ACG 2021, Introduction to Financial Accounting, Spring 2001, Exam 3 Final

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2021FINALSP01 5/9/2001 FORM CODE: A
Page 1
ACG 2021 – FINAL EXAM
SPRING 2001
NAME _____________________________________ SS# ____________________________
Instructions:
NOW: Bubble in your section number on your Scan Sheet.
Fill in your name and social security number on this examination and your scan sheet.
1. Listen carefully for any comments your proctor may have related to the exam. Read these instructions
carefully. Failure to do so may result in your losing points.
2. This exam consists of 60 multiple-choice questions. Select the BEST answer and mark the appropriate
space on the scan sheet with a #2 pencil only. You MUST keep your scan sheet face down on the desk
when you are not filling it in.
3. You may use ONLY a non-programmable calculator during the exam. Use of any other calculator will be
considered a violation of the honor code. Your exam will be taken from you and you will receive a grade
of 0.
4. At the end of 2 hours, you will be told to stop. Put your pencils down IMMEDIATELY. Failure to do so
will result in your receiving a zero for the exam.
5. The exam consists of 16 pages, including this cover, present value tables and a blank page at the end.
Make sure you have all pages and all questions.
6. Have your University of Florida Identification card ready to be checked when you turn in your exam.
7. Assume the accounting entities use a calendar year unless otherwise noted.
8. Unless otherwise specified, assume a 360-day year.
9. When you are finished, turn in your scan sheet, as well as your exam. Answers will be posted on the web
after the exams are handed back in class.
10. The University of Florida policy on academic honesty will be strictly enforced.
When you are told to open your exam, turn to the first
page and find your exam form code. Immediately bubble
this in on your scantron.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 2
1. Which of the following is usually NOT considered to be a long-term liability?
A) Bonds payable.
B) Mortgages payable.
C) Accrued post-retirement benefits.
D) FICA taxes payable.
E) None of the above is correct.
2. The effect on total assets of the purchase of supplies for cash is
A) an increase in total assets
B) a decrease in total assets
C) total assets remain unchanged
D) an increase in total assets and total liabilities
E) an increase in total assets and current ratio
3. Which of the following is not normally a condition that must be met for revenue to be recognized
(recorded) under the revenue principle?
A) The earnings process is complete or nearly complete

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B) The promise to perform an exchange in the future has been made
C) Collection of receivables from credit sales is reasonably assured
D) All of the above are conditions that must be met to record revenue as earned
4. Bailey Corporation reported the following information for 2001
Net income………………………………... $10,000
Total assets………………………………... 16,000
Total stockholders’ equity………………… 8,000
Bailey's debt/equity ratio was
A) .33 or 33%.
B) 1.25 or 125 %.
C) 1.0 or 100%.
D) 3.0 or 300%.
E) None of the above is correct.
5. The secondary quality--comparability--assumes that
A) users can compare financial data across businesses.
B) accounting procedures should be applied the same from year to year.
C) accounting data should be supported by documents when possible.
D) accounting data should be based on objective data and transactions.
E) None of the above is correct.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 3
6. When prices are rising:
A) LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B) LIFO will result in higher net income and lower inventory valuation than will FIFO.
C) FIFO will result in lower net income and a lower inventory valuation than will LIFO.
D) FIFO will result in higher net income and a higher inventory valuation than will LIFO.
E) None of the above is correct.
7. A machine, acquired for a cash cost of $6,000, is being depreciated on a straight-line basis of $900 per
year. The residual value was estimated to be 10% of cost. The estimated useful life is
A) 3 years.
B) 4 years.
C) 5 years.
D) 6 years.
E) None of the above is correct.
8. At the end of 2001, Storage Company reported outstanding common stock (par $20) of $300,000. Total
liabilities were $440,000 and total assets were $860,000. The company had no preferred stock. The book
value per share of common stock was
A) $29.00.
B) $13.90.
C) $28.00.
D) $14.00.
E) None of the above is correct.
9. Bush Company purchased 30% of the outstanding preferred stock (nonvoting) of Harris Corporation as a
long-term investment. Which of the following methods should be used by Bush Company in accounting
for the investment?
A) Market value method.
B) Equity method.
C) Purchase method.
D) Because the stock is nonvoting, either the market value or the equity method is acceptable.
E) None of the above is correct.
10. Which of the following would not cause stockholders' equity to change?
A) Sale of additional stock to investors.
B) Earning revenue for services performed.
C) Collection of an account receivable.
D) Declaration of a cash dividend to stockholders.
E) None of the above is correct.
2021FINALSP01 5/9/2001 FORM CODE: A
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11. In the case of a cash dividend, a dividend liability comes into existence on the
A) date of declaration.
B) date of record.
C) date of dividend payment.
D) last day of the month in which the dividend is declared.
E) None of the above is correct.
12. Which of the following ratios usually is not considered to be a test of profitability?
A) Current ratio.
B) Profit margin.
C) Return on assets.
D) Earnings per share.
E) None of the above is correct.
13. Allen Company reported total sales revenue of $150,000 and total expenses of $152,000 (i.e., a net loss
of $2,000) for the year ended December 31, 2001. During 2001, accounts receivable decreased by
$1,000, trade payables increased by $5,000, wages payable increased by $3,000, and $18,000 in
depreciation expense was recorded. Assuming no other adjustments are needed, the "net cash flow from
operating activities for 2001 was (parentheses indicate net cash outflow)
A) $29,000.
B) $25,000.
C) $23,000.
D) ($1,000).
E) None of the above is correct.
14. During 2001, Parnell Corporation purchased 100% of the outstanding voting shares of Jackson
Corporation for $750,000. Jackson's net assets had a book value of $730,000 and a market value of
$735,000. The amount of goodwill that should be recognized on the purchase is
A) $20,000.
B) $15,000.
C) $-0- (zero).
D) $5,000.
E) None of the above is correct.
15. In developing a consolidated balance sheet under the purchase method, which of the following amounts
is not eliminated?
A) Parent's investment account balance for the subsidiary.
B) Subsidiary's common stock account balance.
C) Retained earnings balance of the subsidiary.
D) Mortgage payable at the bank.
E) All of the above are eliminated.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 5
16. The primary difference between revenues and gains is
A) gains are increases in net assets from peripheral activities while revenues are increases from ongoing
activities
B) generally accepted accounting principles makes no distinction between them since they both
increase income
C) revenues cause increases in net assets as a result of peripheral activities and gains cause increases
through ongoing activities
D) both revenues and gains cause a decrease in net assets from ongoing and peripheral transactions
respectively
E) revenues increase cash flow from operations and gains increase cash flow from investments
17. At the end of 2001, the following data were taken from the accounts of Athens Company:
Contributed Capital $ 209,000
Retained earnings, beginning balance January 1, 2001 100,000
Total revenue earned during 2001 190,000
Total expenses incurred during 2001 180,000
Total cash collected during 2001 200,000
The 2001 closing entries would include a
A) $10,000 net credit to Retained earnings.
B) $10,000 net debit to Retained earnings.
C) $190,000 debit to Retained earnings.
D) $180,000 credit to Retained earnings.
E) $10,000 credit to Contributed capital.
Use the following to answer questions 18-20:
During 2001, Oheneba Brothers sold some of its equipment at a loss. The following information was collected
from the company's accounting records:
From the Income Statement:
Depreciation expense $ 700
Loss on sale of equipment 3,000
From the Balance Sheet:
Beginning Equipment 12,500
Ending Equipment 8,000
Beginning Accumulated Depreciation 2,000
Ending Accumulated Depreciation 2,400
No new equipment was bought during 2001. What was the original cost of the equipment that was sold?
18. What was the accumulated depreciation on the equipment that was sold?
A) $1,100
B) $1,000
C) $ 700
D) $ 400
E) $ 300
2021FINALSP01 5/9/2001 FORM CODE: A
Page 6
19. How much cash was received from the sale of the equipment?
A) $ 0
B) $7,500
C) $1,200
D) $4,500
E) $1,500
20. What was the original cost of the equipment that was sold?
A) $4,900
B) $4,700
C) $7,500
D) $4,500
E) none of the above
21. Failure to make a necessary adjusting entry for accrued interest on a note payable would cause
A) an understatement of 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.
E) None of the above is correct.
22. A company with a high merchandise inventory balance would most likely be
A) a hotel.
B) a travel agency.
C) a jewelry store.
D) a law firm.
E) a basketball franchise.
23. On July 1, 2001, Kwaku Company issued $300,000, five-year, 9% bonds at 103. The reason Kwaku
issued the bonds at a premium was
A) the stated rate of interest was higher than the rate being paid on investments with comparable risk.
B) the stated rate of interest was the same as the rate being paid on investments with comparable risk.
C) the stated rate of interest was lower than the rate being paid on investments with comparable risk.
D) the bonds were callable.
E) None of the above is correct.
24. Warner Company borrowed $25,000 cash on November 1, 2001, and signed a six-month, 12% interestbearing
note payable with interest payable at maturity. The amount of accrued interest payable that
should be shown on the 2001 balance sheet is
A) $ 250.
B) $ 300.
C) $ 500.
D) $ 750.
E) $1,250.
2021FINALSP01 5/9/2001 FORM CODE: A
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25. An examination of the financial statements of a business to ensure that they conform with generally
accepted accounting principles is called
A) a certification.
B) an audit.
C) a verification.
D) a validation.
E) a GAAP validation.
26. The ending retained earnings balance of the Brown Hat restaurant chain increased by $4.3 billion from
the beginning of the year. The company had declared a dividend of $1.5 billion. What was the net
income earned during the year?
A) $2.8 billion
B) $5.8 billion
C) $3.0 billion
D) There is no way to determine net income as not enough information was given.
27. Will Company's independent CPA discovered that the ending inventory for 2001 had been overstated by
the company $2,000. Before the correction, what was the effect in the 2001 income statement because
of the overstatement of the ending inventory?
A) Pretax income was understated by $2,000.
B) Cost of goods sold was understated by $2,000.
C) Pretax income was overstated by $2,000.
D) A and B are correct.
E) B and C are correct.
28. A quality of income ratio higher than one is an indicator
A) of a company's high debt position.
B) that fixed assets are the company's most important resources.
C) that a company has cash earnings generated by operations higher than the amount of net income.
D) that a company has too many extraordinary items.
E) that current earnings per share increased over the prior year's earnings per share.
29. If Lynch Corporation sells and issues 100 shares of its $10 par value common stock at $11 per share, the
entry to record the sale will not include a
A) Debit to Cash of $1,100.
B) Credit to Contributed capital in excess of par of $100.
C) Credit to Common stock of $1,000.
D) Credit to Retained earnings of $100.
E) All of the above would be included.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 8
30. How much would Baby Kofi have to deposit in the bank at the end of each of the next five years if she
wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning 6% annual
rate of return? (Round to the nearest dollar).
A) $ 887.
B) $ 943.
C) $1,000.
D) $1,187.
E) $5,000.
31. Knechel Company purchased marketable equity securities for $100,000 as trading securities on
September 29, 2001. At December 31, 2001, the current market value of the securities was $98,000.
How should the investment be reported in the December 31, 2001 financial statements?
A) The investment in trading securities would be reported in the balance sheet at its $100,000 cost.
B) The investment in trading securities would be reported in the balance sheet at its $98,000 market value.
C) An unrealized holding gain on trading securities would be reported in the stockholders' equity
section of the balance sheet.
D) An unrealized holding loss of $2,000 would be reported in the income statement.
E) Both B and D are correct.
32. Guest Corporation issued (sold) 1,000 shares of its no par common stock for $110 per share. The bylaws
established a stated value of $100 per share. The transaction is recorded as an increase in contributed capital of
A) $ 100,000.
B) $ 110,000.
C) $ 10,000.
D) $ 0 (no effect on contributed capital).
E) None of the above is correct.
33. In 1998, PepsiCo reported an accounts payable turnover ratio of 2.49 and Coca-Cola reported a turnover
of 1.74 for that same year. Which of the following statements is true?
A) Coca-Cola pays their vendors in a more timely manner than PepsiCo pays their vendors.
B) On a comparative basis to cost of goods sold, PepsiCo carries more in average payables than does
Coca-Cola.
C) PepsiCo pays their vendors in a more timely manner than Coca-Cola.
D) PepsiCo took approximately 147 days while Coca-Cola took about 210 days to pay vendors.
E) Both C and D are true.
34. Which of the following would not be a cash flow from investing activities?
A) Purchase of long-term investments.
B) Sale of a patent.
C) Collection of principal of a note receivable.
D) Collection of interest revenue on a long-term note.
E) None of the above is correct.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 9
35. Randy, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term investments for
$12,000, received $5,000 of dividend revenue, purchased treasury stock for $15,000, and purchased new
equipment for $19,000. The net cash flow from financing activities would be
A) $70,000.
B) $27,000.
C) $80,000.
D) ($20,000).
E) None of the above is correct.
36. Soda's 1999 statement of cash flows reported the following information. Proceeds from disposals of
investments were $176 million, purchases of investments were $518 million, and equity income from
equity investments net of dividends was $292 million.
How much will be reported as net cash inflow or outflow from investing activities as a result of these
items for 1999?
A) Net cash outflow from investing activities $342 million.
B) Net cash outflow from investing activities $50 million.
C) Net cash inflow from investing activities $342 million.
D) Net cash inflow from investing activities $50 million.
E) Net cash inflow from investing activities $634 million.
37. Negative financial leverage occurs when the
A) average net (after tax) interest rate on borrowed funds is less than the company's earnings rate on its assets.
B) return on assets is more than return on equity.
C) return on equity is more than return on assets.
D) Two of the above are correct.
E) None of the above is correct.
38. Jill Company sold equipment for $100,000, purchased a building for $80,000, sold long-term
investments for $20,000 and repaid a note payable for $25,000 plus $1,500 of interest. The net cash flow
from investing activities was (parentheses indicate an outflow):
A) $15,000.
B) $40,000.
C) ($45,000).
D) $13,500.
E) None of the above is correct.
39. Which of the following statements is true?
A) Passive investments can be either short-term or long-term investments
B) To qualify as a passive investment, the investor cannot own more than 25% of the voting stock in
the investee.
C) All unrealized gains and losses on passive investments must be reported on the income statement for
the year in which their value rises or falls.
D) All of the above are true.
E) None of the above is true.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 10
40. Nunn Company reported the following data:
Quick assets………………... $ 55,000
Current assets………………. 150,000
Total liabilities……………... 300,000
Average net receivables……. 12,600
Beginning inventory……….. 38,000
Long-term liabilities……….. 200,000
Net credit sales……………... 126,000
Cost of goods sold…………. 84,000
Ending inventory…………... 46,000
The current ratio was
A) 0.5 to 1.
B) 1.5 to 1.
C) 2.5 to 1.
D) 0.75 to 1.
E) None of the above is correct.
41. Which of the following statements is false?
A) Dividends received from investment assets increase cash flow from investing activities.
B) Both realized and unrealized gains and losses increase or decrease cash flow from operating
activities.
C) Sale of investment assets is cash inflow from investing activities.
D) None of the above is false.
E) Both A and B are false.
42. On January 1, 2001, Will, Inc., bought 40% of the outstanding shares of Hillary Corporation at a cost of
$137,000. The equity method of accounting for this investment is used. At the end of 2001, Hillary
Corporation reported $30,000 net income and paid $10,000 cash dividends. At the end of 2001, the
shares had a market value of $150,000. This investment should be reported on the balance sheet of Will,
Inc., on December 31, 2001, at
A) $150,000.
B) $158,000.
C) $145,000
D) $148,000.
E) None of the above is correct.
43. In 1999, NASDAQ corporation reported a quality of income ratio of 1.60. In 1998 and 1997 the ratio
was .97 and .98 respectively. Which of the following was the most likely cause of the large increase in
the ratio?
A) An increase in current assets such as receivables and inventory.
B) An increase in accounts payables and accrued liabilities.
C) An increase in sales revenue while income remained the same.
D) Both A and C are the most likely causes.
E) None of them is a likely cause.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 11
44. The conversion feature on convertible preferred stock enables the stockholder to convert it to
A) convertible bonds.
B) cash.
C) common stock.
D) products of the company.
E) dividends in arrears.
45. An extraordinary item is
A) the amount reflected on the income statement for adjustments made to balance sheet accounts when
applying different accounting principles.
B) the result of the disposal of a major segment of the business.
C) a gain or loss that is both unusual in nature and infrequent in occurrence.
D) a prediction of earnings for future accounting periods.
E) None of the above is correct.
46. Which of the following is the primary justification for reporting on a consolidated basis?
A) The companies are legally and in economic substance separate.
B) The companies are legally and in economic substance one entity.
C) The companies are legally one entity but they are separate in economic substance.
D) The companies are legally separate but they are one entity in economic substance.
E) None of the above is correct.
47. Jazz Company owns a 40% interest in the voting common stock of Mailman Corporation as a long-term
investment. For 2001, Mailman Corporation reported net income of $60,000 and declared and paid cash
dividends of $10,000. The carrying value of the Mailman investment was $125,000 on January 1, 2001.
Jazz should recognize investment revenue for 2001 of
A) $20,000.
B) $24,000.
C) $21,000.
D) $57,750.
E) None of the above is correct.
48. Accrual accounting requires that the loss resulting from the failure of credit customers to pay their bills should
A) not be recorded until cash is collected from the customer in settlement of the account because that is
the only sure event.
B) be estimated in the period in which sales are made but should not be recorded until the customer
defaults because of the matching principle.
C) be estimated and recorded in the period in which sales are made so that periodic expenses are
matched with periodic revenues.
D) be recognized in the period in which the account receivable proves to be uncollectible because that
is the only date when the loss will really be known.
E) None of the above is correct.
2021FINALSP01 5/9/2001 FORM CODE: A
Page 12
49. Materiality, cost-benefit, conservatism, and industry peculiarities are
A) Qualitative characteristics.
B) Elements of financial statements.
C) Accounting principles.
D) Constraints of accounting measurement.
E) None of the above is correct.
50. Which of the following is the best description of investments in trading securities?
A) Investments in bonds that management intends to hold to maturity.
B) Investments in stocks or bonds that are held primarily for the purpose of selling them in the near
future.
C) Investments in more than fifty percent of the voting stock of another company.
D) Investments that grant the investor significant influence, but not control over the investee company.
E) None of the above is correct.
51. If a bond payable is sold (issued) at a premium, the amount of the carrying value (the long-term liability)
reported on the subsequent balance sheets
A) remains constant.
B) increases each year.
C) decreases each year.
D) changes from year to year depending upon the market rate of interest each year.
E) None of the above is correct.
52. Box Company reported the following data at the end of 2001:
Sales revenue (75% on credit) $300,000
Expenses (26% on credit) 60,000
Accounts Receivable, net at Jan. 1, 2001 12,000
Accounts receivable, net at December 31, 2001 8,000
Total Assets 200,000
Stockholders' equity 150,000
Assume a 365 day year
The average number of days to collect receivables during 2001 was
A) 16.2.
B) 14.3.
C) 36.5.
D) 21.9.
E) None of the above is correct.
2021FINALSP01 5/9/2001 FORM CODE: A
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53. Bateman Company reported total stockholders' equity of $58,000 on its balance sheet dated December
31, 2001. During 2001, it reported a net income of $4,000, declared and paid a cash dividend of $2,000,
and issued additional capital stock of $20,000. Therefore, total stockholders' equity at January 1, 2001,
was
A) $38,000.
B) $36,000.
C) $34,000.
D) $16,000.
E) None of the above is correct.
54. On January 1, 2001, Awaga Company acquired 15% of the outstanding voting stock of George Company
as a long-term investment in available-for-sale securities. On December 31, 2001, George Company
reported net income of $400,000 and dividends declared and paid of $10,000. The 2001 Income Statement
of Awaga Company should report "Revenue from long-term investments" amounting to
A) $60,000.
B) $10,000
C) $ 4,500.
D) $ 1,500.
E) None of these amounts is correct.
55. Which of the following represents the shares currently in the hands of investors?
A) Authorized shares
B) Issued shares
C) Outstanding shares
D) Unissued shares
E) Treasury shares
56. A calendar year reporting company preparing its annual financial statements should use the phrase " As
At December 31, 20XX" in the heading of
A) all of the required financial statements it prepares.
B) none of the required financial statements its prepares.
C) the income statement and balance sheet, but not the statement of cash flows.
D) the income statement, but neither the balance sheet nor the statement of cash flows.
E) the balance sheet only.
57. The main purpose of recording depreciation is to
A) allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue.
B) estimate the remaining useful life of the asset.
C) report the asset on the balance sheet at the estimated amount for which the asset could be sold on the
balance sheet date.
D) estimate the current replacement cost of the asset.
E) give the bookkeeper something to do.
2021FINALSP01 5/9/2001 FORM CODE: A
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58. Which of the following transactions would increase the current (working capital) ratio of a company if
the ratio is currently more than 1 to 1?
A) Paid the principal on a long-term note payable.
B) Borrowed cash on a short-term note.
C) Sold inventory for more than cost.
D) All of the above are correct.
E) None of the above is correct.
59. Assume the following shares outstanding:
(a) Preferred stock, 6%, $50 par value, cumulative, 1,000 shares with dividends in arrears 3 years, for
1998, 1999, and 2000.
(b) Common stock, $100 par value, 2,000 shares.
Total dividends declared in 2001 were $30,000. The total amount of dividends to which common
stockholders are entitled is
A) $30,000.
B) $27,000.
C) $21,000.
D) $18,000.
E) None of the above is correct.
60. Mace Corporation sold (issued) 30 of its $1,000 bonds payable, 5% annual interest, due in ten years. The
bonds were sold at 98. Assume straight-line amortization. Interest expense each full year would be
A) $1,500.
B) $1,440.
C) $1,560.
D) $1,100.
E) None of the above is correct.
2021FINALSP01 5/9/2001 FORM CODE: A
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2021FINALSP01 5/9/2001 FORM CODE: A
Page 16
Form Code
Question A B C D E Makeup
1 D D B D C C
2 C C C B A E
3 B C D D B B
4 C B C D A C
5 A C A E C E
6 D B C C A D
7 D D C D C A
8 C C D A A D
9 A A B C D D
10 C C E A A B
11 A A D A C A
12 A A D C B A
13 B A A E C D
14 B D A B C A
15 D E B D B C
16 A D E B C A
17 A C C D D B
18 E D D D E C
19 C C B B B C
20 D B C D A B
21 D A C D A D
22 C B A D B B
23 A C E A D B
24 C E C C D B
25 B D C C A C
26 B A A A B C
27 E D C A D B
28 C A A A D C
29 D D E A A E
30 A E B B C D
31 E A B B B E
32 B B B B D D
33 E B A E D A
34 D B D B E A
35 B E B A D C
36 A C B C B D
37 B A C B C C
38 B C D B B A
39 A A A C B E
40 B C A C C E
41 E D C B A B
42 C E A C C C
43 B B B E B C
44 C B A A E C
45 C A D C B B
46 D E B D C B
47 B D D B E C
48 C B B C C A
49 D C B D D A
50 B B A C A D
51 C D C E B B
52 A C E B B D
53 B D E A D B
54 D B C C C A
55 C C C C C C
56 E C D E A B
57 A C D C C C
58 C A B C E D
59 D B D A D D
60 C B C B E A


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