Professional Documents
Culture Documents
The pretax cost of carrying the additional investment in receivable, using 360-day year,
would be
A. P5,760 C. P8,160
B. P9,600 D. P 960
5. A collection of accounts receivable can be accelerated by the use of
A. Turnaround documents C. Banks drafts
B. A lockbox system D. Remittance advices
6. A small retail business would most likely finance its merchandise inventory with
A. Commercial paper C. A terminal warehouse receipt loan
B. A line-of-credit D. A chattel mortgage
7. Cantor Creations which has 250 business days per year, manufactures desks for
desktop workstations. The annual demand for the desks is estimated to be 5,000 units.
The annual cost of carrying one unit inventory is P10, and the cost to initiate a
production run is P1,000. Cantor has scheduled four equal production runs for the
A. Asset A C. Asset C
B. Asset B D. Asset D
25. Statement 1: To be truly marketable, a security must have three basic characteristic: a
ready market, risk free, and safety of principal.
Statement 2: Since treasury bills are issued in bearer form, they are considered to be
virtually risk-free.
Statement 3: The market for a security should have both breadth and depth in order to
minimize the amount required to convert into cash.
A. False; True; True
B. True; True; True
C. False; False; True
D. False, True; False
26. For P450,000 Jasmine Corporation purchased a new machine with an estimated useful
life of five years with no salvage value. The machine is expected to produce cash flow
from operations, net of 40 percent income taxes, as follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
Jasmine will use the sum-of-the-years-digits method to depreciate the new machine as
follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Sales P8,000,000
Cost of Goods Sold 5,260,000
Gross Profit 2,740,000
Selling and administrative expense 1,500,000
Operating Profit 1,240,000
Interest Expense 140,000
Income before Taxes 1,100,000
Tax Expense 440,000
Net Income 660,000
2014 2013
Cash P200,000 P50,000
Accounts Receivable 1,200,000 950,000
Inventory 1,840,000 1,500,000
Total Current Assets 3,240,000 2,500,000
Fixed Assets 3,200,000 3,000,000
Total Assets 6,440,000 5,500,000
69. ______ risk represents the portion of an asset’s risk that can be eliminated by
combining assets with less than perfect positive correlation.
A. Diversifiable C. Systematic
B. Nondiversifiable D. Total
70. The following information regarding inventory policy was assembled by the EASY
LANG Corporation. The company uses a 50-week year in all calculations.
Sales 10, 000 units per year
Order Quantity 2, 000 units
Safety Stocks 1, 300 units
Lead Time 4 weeks
84. What is the earnings per share for the year ended December 31, 2016?
A. P53.33 C. P20.00
B. P36.66 D. P13.75
85. The price earnings ratio of the company if the market price per share is P20.00 is
A. 1.45 C. 1.00
B. 0.38 D. 0.55
86. Assuming the company declared 10% of the retained earnings as cash dividends, the
dividend payout ratio is
A. 0.05 C. 0.13
B. 0.04 D. 0.09
87. The financing of the basic level of current assets by issuing commercial paper is
inconsistent with
A. The maximization of shareowners’ wealth
B. The objective of matching the maturities of assets and liabilities
C. The goal of minimizing the cost of debt financing
D. The expectation that long-term interest rates will decrease in the coming year.
88. As corporation grows from a small business into a larger, more profitable business, the
corporations tends to rely
A. More on trade credit because its unlimited availability
B. More on government secured loans which are available to the large more profitable
firms in the economy
C. More on bank credit and similar source rather than trade credit because trade credit is
not adequate to meet the financing needs beyond certain levels of growth
D. More on cash purchases due to the cash flow generated through collection of
accounts receivable.
89. A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might
A. Improve its collection practices, thereby increasing cash and increasing its current
and quick ratios
B. Improve its collection practices and pay accounts payable, thereby decreasing current
liabilities and increasing the current and quick ratios.
C. Decrease current liabilities by utilizing more long-term debt, thereby increasing the
current and quick ratios.
D. Increase inventory, thereby increasing current assets and the current and quick ratio
For items 41 to 45
J. Francisco Technologies is considering changing its credit terms from 2/15, net 30 to 3/10,
net 30, in order to speed collections. At present, 40 percent of Francisco’s customers take the
2 percent discount. Under the new terms, discount customers are expected to 50%.
Regardless of the credit terms, half of the customers who do not take the discount are
expected to pay on time, whereas the remainder will pay 10 days late. The change does not
involve a relaxation of credit standards; therefore, bad debt losses are not expected to rise
above their present 2% percent level. However, the more generous cash discount terms are
expected to increase sales from P2,000,000 to P2,600,000 per year. Francisco’s variable cost
ratio is 75%, the interest rate on funds invested in accounts receivable is 9%, and the firm’s
corporate tax rate is 40%.
90. What is the days sales outstanding before and after the change?
A. 22.5 days and 27 days, respectively
B. 27 days and 22.5 days, respectively
C. 24 days and 28 days, respectively
D. 28 days and 24 days, respectively
91. The discount costs after the change will be
A. 38,220 C. 15,680
B. 16,000 D. 39,000
For items 46 to 50
ABC Company requires you to prepare a ratio analysis under accrual basis for the year 2016.
The following information were provided to you by the company.
ABC Company
Statement of Financial Position
December 31, 2015
Inventory 600,000
The company recorded all transaction under cash basis of accounting. The transactions
affects the cash balance during the year 2016.
Cash collected from clients amounted P5,000,000.
Cash payment for the purchases is P3,000,000.
A cash receipt pertaining to other income is P250,000, of which, P55,000 is an interest
income of the previous year.