sale of PP&E (3,000)
Interest Expense 6,000
Restructuring Expense 10,000
Net Loss (11,000)
Additional information for the year ended December 31, 2018:
• The restructuring charge recorded during the year was a non-cash expense, which resulted in the
accrual of a long term liability for estimated future costs related to reorganization.
• The company purchased new PPE but did not purchase Land during the year.
• During the year the company sold PPE with historical cost of $40,000 and accumulated
depreciation of $11,000.
• The company issued new bonds during the year.
• During the year bonds with face value of $20,000 matured (i.e. principal was paid off).
• The company did not repurchase any stock during the year.
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Prepare the Statement of Cash Flows using the Indirect Method for Cash from Operations for the Year
Ended December 31, 2018. Make sure to show work for calculations.
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Present Value of an Annuity Factors
Interest Rate
# Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091
2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355
3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869
4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699
5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908
6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553
7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684
8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349
9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590
10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446
11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951
12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137
13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034
14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667
15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061
16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237
17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216
18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014
19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649
20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136
21 18.8570 17.0112 15.4150 14.0292 12.8212 11.7641 10.8355 10.0168 9.2922 8.6487
22 19.6604 17.6580 15.9369 14.4511 13.1630 12.0416 11.0612 10.2007 9.4424 8.7715
23 20.4558 18.2922 16.4436 14.8568 13.4886 12.3034 11.2722 10.3711 9.5802 8.8832
24 21.2434 18.9139 16.9355 15.2470 13.7986 12.5504 11.4693 10.5288 9.7066 8.9847
25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 9.0770
BUAD 203 Fall 2019
Practice Final Exam (New Material Only)
Present Value of a Dollar Factors
Interest Rate
# Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091
2 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264
3 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513
4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830
5 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209
6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645
7 0.9327 0.8706 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132
8 0.9235 0.8535 0.7894 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665
9 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241
10 0.9053 0.8203 0.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855
11 0.8963 0.8043 0.7224 0.6496 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505
12 0.8874 0.7885 0.7014 0.6246 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186
13 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897
14 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3405 0.2992 0.2633
15 0.8613 0.7430 0.6419 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.2394
16 0.8528 0.7284 0.6232 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176
17 0.8444 0.7142 0.6050 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978
18 0.8360 0.7002 0.5874 0.4936 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799
19 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635
20 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486
21 0.8114 0.6598 0.5375 0.4388 0.3589 0.2942 0.2415 0.1987 0.1637 0.1351
22 0.8034 0.6468 0.5219 0.4220 0.3418 0.2775 0.2257 0.1839 0.1502 0.1228
23 0.7954 0.6342 0.5067 0.4057 0.3256 0.2618 0.2109 0.1703 0.1378 0.1117
24 0.7876 0.6217 0.4919 0.3901 0.3101 0.2470 0.1971 0.1577 0.1264 0.1015
25 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923