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Comprehensive Examination

March 18, 2015

Part I. Multiple Choice

1. Which of the following statements is (are) true for Management Accounting?
Managerial accounting information includes both historical and estimated data.
Since there are few rules to restrict how an organization chooses to arrange its own
internal data for decision making, managerial accounting provides ample opportunity for
creativity and change.
There is no overlap between financial and managerial accounting.
Management Accounting reports can be prepared periodically, or as needed.
Managerial accounting is primarily concerned with the organization as a whole rather
than with segments of the organization.
a. I & II only
b. I, II, III & IV only
c. I, III & V only
d. I, II, & IV only
e. I, II, IV & V only
2. What is the primary criterion for the preparation of managerial accounting reports?
a. Relevance of the reports
b. Meet the manager needs
c. Timing of the reports
d. Cost of the reports
3. The controller's staff often consists of several management accountants. All of the following
would most likely be on the controller's staff EXCEPT:
a. general accountants
b. budgets and budget analysts
c. investments and shareholder relations managers
d. cost accountants
4. In financial accounting, certain rules and regulations must be followed on how financial
statements must be presented to the reader. In managerial accounting no such restrictions
generally apply because it is:
a. an entirely different field that need not observe the broad guidelines in financial
b. Designed to provide management with non-financial information of decision making.
c. Designed to provide accounting and other financial data to assist management in
making business decisions.
d. A discipline that does not require preparation of financial statements.
5. Which of the following persons would occupy a line position in a department store?
I. Sales manager
II. Manager, furniture department
III. Manager, advertising department
IV. Manager, personnel department
a. Only I
b. Only I and II
c. Only I, II, III
d. I, II, III, IV
6. As a consultant, the CPA practitioner should
a. Exercise administrative control over the clients staff to avoid unnecessary delays in
b. Encourage dependence of the client on the consultants staff so as to pinpoint clear
responsibility in implementing system.
c. Not take responsibility for making decisions and policy judgments in MAS engagements.
d. Conduct his engagement as if he is a member of the clients organization.

Which of the following is a controllers responsibility?

a. Tax planning and accounting.
b. Custodian of funds.
c. In-charge of credit and collection.
d. Arranging short-term loans and financing.


To distinguish between management accounting and financial accounting, the following

statements are correct, except
a. Management accounting, in view of its various integrated recipients, should have a
separate data recording and retrieval system from financial accounting.
b. Financial accounting is bound by GAAP, and management accounting need not be in
conformity with GAAP.
c. Financial accounting can be regarded as the process while management accounting can
be regarded as the product of that process.
d. Management accounting output must be released on time so as not to erode its
usefulness; financial accounting output can still be useful even when delayed.


The Institute of Management Accountants' Statement of Ethical Professional Practice states

that when faced with significant ethical issues, management accountants should first:
a. discuss such problems with the immediate superior except when it appears that the
superior is involved.
b. clarify relevant concepts by confidential discussion with an objective advisor to obtain
an understanding of possible courses of action.
c. follow the established policies of the organization bearing on the resolution of such
d. submit an informative memorandum describing the ethical issue to an appropriate
representative of the organization and resign if no action is taken as a result of the

10. The following statements refer to competence of CPAs in management advisory services,
a. In concept, it refers to the technical qualification of the practitioner and his ability to
supervise and evaluate the quality of work of his staff assigned to the engagement to
be responsible for the successful completion of the project.
b. It is acquired by education, self-study, attendance to professional development courses,
actual experience in MS work, and research.
c. It is the ability to identify clients needs, use analytical approach and process, apply
technical knowledge, communicate recommendations and assist in implementation.
d. It must be retained in the rendition of MAS work and it can be impaired if the CPA
performs decision-making for the client or acts as employee of the client.
11. Which of the following statements is (are) not correct?
I. Cost behavior refers to the methods used to estimate costs for use in managerial
decision making.
II. Fixed cost per unit varies with changes in the level of activity.
III. The range of activity over which changes in cost are of interest to management is called
the relevant range.
IV. If yearly insurance premiums are increased, this change in fixed costs will result in an
increase in the break-even point.


I only
I & IV only
IV only
All the statements are correct
All the statements are incorrect


Which of the graphs in Figure 20-1 illustrates the behavior of a total variable cost?
a. Graph 2
b. Graph 3
c. Graph 4
d. Graph 1
13. Which of the following is an example of a cost that varies in total as the number of units
produced changes?
a. Salary of a production supervisor
b. Direct materials cost
c. Property taxes on factory buildings
d. Straight-line depreciation on factory equipment
14. Knowing how costs behave is useful to management for all the following reasons except for
a. predicting customer demand.
b. predicting profits as sales and production volumes change.
c. estimating costs.
d. changing an existing product production.

Which of the following statements is (are) correct?

In determining whether a company's financial condition is improving or deteriorating
over time, vertical analysis of financial statement data would be more useful than
horizontal analysis.
II. When computing the return on total assets, the after-tax effect of interest expense must
be subtracted from net income.
III. Working capital equals current assets, plus noncurrent liabilities and stockholders'
equity, less total assets.
a. I, II & III
b. I & II only
c. I & III only
d. III only
e. II only


Which of the following statements is most correct?

a. Many large firms operate different divisions in different industries, and this makes it hard
to develop a meaningful set of industry benchmarks for these types of firms.
b. Financial ratios should be interpreted with caution because there exist seasonal and
accounting differences that can reduce their comparability.
c. Financial ratios should be interpreted with caution because it may be difficult to say with
certainty what is a good value. For example, in the case of the current ratio, a good
value is neither high nor low.

d. Ratio analysis facilitates comparisons by standardizing numbers.
e. All of the statements above are correct.

Other things held constant, which of the following will not affect the current ratio, assuming
an initial current ratio greater than 1.0?
a. Fixed assets are sold for cash.
b. Long-term debt is issued to pay off current liabilities.
c. Accounts receivable are collected.
d. Cash is used to pay off accounts payable.
e. A bank loan is obtained, and the proceeds are credited to the firms checking account.


Which of the following statements is most correct?

a. If two firms pay the same interest rate on their debt and have the same rate of return on
assets, and if that ROA is positive, the firm with the higher debt ratio will also have a
higher rate of return on common equity.
b. One of the problems of ratio analysis is that the relationships are subject to
manipulation. For example, we know that if we use some of our cash to pay off some of
our current liabilities, the current ratio will always increase, especially if the current ratio
is weak initially.
c. Generally, firms with high profit margins have high asset turnover ratios, and firms with
low profit margins have low turnover ratios; this result is exactly as predicted by the
extended Du Pont equation.
d. All of the statements above are correct.
e. None of the statements above is correct.

19.It is defined as the potential use of fixed financial costs to magnify the effects of changes in
EBIT on the firm's EPS. What is it?
a. Operating Leverage
b. Financial Leverage
c. Total Leverage
d. Economic Leverage
e. Optimal Capital Structure
20. Return on investment (ROI) is equal to the margin multiplied by:
A. sales.
B. turnover.
C. average operating assets.
D. residual income.
21. Which of the following will not result in an increase in return on investment (ROI), assuming
other factors remain the same?
A. A reduction in expenses.
B. An increase in net operating income.
C. An increase in operating assets.
D. An increase in sales.
22. A company that has a profit can increase its return on investment by:
A. increasing sales revenue and operating expenses by the same dollar amount.
B. increasing average operating assets and operating expenses by the same dollar amount.
C. increasing sales revenue and operating expenses by the same percentage.
D. decreasing average operating assets and sales by the same percentage.
23. Delmar Corporation is considering the use of residual income as a measure of the
performance of its divisions. What major disadvantage of this method should the company
consider before deciding to institute it?
A. this method does not take into account differences in the size of divisions.
B. investments may be adopted that will decrease the overall return on investment.
C. the minimum required rate of return may eliminate desirable investments.
D. residual income does not measure how effectively the division manager controls costs.
24. The concept of economic value added (EVA) is most similar to:
A. residual income.
B. transfer pricing.
C. segment reporting.
D. return on investment.

25. A segment of a business responsible for both revenues and expenses would be called:
A. a cost center.
B. an investment center.
C. a profit center.
D. residual income.

Part II. Problems

1. Dodero Company produces a single product which sells for P100 per unit. Fixed expenses total
P12,000 per month, and variable expenses are P60 per unit. The company's sales average
500 units per month. Which of the following statements is correct?
a. The company's break-even point is P12,000 per month.
b. The fixed expenses remain constant at P24 per unit for any activity level within the
relevant range.
c. The company's contribution margin ratio is 40%.
d. Responses a, b, and c are all correct.

2. A company has provided the following data:

Sales.................. 3,000 units
Sales price........ P70 per unit
Variable cost... P50 per unit
Fixed cost........ P25,000
If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by
20%, and all other factors remain the same, net income will (indicate whether
3. The margin of safety in the Flaherty Company is P24,000. If the company's sales are P120,000
and its variable expenses are P80,000, its fixed expenses must be:
4. Gerber Company is planning to sell 200,000 units for P2.00 a unit and will just break even at
this level of sales. The contribution margin ratio is 25%. What are the company's fixed
5. Green Company's variable expenses are 75% of sales. At a sales level of P400,000, the
company's degree of operating leverage is 8. At this sales level, fixed expenses equal:
6. The following monthly data are available for the Phelps Company:
Product A Product B Product C
P150,000 P130,000 P90,000
Variable expenses....
Contribution margin.. P 59,000 P 26,000
Fixed expenses.......
Net income...........
P 93,000
The break-even sales for the month for the company are:

Loren Company's single product has a selling price of P15 per unit. Last year the company
reported total variable expenses of P180,000, fixed expenses of P90,000, and a net income
of P30,000. A study by the sales manager discloses that a 15% increase in the selling price
would reduce unit sales by 10%. If her proposal is adopted, net income would: (indicate
whether increase/decrease):


Goodman Company has sales of 3,000 units at P80 per unit. Variable costs are 35% of the
sales price. If total fixed costs are P66,000, the degree of operating leverage is:


Hello Garci Company sells 50,000 units of yo a top-of-the-line garden srinkle. These were
taken from the companys records:
Accounts receivable P129,000.
Days of sales outstanding 15 days.
Contribution margin ratio 49%.
Profit for the period was P485,000.
The ending receivables balance is the average balance during the year. Assume a 360-day
year. All sales are on credit. Determine the companys breakeven revenue.

10. Two products are manufactured by Bye- Bye, Products Alis and Tsupi which accounts for 70%
and 30% of the total sales of the company. Variable costs, as a percentage of sales, are
60% and 80% respectively. Total fixed costs amount to P170,000. There are no other costs
involved, how much is the peso sales of each product line at break-even point
a. 350,000
c. 332,500
b. 297,500
d. 275,000

Selected data from Sheridan Corporations year-end financial statements are presented
below. The difference between average and ending inventory is immaterial.

Current ratio .................

Acid-test ratio ..............
Current liabilities .......... P120,000
Inventory turnover ....... 8 times
Gross profit margin ......
Sheridan's sales for the year was:
12.Perlman Company had 100,000 shares of common stock and 20,000 shares of preferred stock
at the end of the year just completed. Preferred stockholders received dividends totaling
P140,000. Common stockholders received dividends totaling P210,000. If the dividend payout
ratio for the year was 70%, then the net income for the year was:
13. Braverman Company's net income last year was P75,000 and its interest expense was
P10,000. Total assets at the beginning of the year were P650,000 and total assets at the end
of the year were P610,000. The company's income tax rate was 30%. The company's return
on total assets for the year was closest to (one decimal place):

Selected financial data for Irvington Company appear below:

Account Balances o
End of
of year
Preferred stock ....................... P125,000
Common stock ......................... 300,000
Retained earnings...................... 75,000
During the year, the company paid dividends of P10,000 on its preferred stock. The
company's net income for the year was P120,000. The company's return on common
stockholders' equity for the year is closest to:

15. At the end of the year just completed, Orem Company's current liabilities totaled P75,000,
and its long-term liabilities totaled P225,000. Working capital at year-end was P100,000. If
the company's debt-to-equity ratio is 0.30 to 1, total long-term assets must equal:
16.Starrs Company has current assets of P300,000 and current liabilities of P200,000. Which of
the following transactions would increase its working capital?
a. Prepayment of P50,000 of next years rent.
b. Refinancing P50,000 of short-term debt with long-term debt.
c. Acquisition of land valued at P50,000 by issuing new common stock.
d. Purchase of P50,000 of marketable securities for cash.
17.Selected year-end data for the Brayer Company are presented below:
Current liabilities ........ P600,000
Acid-test ratio ............ 2.5 to 1
Current ratio .............. 3.0 to 1
Cost of goods sold ......... P500,000
The company has no prepaid expenses and inventories remained unchanged during the year.
Based on these data, the company's inventory turnover ratio for the year was closest to:
18.Ben Company has the following data for the year just ended:
Cash .................................. ?
Accounts Receivable ..... P28,000
Inventory ....................... P35,000
Current ratio ................... 2.4 to 1
Acid test ratio ................. 1.6 to 1

Ben Company's current liabilities were:
19.Marcy Corporation's current ratio is currently 1.75 to 1. The firms current ratio cannot fall
below 1.5 to 1 without violating agreements with its bondholders. If current liabilities are
presently P250 million, the maximum new short-term debt that can be issued to finance an
equivalent amount of inventory expansion is:
20.PFM Company has sales of P210,000, interest expense of P8,000, a tax rate of 30%, and a net
profit after tax of P35,000. PFM Company's times interest earned ratio is:

Items 21 and 22 are based on the following information from Pedro Company's records for the
year ended December 31, 200A:
Net sales
P1,400,000 Units manufactured
Cost of goods manufactured:
Units sold
P 630,000 Finished goods inventory, Jan. l none
P 315,000
Operating expenses:
P 98,000
P 140,000
21. What would be Pedro's finished goods inventory at December 31, 200A under the variable
costing method?
22. Under the absorption costing method, Pedro's operating income for 200A would be
23. During January, 2000, Gabby Inc. produced 10,000 units of Product F with costs as follows:
Direct Materials
Direct Labor 22,000
Variable Overhead 13,000
Fixed Overhead
What is Gabby's unit cost of Product F for January, 2000 calculated on the direct costing
Items 24 and 25 are based on the following data:
Bates Company incurred the following costs:
Direct Materials & Direct labor P600,000
Variable factory overhead
Straight-line depreciation:
Production Machinery
Factory building
24.Under absorption costing, the inventoriable costs are
25.Under variable costing, the inventoriable costs are
26. Moon Company's 1999 manufacturing costs were as follows:
Direct materials and direct labor
Depreciation of manufacturing equipment
Depreciation of factory building
Janitor's wages for cleaning factory premises 15,000
How much of these costs should be inventoried for external reporting purposes?
27.Cost data for a special product manufactured by Nini, Inc. are given below:
Selling price per unit
Unit costs:
Direct materials
P 12.00
Direct labor
Order cost per unit:
Nini, Inc. sells, on the average, 300,000 units a year. Using the direct costing method, the unit
cost of the special product for inventory purposes is
(28-29)On December 31, 2006, Masters Inc. had outstanding 180,000 shares of common stock.
Net income for 2006 was P285,000. Outstanding options (granted July 1, 2006) to purchase

15,000 shares of common stock at P20 per share had not
During 2006, market prices for the common stock were:
July 1, 2006 ....................................
December 31, 2006 ...............................
Average market ..................................

been exercised by December 31, 2006.

P18 per share
P32 per share
P25 per share

(28) Compute the diluted earnings per common share in 2006.

(29) Compute the basic earnings per common share in 2006.
30-31. The Stanley Corp. provides the following data for 2006:
Transactions in common stock:
January 1, 2006, beginning balance ................
April 1, 2006, issuance ...........................
8% P100 par nonconvertible cumulative preferred
stock .............................................
Issued at par


6% P100 par convertible cumulative preferred stock

Issued at P105
Convertible into 20,000 shares


Stock options .....................................

Option price ......................................
Average market ....................................
Year-end market ...................................


The net income for 2006 is P2,300,000. The company's tax rate is 30 percent. No conversions or
options were exercised during 2006.
(30) Compute basic earnings per share.
(31) Compute diluted earnings per share.
32-33.At December 31, 2005, Rollins Inc. had 400,000 shares of common stock outstanding. The
company also had 40,000 shares of P7 convertible preferred stock. Each share is
convertible into 4 shares of common stock. (Dividends were declared and paid.)
Transactions during
July 1, 2006
Sold 200,000 shares
July 8, 2006
Declared 100% stock dividend
September 1, 2006
Sold 120,000 shares
October 1, 2006
Purchased 60,000 shares to be held in
Rollins Inc. reported a loss of P670,700 for
(32) Compute diluted earnings (loss) per share.
(33) Compute basic earnings (loss) per share.
34. & 35.The income date of Penny Corp. for the years 2009 and 2010 are as follows:
Net sales
Cost of goods sold
---------------Gross profit
If the sales price in 2010 are approximately 20% higher than those of 2009, the increase of
P1,800,000 in net income is accounted for as follows:
Increase (Decrease)
----------------------------34.) Sales Price
35.)Sales Volume
---------------------Items 36 through 38 based on the following information:

Brown company is a manufacturer of three consumer products, X, Y, and Z. Sales and other
information related to the said products are shown below:
Unit Price Total Sales Cost of Sales
-------- -------------------------------Product X
P 10
P 150,000
P 120,000
Product Y
Product Z
Unit Price Total Sales Cost of Sales
--------------------------------------Product X
P 12
P 240,000
P 180,000
Product Y
Product Z
Based on the above information, an analysis of the gross profit would show the following
The sales price factor shows a variance of
The cost price factor shows a variance of
The quantity factor show a variance of
39. On January 2, 19C, the Mannix Corporation mortgaged on its properties as collateral for a
P1,000,000, 12%, five-year loan. The mortgage note payable was interest bearing, and the
interest rate was realistic. During 19C, the GPL increased evenly, resulting in a 5% rise for the
year. In preparing an HC/CP balance sheet at the end of 19C, at what amount should Mannix
report the five year mortgage note?
40. The HC balance sheet of the Rhuda Company showed the original cost of depreciable assets
as P5,000,000 at December 31, 19A, and P6,000,000 at December 31, 19B. These assets
costs are being depreciated on a straight line basis over a 10-year period with no residual
value. Acquisitions of P1,000,000 were made on January 1, 19B. A full year's depreciation
was taken in the year of acquisition. Rhuda presents HC/CP financial statements as
supplemental information to their HC financial statements.
The December 31, 19A
depreciable assets balance (before accumulated depreciation) restated to reflect December
31, 19B, purchasing power was P5,800,000. What amount of depreciation expense should be
shown in the HC/CP income statement for 19B if the GPL index was 100 at December 31, 19A,
and 110 at December 31, 19B?
Cinderella Company provides the folowing liability accounts at the end of 2000, among
Advances from customers
Accrued losses on purchase commitments
Capital lease liability
Accrued retirement benefits cost
Under cosntant peso accounting, Cinderall should report monetary liabilities of:

Hazel Company began operations on January 1, 2000. Information about the company's
inventory during 2000 appears below.
Unit Cost
------- --------Inventory - January 1
Inventory - December 31
The general price level index during 2000 was:
January 1
Average for 2000
December 31
Under constant peso accounting, what is the cost of goods sold assuming the FIFO cost
flow is used?


Aga Corporation's property, plant and equipment at December 31, 2013 are:
Price Index

Depreciation is calculated at 10% straight line. A full year's depreciation is charged in the
year of acquisition. There were no disposals in 2013.
What amount of depreciation would be included in the 2013 income statement adjusted
for general inflation or constant peso?
44-45.The company purchased land costing P100,000 on January 1, 2000. The current cost of
the land was P150,000 on December 31, 2000, and P250,000 on December 31, 2001. The
company sold the land on December 31, 2002 for P450,000 when the current cost was
44. What is the unrealized holding gain that should be reported in 2001?
45. What is the unrealized holding gain that should be reported in 2002?
46-47.On January 1, 2000, Digital Company acquired inventory for P200,000. The inventory
consisted of 10,000 identical units. The current cost of the inventory was P300,000 on July
1, 2000 when the company sold three-fourths of the inventory for P280,000. On
December 31, 2000, the current cost of the inventory was P75,000.
46. What is the Cost of Goods Sold?
47. What is the realized holding gain/loss for the year?
48-50.Progress Inc. adopted a current cost system in its first year of operation. At the start of
the first year, 2002, the company purchased P168,000 of inventory. At the end of the
year, it had an inventory of P100,800 on a historical cost basis and P164,500 on a current
cost basis. At the time the inventory was sold, the current cost of the inventory was
P107,800. Sales for the year were P182,000. Ignore all tax effects and assume that there
was no inflation during 2002. Other expenses were P8,400 on both historical cost and
current cost bases.
48. Compute for realized holding gain/loss.
49. Compute forun realized holding gain/loss.
50. Compute for net income. (ignore tax)

51. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for
the year just ended a contribution margin of P50,000 for Plant A. Plant B had sales of P200,000
and a contribution margin ratio of 30%. Net operating income for the company was P20,000 and
traceable fixed costs for the two plants totaled P50,000. Johnson Company's common fixed costs
for last year were:
52. Verkamp Corporation has two divisions: the YDI Division and the QCC Division. The
corporation's net operating income is P31,800. The YDI Division's divisional segment margin is
P111,800 and the QCC Division's divisional segment margin is P152,800. What is the amount of
the common fixed expense not traceable to the individual divisions?
53. Kaighn Corporation has two divisions: the West Division and the East Division. The
corporation's net operating income is P18,500. The West Division's divisional segment margin is
P27,700 and the East Division's divisional segment margin is P49,400. What is the amount of the
common fixed expense not traceable to the individual divisions?
54. Anspach Corporation has two divisions: the Governmental Products Division and the
Consumer Products Division. The Governmental Products Division's divisional segment margin is
P11,800 and the Consumer Products Division's divisional segment margin is P155,500. The total
amount of common fixed expenses not traceable to the individual divisions is P142,200. What is
the company's net operating income?
55-58. Deano Products is a division of a major corporation. The following data are for the last
year of operations:





margin is closest to:

turnover is closest to:
return on investment (ROI) is closest to:
residual income is closest to: