Welcome!

AC 115 Final Review Session

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Presented by The Geek Squad

25 April 2024 1
 The Geek Squad — Who We Are
We are a team of Undergraduate Academic Services Peer Tutors who collaborate with
academic departments to create review material for the following courses:

AC 115, AC 201, EC 111, FI 118, and MA 105

We present comprehensive review sessions in a question-and-answer format to help

prepare students for their exams

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Fill in the Blank
1. For cases A-E, fill in the blanks.

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Fill in the Blank
1. For cases A-E, fill in the blanks.

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FIFO vs. LIFO Application
2. The CFO of the Geek Squad (a public company) would like to maximize the chances of
beating EPS estimates next quarter. Assuming that costs are increasing, what type of
inventory management system should the firm utilize to achieve this goal?

A. LIFO
B. FIFO
C. The firm is indifferent
D. There is not enough information

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FIFO vs. LIFO Application
2. The CFO of the Geek Squad (a public company) would like to maximize the chances of
beating EPS estimates next quarter. Assuming that costs are increasing, what type of
inventory management system should the firm utilize to achieve this goal?

A. LIFO
B. FIFO
C. The firm is indifferent
D. There is not enough information

FIFO reduces COGS and thereby increases NI and EPS

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FIFO Case
3. Assume that The Geek Squad uses FIFO and makes the below purchases. It then sells
three units. Find ending inventory and cost of goods sold.

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FIFO Case
3. Assume that The Geek Squad uses FIFO and makes the below purchases. It then sells
three units. Find ending inventory and cost of goods sold.

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Inventory Ratios
4. Over the past accounting period, the Geek Squad has had COGS of $325 million and
average inventory of $25 million. What is the company’s inventory turnover and days’
sales in Inventory? Interpret your results.

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Inventory Ratios
4. Over the past accounting period, the Geek Squad has had COGS of $325 million and
average inventory of $25 million. What is the company’s inventory turnover and days’
sales in Inventory? Interpret your results.

Inventory turnover = $325 million / $25 million = 13

Interpretation = On average, the firm sells off its inventory 13 times per year

Days’ sales in inventory = 365 days / 13 times per year = 28.08

Interpretation = On average, it takes the firm about 28 days to sell of its inventory

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Cost of Goods Sold
5. The Geek Squad sells review material. On March 1st, the company sold materials
worth $2,000. The materials were originally purchased for $1,200. This sale was made
on account. How should The Geek Squad record this transaction in its accounting
records?

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Cost of Goods Sold
5. The Geek Squad sells review material. On March 1st, the company sold materials
worth $2,000. The materials were originally purchased for $1,200. This sale was made
on account. How should The Geek Squad record this transaction in its accounting
records?

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Purchasing Inventory
6. The Geek Squad purchases $5,000 worth of review material on account. It will sell the
review material to students in the future, and it is classified as inventory on the
balance sheet. Which of the following is true of this specific transaction?

A. Net income decreases by $5,000

B. Inventory increases by $5,000
C. Cash flow decreases by $5,000
D. Net income does not change
E. A and B
F. B, C, and D

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Purchasing Inventory
6. The Geek Squad purchases $5,000 worth of review material on account. It will sell the
review material to students in the future, and it is classified as inventory on the
balance sheet. Which of the following is true of this specific transaction?

A. Net income decreases by $5,000

B. Inventory increases by $5,000
C. Cash flow decreases by $5,000
D. Net income does not change
E. A and B
F. B, C, and D

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Ratio Analysis
7. Find the Return on Assets ratio and the Asset Turnover Ratio. What do higher Return
on Asset and Asset Turnover Ratios indicate?

Net Income = $34,950

Beginning Total Assets = $274,596
Ending Total Assets = $189,938
Beginning Total Liabilities = $395,394
Ending Total Liabilities = $390,053
Net Sales = $90,920
Operating Expenses = $46,093

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Ratio Analysis
7. Find the Return on Assets ratio and the Asset Turnover Ratio. What do higher Return
on Asset and Asset Turnover Ratios indicate?

Net Income = $34,950 ROA = NI/Avg. Total Assets

Beginning Total Assets = $274,596 Asset Turnover = Sales/Avg. Total Assets
Ending Total Assets = $189,938 Avg. Total Assets = (274,596 +
Beginning Total Liabilities = $395,394 189,938)/2 = 232,267
Ending Total Liabilities = $390,053 ROA = 34,950/232,267 = 0.15
Net Sales = $90,920 Asset Turnover = 90,920/232,267 = 0.39
Operating Expenses = $46,093

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Ratio Analysis
8. What do higher Return on Asset and Asset Turnover Ratios indicate?

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Ratio Analysis
8. What do higher Return on Asset and Asset Turnover Ratios indicate?

Higher ROA = more efficient use of assets (Efficient use of assets)

Higher Asset Turnover Ratio = higher level of sales revenue generated for each
dollar invested in assets (effective use of assets)

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Depreciation
9. Which of the following do we NOT depreciate?

A. Equipment
B. Buildings
C. Machinery
D. Land

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Depreciation
9. Which of the following do we NOT depreciate?

A. Equipment
B. Buildings
C. Machinery
D. Land

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Depreciation Calculation
10. What would the balances be in the depreciation expense account for Year 1 and Year
2 using the straight-line method? What would the net book value be for Year 1
and Year 2 be? The fiscal year ends on December 31st.

Purchase a machine for $150,000 in the middle of Year 1 (on July 1st).
Salvage Value of machine is $50,000
Useful Life of Asset is 5 years

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Depreciation Calculation
10. What would the balances be in the depreciation expense account for Year 1 and Year
2 using the straight-line method? What would the net book value be for Year 1
and Year 2 be? The fiscal year ends on December 31st.

(150,000 – 50,000)/5 = 20,000 is the annual depreciation expense

End of Year 1: Depreciation Expense = 20,000/2 = 10,000 (halfway through year)
End of Year 1: Net Book Value = 150,000 – 10,000 = 140,000
End of Year 2: Depreciation Expense = 20,000
End of Year 2: Net Book Value = Purchase Price – Accumulated Depreciation =
=150,000 – 20,000 – 10,000 = 120,000

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Depreciation Expense
11. The Geek Squad Corporation purchased a piece of machinery for $100,000 on April
1st, 2022. The machinery has an estimated useful life of 5 years and a residual value
of $10,000. The Corporation uses the straight-line method for depreciation. What is
the depreciation expense recognized for the fiscal year ended December 31st, 2022.
A. $18,000
B. $13,500
C. $22,500
D. $15,250

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Depreciation Expense
11. The Geek Squad Corporation purchased a piece of machinery for $100,000 on April
1st, 2022. The machinery has an estimated useful life of 5 years and a residual value
of $10,000. The Corporation uses the straight-line method for depreciation. What is
the depreciation expense recognized for the fiscal year ended December 31st, 2022.
A. $18,000
B. $13,500
C. $22,500
D. $15,250
Cost of the asset = $100,000, Residual value = $10,000, Useful life = 5 years
Annual Depreciation Expense = (Cost of the Asset−Residual Value)/Useful Life
= ($100,000−$10,000)/5
= $18,000 à only ¾ of the year, so 18,000 * 0.75 = 13,500

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Equipment
12. The Geek Squad purchases a state-of-the-art classroom projector for $10,000.
Shipping and handling fees amount to $300, while installation costs are $850. Which
of the following will result from this purchase?

A. Plant, property, and equipment increases by $10,000

B. Plant, property, and equipment increases by $11,150
C. Expenses increase by $1,150
D. Plant, property and equipment increases by $10,850
E. Expenses increase by $300
F. A and C
G. D and E

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Equipment
12. The Geek Squad purchases a state-of-the-art classroom projector for $10,000.
Shipping and handling fees amount to $300, while installation costs are $850. Which
of the following will result from this purchase?

A. Plant, property, and equipment increases by $10,000

B. Plant, property, and equipment increases by $11,150
C. Expenses increase by $1,150
D. Plant, property and equipment increases by $10,850
E. Expenses increase by $300
F. A and C
G. D and E

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Change in Depreciation
13. The Geek Squad made a mistake in its depreciation calculation. After the calculation
is updated, depreciation expense increases by $100. How will this affect each of the
four financial statements?

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Change in Depreciation
13. The Geek Squad made a mistake in its depreciation calculation. After the calculation
is updated, depreciation expense increases by $100. How will this affect each of the
four financial statements?

Income Statement – depreciation expense increases by $100, so NI is down by $100

Cash Flow Statement – NI is down by $100, but depreciation is added back.
Therefore, change is cash is: -100 + 100 = 0
Balance Sheet – Retained earnings down by $100, so equity is down by $100. PPE is
down by $100 (contra asset account) so assets are down by $100.
Stockholder’s Equity – Retained earnings down by $100, so total stockholder’s equity
is also down by $100

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Debt and Equity
14. Which of the following is true regarding the differences between debt and equity?

A. Dividends are tax deductible whereas interest is not

B. Double taxation is involved in the issuance of dividends, but not debt
C. Debt holders have a claim to earnings, while equity holders do not
D. Equity holders are prioritized ahead of debt holders in the case of liquidation

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Debt and Equity
14. Which of the following is true regarding the differences between debt and equity?

A. Dividends are tax deductible whereas interest is not

B. Double taxation is involved in the issuance of dividends, but not debt
C. Debt holders have a claim to earnings, while equity holders do not
D. Equity holders are prioritized ahead of debt holders in the case of liquidation

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Classes of Stock
15. What is the difference between preferred and common stock?

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Classes of Stock
15. What is the difference between preferred and common stock?

Common stockholders have voting rights and are the last to be paid in the event of
liquidation of the company (Bankruptcy), and no guarantee of dividends.

Preferred Stockholders have limited or no voting rights, have guaranteed dividends

that will be paid.

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Common Stock
16. The Geek Squad Corporation issues 1,000 shares of its common stock at a price of
$15 per share. The par value of the stock is $5 per share. Show how this effects the
balance sheet.

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Common Stock
16. The Geek Squad Corporation issues 1,000 shares of its common stock at a price of
$15 per share. The par value of the stock is $5 per share. Show how this effects the
balance sheet.

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Dividends
17. On April 1, Geek Squad Corporation declared a cash dividend of $1.00 per share on its
10,000 outstanding shares of common stock, to be paid on May 15 to shareholders of
record on April 15. Which of the following transactions correctly reflects the
declaration of this dividend?
A. April 15: Decrease Retained Earnings $10,000; Increase Dividend Payable $10,000.
B. May 15: Decrease Dividend Payable $10,000; Decrease Cash $10,000.
C. April 15: Increase Dividends $10,000; Increase Retained Earnings $10,000.
D. April 15: Decrease Retained Earnings $10,000; Decrease Cash $10,000.

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Dividends
17. On April 1, Geek Squad Corporation declared a cash dividend of $1.00 per share on its
10,000 outstanding shares of common stock, to be paid on May 15 to shareholders of
record on April 15. Which of the following transactions correctly reflects the
declaration of this dividend?
A. April 15: Decrease Retained Earnings $10,000; Increase Dividend Payable $10,000.
B. May 15: Decrease Dividend Payable $10,000; Decrease Cash $10,000.
C. April 15: Increase Dividends $10,000; Increase Retained Earnings $10,000.
D. April 15: Decrease Retained Earnings $10,000; Decrease Cash $10,000.

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Dividends
18. On April 1, Geek Squad Corporation declared a cash dividend of $1.00 per share on its
10,000 outstanding shares of common stock, to be paid on May 15 to shareholders of
record on April 15. Which of the following transactions correctly reflects the payment
of this dividend?
A. April 15: Decrease Dividend Payable $10,000; Decrease Cash $10,000.
B. May 15: Decrease Dividend Payable $10,000; Increase Retained Earnings $10,000.
C. May 15: Decrease Dividend Payable $10,000; Decrease Cash $10,000.
D. May 15: Decrease Retained Earnings $10,000; Increase Dividends $10,000.

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Dividends
18. On April 1, Geek Squad Corporation declared a cash dividend of $1.00 per share on its
10,000 outstanding shares of common stock, to be paid on May 15 to shareholders of
record on April 15. Which of the following transactions correctly reflects the payment
of this dividend?
A. April 15: Decrease Dividend Payable $10,000; Decrease Cash $10,000.
B. May 15: Decrease Dividend Payable $10,000; Increase Retained Earnings $10,000.
C. May 15: Decrease Dividend Payable $10,000; Decrease Cash $10,000.
D. May 15: Decrease Retained Earnings $10,000; Increase Dividends $10,000.

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Dividend Payout Ratio
19. The Geek Squad has the below information for the 2021 fiscal year. The dividend
payout ratio remained the same for 2022. Find dividends paid and the change in
retained earnings for 2022.

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Dividend Payout Ratio
19. The Geek Squad has the below information for the 2021 fiscal year. The dividend
payout ratio remained the same for 2022. Find dividends paid and the change in
retained earnings for 2022.

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Forgotten Entry
20. What if The Geek Squad forgets to record the cash purchase of $5,000 worth of
inventory? How would this omission affect the company's income statement, balance
sheet, and cash flow statement?

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Forgotten Entry
20. What if The Geek Squad forgets to record the cash purchase of $5,000 worth of
inventory? How would this omission affect the company's income statement, balance
sheet, and cash flow statement?

Income statement – unaffected, because the inventory has not been sold anyways
Balance sheet – inventory is understated, and cash is overstated
Cash flow statement – cash flow from operating activities is overstated

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Income Statement Blanks
21. Fill in the blanks for 2024. Gross margin percentage, operating margin percentage and
income tax rate have all remained the same since 2023.

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Income Statement Blanks
21. Fill in the blanks for 2024. Gross margin percentage, operating margin percentage and
income tax rate have all remained the same since 2023.

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Allowance Calculation
22. Geek Squad has $130,000 in credit sales YTD. It estimates 1% as uncollectible under
the credit sales method and uses the below percentages with the A/R aging method.
Current A/R is listed below. Beginning balance of AFDA is $800. Find bad debt
expense and allowance for doubtful accounts balance using the A/R aging method.

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Allowance Calculation
22. Geek Squad has $130,000 in credit sales YTD. It estimates 1% as uncollectible under
the credit sales method and uses the below percentages with the A/R aging method.
Current A/R is listed below. Beginning balance of AFDA is $800. Find bad debt
expense and allowance for doubtful accounts balance using the A/R aging method.

Bad debt expense = 2,050.34 - 800 = 1,250.34

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Credit Sales Method
23. Geek Squad has $130,000 in credit sales YTD. It estimates 1% as uncollectible under
the credit sales method and uses the below percentages with the A/R aging method.
Current A/R is listed below. Beginning balance of AFDA is $800. Find bad debt
expense and allowance for doubtful accounts balance using the credit sales method.

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Credit Sales Method
23. Geek Squad has $130,000 in credit sales YTD. It estimates 1% as uncollectible under
the credit sales method and uses the below percentages with the A/R aging method.
Current A/R is listed below. Beginning balance of AFDA is $800. Find bad debt
expense and allowance for doubtful accounts balance using the credit sales method.

Bad debt expense = 0.01 · 130,000 = $ 1,300

Balance of account = 800 + 1,300 = $ 2,100

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Cash Conversion Cycle
24. Using the below information, calculate the cash conversion cycle. Is a shorter or
longer cash conversion cycle better?

Cost of Goods Sold = $20,400

Average Inventory = $560
Net Sales = $38,500
Average Accounts Receivable = $2,700
Average Accounts Payable = $870
365 days in the year

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Cash Conversion Cycle
24. Using the below information, calculate the cash conversion cycle. Is a shorter or
longer cash conversion cycle better?

Cost of Goods Sold = $20,400

Average Inventory = $560
Net Sales = $38,500
Average Accounts Receivable = $2,700
Average Accounts Payable = $870
365 days in the year
= 10.01 + 25.60 - 15.57 = 20.05
Shorter cycle is better

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Earnings Per Share
25. The Geek Squad is considering an investment in Tesla. Calculate 2022 diluted EPS.

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Earnings Per Share
25. The Geek Squad is considering an investment in Tesla. Calculate 2022 diluted EPS.

EPS = Net income/ shares outstanding

$12,587 / 3,475 = 3.622

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Price to Earnings
26. The market price per share is $236.08. What is the P/E ratio?

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Price to Earnings
26. The market price per share is $236.08. What is the P/E ratio?

P/E ratio = market price per share / EPS = 236.08 / 3.622 = 65.179

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Vertical Analysis
27. Conduct a vertical analysis on the Geek Squad’s balance sheet.

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Vertical Analysis
27. Conduct a vertical analysis on the Geek Squad’s balance sheet.

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Indirect v. Direct Method
28. What are the differences and similarities of the indirect and direct approaches to the
cash flow statement?

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Indirect v. Direct Method
28. What are the differences and similarities of the indirect and direct approaches to the
cash flow statement?

Differences: Direct method involves directly listing all cash inflows and outflows
from operating activities, whereas the indirect method starts from net
income and adjusts for non-cash expenses and changes in working
capital to reach net change in cash from operating activities.

Similarities: Cash flow from financing and investing activities is essentially the
same for both methods. Outflows and inflows of cash are listed
directly, and the net change in cash is calculated at the end.

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Cash Flow
29. Why might cash flows be more useful than the income statement for the purpose of
evaluating a firm’s financial success?

A. Cash flows provide a more accurate representation of a company's liquidity and

ability to meet short-term obligations.
B. The income statement primarily focuses on historical performance, whereas cash
flows provide insights into a company's future financial prospects.
C. The income statement cannot show sales before cash is collected, so the income
statement and cash flows are equal in evaluating financial success.
D. The cash flow statement does not adjust for non-cash items, and it shows only
how operating activities affect cash.

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Cash Flow
29. Why might cash flows be more useful than the income statement for the purpose of
evaluating a firm’s financial success?

A. Cash flows provide a more accurate representation of a company's liquidity and

ability to meet short-term obligations.
B. The income statement primarily focuses on historical performance, whereas cash
flows provide insights into a company's future financial prospects.
C. The income statement cannot show sales before cash is collected, so the income
statement and cash flows are equal in evaluating financial success.
D. The cash flow statement does not adjust for non-cash items, and it shows only
how operating activities affect cash.

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Cash Flow
30. Classify the following accounts as operating, investing, or financing cash flows and
indicate if they increase or decrease cash flow. Find the total for each category.

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Cash Flow
30. Classify the following accounts as operating, investing, or financing cash flows and
indicate if they increase or decrease cash flow. Find the total for each category.

Operating = 100 + 50 +
+ 100 + 180 + (-100) +
50 + 50 = $430

Investing = -$400

Financing = (-100) +
170 = $70

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Thank you for coming!
Please be sure to fill out the Review
Form before leaving. Once you submit
the form, the slides and answers will
automatically be emailed to you.

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Bonus Question
31. You have the below three statements available for a company. You can only choose
two of the three statements. Which two would you choose to best analyze the
performance of the company for the fiscal year of 2022?

2022 Income Statement

2022 + 2021 Balance Sheet (lists both 2022 and 2021 account totals)
2022 Cash Flow Statement

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Bonus Question
31. You have the below three statements available for a company. You can only choose
two of the three statements. Which two would you choose to best analyze the
performance of the company for the fiscal year of 2022?

2022 Income Statement

2022 + 2021 Balance Sheet (lists both 2022 and 2021 account totals)
2022 Cash Flow Statement

Trick question: you would choose the income statement and the 2022 + 2021
balance sheet because you can build the cash flow statement (using the indirect
method) using those two. That way, you have all three statements.

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