Chapter 1.

Overview of Financial Management

1. It is a body of facts, principles and theories relating to raising and using money by individuals, businesses,
and governments.
a. Management
b. Finance
c. Accounting
d. Economics

2. It is a decision-making process concerned with planning, acquiring and utilizing funds in a manner that
achieves a firm’s desired goals.
a. Management Accounting
b. Auditing
c. Corporate Financing
d. Financial Management

3. The subfields of finance includes the following except:

a. Study of corporate finance
b. Study of investments
c. Study of financial institutions and markets
d. Study of business ethics

4. The financial management process has three major functions except:

a. Acquisition of funds from investors
b. Borrowing of funds
c. Financial analysis and planning
d. Utilization of funds

5. Statement 1: Financial management is part of a larger discipline called finance.

Statement 2: The goal of financial management is to minimize the current value of ownership in a business
firm.
a. Both statement are true.
b. Both statement are false.
c. Statement 1 is true but statement 2 is false.
d. Statement 1 is false but statement 2 is true.

6. Statement 1: Traditionally, financial management is least likely concerned with acquisition, financing and
management of assets of a business concern in order to maximize the wealth of the firm for its owners.
Statement 2: Anybody who invests his money will expect to earn a reasonable return on his investment.
a. Both statement are true.
b. Both statement are false.
c. Statement 1 is true but statement 2 is false.
d. Statement 1 is false but statement 2 is true.

Chapter 2. Role of the Finance Manager

7. Statement 1: In the long run, many factors affect the market price of a firm’s shares which are beyond
management’s control.
Statement 2: Financial decision making should take a longer-term perspective.
a. Both statement are true.
b. Both statement are false.
c. Statement 1 is true but statement 2 is false.
 d. Statement 1 is false but statement 2 is true.

8. Statement 1: One of the responsibilities of financial management is to allocate funds to current and fixed
assets.
Statement 2: The yearly activities of financial management include credit management, inventory control,
and the receipt and disbursements of funds.
a. Both statement are true.
b. Both statement are false.
c. Statement 1 is true but statement 2 is false.
d. Statement 1 is false but statement 2 is true.

9. It deals with the design and production of a product.

a. Marketing
b. Manufacturing
c. Merchandising
d. Engineering

10. It involves the selling, promotion and distribution of a product.

a. Marketing
b. Advertising
c. Entrepreneurship
d. Manufacturing

11. It refers to the the amount of money invested in current and fixed assets.
a. Hurdle rate
b. Asset mix
c. Debt mix
d. Equity mix

12. It is expected to earn a return greater than the minimum acceptable return.
a. Hurdle rate
b. Asset mix
c. Debt mix
d. Equity mix

Chapter 3. The Financial Environment, Part I

13. Business firms can be organized in one of these ways except:

a. Incorporation
b. Partnership
c. Sole proprietorship
d. Corporation

14. The following are the major disadvantages of a proprietorship except:

a. Unlimited liability
b. Ease of entry and exit
c. Limitations in raising capital
d. Lack of continuity

15. It is a legal arrangement in which two or more persons agree to contribute capital or services to the business
and divide the profits or losses that may be derived therefrom.
a. Incorporation
 b. Partnership
c. Sole proprietorship
d. Corporation

16. Advantages of a corporation does not include

a. Unlimited life
b. Ability to raise capital
c. Regulation
d. Limited liability

17. These are financial markets in which funds are borrowed or loaned for short periods.
a. Physical markets
b. Public markets
c. Capital markets
d. Money markets

18. These are markets in which securities and other financial assets are traded among investors after they have
been issued by corporations.
a. Secondary markets
b. Spot markets
c. Primary markets
d. Financial asset markets

19. Cooperative associations whose members are supposed to have a common bond are called
a. Investment banks
b. Credit unions
c. Private equity companies
d. Mutual funds

20. These are funds similar to mutual funds because they accept money and use the funds to buy various
securities, but there are some important differences.
a. Hedge funds
b. Investment banks
c. Exchange trade funds
d. Financial services corporation

Chapter 4. The Financial Environment, Part II

21. Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity is called a
a. Financial instrument
b. Equity instrument
c. Financial statement
d. Derivative financial instrument

22. It refers to an agreement between two or more parties that has clear economic consequences that the parties
have little, if any, discretion to avoid, usually because agreement is enforceable by law.
a. Contract
b. Option
c. Instrument
d. Obligation
23. It is a agreement between a seller and a buyer that requires that seller to deliver a particular commodity at a
designated future date, at a predetermined price.
a. Forward contract
b. Futures contract
c. Options
d. Currency swaps

24. This gives its holder the right to either buy or sell an instrument at a specified price and within a given time
period.
a. Forward contract
b. Futures contract
c. Options
d. Currency swaps

25. It is the price paid for the use of money, and is determined by the combination of producers’ expected rates
of return on invested capital and consumers’ time preferences for consumption.
a. Interest rate
b. Hurdle rate
c. Capital rate
d. Dividend payout rate

26. It is often defined as the price of loanable funds.

a. Interest rate
b. Hurdle rate
c. Capital rate
d. Dividend payout rate

Chapter 5. Flow of Funds in a Business Enterprise

27. It refers to all the financial resources of the company, current and non-current.
a. Cash flow
b. Assets
c. Fund
d. Capital

28. This is also defined as ‘working capital’.

a. Current assets
b. Current liabilities
c. Fund
d. Current equity

29. It is a financial statement that shows the firm’s cash receipts and disbursements over a given period of time.
a. Statement of Changes in Equity
b. Income Statement
c. Statement of Financial Position
d. Statement of Cash Flows

30. Its primary purpose is to provide relevant information about a company’s cash receipts and cash payments
during an accounting period.
a. Statement of Financial Position
b. Statement of Changes in Equity
c. Income Statement
 d. Statement of Cash Flows

31. This indicates whether the company can pay off its current liabilities from its operations in a given year.
a. Cash debt coverage ratio
b. Free cash flow
c. Current cash debt coverage ratio
d. Working capital

32. This indicates a company’s ability to repay its liabilities from net cash provided by operating activities,
without having to liquidate the assets employed in its operations.
a. Cash debt coverage ratio
b. Free cash flow
c. Current cash debt coverage ratio
d. Working capital

Chapter 6. Review of the Accounting Processing Cycle and Financial Statements Preparation

For numbers 33-44, refer to the following problem:

Expelliarmus Company needs to prepare financial statements at the end of August 2019 for presentation to its
bank. An unadjusted trial balance as of August 31, 2019 is presented below.

Expelliarmus Company
Unadjusted Trial Balance
As of August 31, 2019

Account Title Debits Credits

Cash ₱ 29,000
Accounts Receivable 50,000
Prepaid Rent 18,000
Inventory 6,000
Note Receivable 40,000
Equipment 75,000
Accounts Payable ₱ 50,000
Notes Payable 60,000
Share Capital 60,000
Retained Earnings 1,000
Sales Revenue 106,000
Cost of Goods Sold 42,000
Salaries Expense 11,000
Utilities Expense 4,000
Total ₱ 276,000 ₱ 276,000
The following information is also available:
a. The company anticipates that of the ₱50,000 in accounts receivable from customers, 5% of the total amount
will be uncollectible.
b. ₱40,000 of the note payable is required to be paid in principal plus interest at 12% on July 31, 2020. The
date of the loan is August 1, 2019.
c. The equipment is being depreciated by the straight line method over a period of 10 years.
d. The note receivable is dated August 16, 2019. The note requires the entire ₱40,000 in principal plus interest
at 9% to be repaid in 120 days. (Use 360 days.)
e. The advance payment of rent covered a period of 4 months, that is, from August to November.
33. For its adjusting entry, what should be credited for information a?
a. Allowance for Bad Debts, P5,000
b. Accounts Receivable, P5,000
c. Allowance for Doubtful Accounts, P2,500
d. Uncollectible Accounts Expense, P2,500

34. For its adjusting entry, what should be credited for information b?
a. Interest Payable, P400
b. Interest Expense, P4,800
c. Interest Receivable, P4,800
d. Interest Income, P400

35. For its adjusting entry, what should be debited for information c?
a. Depreciation Expense, P7,500
b. Accumulated Depreciation, P7,500
c. Depreciation Expense, P625
d. Accumulated Depreciation, P625

36. For its adjusting entry, what should be debited for information d?
a. Interest Payable, P150
b. Interest Expense, P3,600
c. Interest Receivable, P150
d. Interest Income, P3,600

37. For its adjusting entry, what should be debited for information e?
a. Prepaid Expense, P6,000
b. Prepaid Expense, P4,500
c. Rent Expense, P6,000
d. Rent Expense, P4,500

38. For its adjusting entry, what should be credited for information e?
a. Prepaid Expense, P6,000
b. Prepaid Expense, P4,500
c. Rent Expense, P6,000
d. Rent Expense, P4,500

39. Adjusted Prepaid Rent

a. P12,000
b. P13,500
c. P4,500
d. P6,500

40. Adjusted Rent Expense

a. P12,000
b. P13,500
c. P4,500
d. P6,500

41. Adjusted total expenses

a. P23,025
b. P41,125
 c. P8,025
d. P40,975

42. Adjusted net income

a. P23,025
b. P41,125
c. P8,025
d. P40,975

43. Adjusted total assets

a. P210,525
b. P110,400
c. P100,125
d. P136,150

44. Total liabilities and shareholders’ equity

a. P210,525
b. P110,400
c. P100,125
d. P136,150

Chapter 7. Financial Statement Analysis Using Horizontal and Vertical Analysis

Numbers 45-56 is based on the data taken from Stupefy Company’s statement of financial position.
2018 2019
ASSETS
Current Assets
Cash & Cash Equivalents 14,000 16,000
Receivables 28,800 55,600
Inventories 54,000 85,600
Prepayments 4,800 7,400

Non-current Assets
Equipment (net of
30,200 73,400
depreciation)

Total Assets 131,800 238,000

Compute for the changes of the following accounts using Increase/Decrease Method:

45. Cash and Cash Equivalents

a. (14.29%)
b. 14.29%
c. 12.50%
d. (12.50%)

46. Receivables
a. 93.06%
b. 48.20%
c. (93.06%)
d. (48.20%)
47. Inventories
a. (36.92%)
b. 36.92%
c. (58.52%)
d. 58.52%

48. Prepayments
a. 54.17%
b. 35.14%
c. (54.17%)
d. (35.14%)

49. Equipment
a. (58.86%)
b. 143.05%
c. 58.86%
d. (143.05%)

50. Total Assets

a. 44.62%
b. (44.62%)
c. (80.58%)
d. 80.58%

Compute for the changes of the given accounts using Trend Percentages:

51. Cash and Cash Equivalents

a. 87.5
b. 114.29
c. 1.14
d. 0.88

52. Receivables
a. 1.93
b. 51.8
c. 193.06
d. 0.52

53. Inventories
a. 0.63
b. 63.081
c. 1.59
d. 158.52

54. Prepayments
a. 1.54
b. 0.65
c. 64.86
d. 154.17

55. Equipment
 a. 243.05
b. 2.43
c. 41.14
d. 0.41

56. Total Assets

a. 0.55
b. 55.38
c. 1.81
d. 180.58

Chapter 8. Financial Statement Using Ratios

57. Muggles Clothing Store had the balance in the Accounts Payable account of P390,000 at the beginning of
the year and a balance of P410,000 at the end of the year. The cost of goods sold during the year amounted to
P4,800,000. Using the 360-day year, what is the average sale period of the receivables?
a. 30 days
b. 65 days
c. 73 days
d. 36 days

58. House of Hagrid Company had the following financial statistics for 2019:
Long-term debt 800,000
Interest expense 70,000
Net income 96,000
Income tax 92,000
What was the times-interest earned for 2010?
a. 11.4 times
b. 3.3 times
c. 3.1 times
d. 3.7 times

Numbers 59-64 are based on the data taken from the balance sheet of Circle Company as of the end of the
current year:
Accounts Payable 290,000
Accounts Receivable 220,000
Accrued Labilities 8,000
Cash 160,000
Income Tax Payable 20,000
Inventory 280,000
Marketable Securities 500,000
Notes Payable, short-term 170,000
Prepaid Expense 30,000

59. The amount of working capital for the company is:

a. 702,000
b. 722,000
c. 422,000
d. 672,000
60. The company’s current ratio as of the balance sheet date is:
a. 2.02
b. 1.95
 c. 2.67
d. 2.44
61. The company’s acid-test ratio as of the balance sheet date is:
a. 2.02
b. 1.76
c. 2.40
d. 1.80

62. The company’s current asset is:

a. P1,160,000
b. P1,190,000
c. P690,000
d. P880,000

63. The company’s quick assets is:

a. P880,000
b. P380,000
c. P1,160,000
d. P1,190,000

64. The company’s current liabilities is:

a. P298,000
b. P460,000
c. P488,000
d. P480,000

65. Gryffindor Hardware Store had net credit sales of P6,500,000 and cost of goods sold of P5,000,000 for the
year. The Accounts Receivable balances at the beginning and end of the year were P600,000 and P700,000,
respectively. In addition, the Inventory balances at the beginning and end of the year were 575,000 and 500,000,
respectively. The inventory turnover was
a. 7.7 times
b. 10.8 times
c. 9.3 times
d. 10.0 times

66. Cedric Diggory and Company reported the following on its income statement:
Income before taxes P 400,000
Income tax expense 100,000
Net Income P 300,000
An analysis of the income statement revealed that interest expense was P100,000. Cedric Company and
Company’s times interest earned was:
a. 5 times
b. 4 times
c. 3.5 times
d. 3 times

67. Net sales are P6,000,000, beginning total assets are P2,800,000 and the asset turnover is 3.0. What is the
ending total asset balance?
a. P2,000,000
b. P1,200,000
c. P2,800,000
d. P1,600,000
68. The times interest earned ratio of Crucio Company is 4.5 times. The interest expense for the year was
P20,000 and the company’s tax rate is 40%. The company’s net income is:
a. P22,000
b. P42,000
c. P54,000
d. P66,000

Chapter 9. Financial Planning

For numbers 69-80, refer to the information below.

At year-end 2019, total assets for Wingardium Leviosa were P1,200,000 and accounts payable were P375,000.
Sales, which in 2019 were P2,500,000, are expected to increase by 25% in 2020. Total assets and accounts
payable are proportional to sales and that relationship will be maintained. Wingardium Leviosa typically uses no
current liabilities other than accounts payable. Common stock amounted to P425,000 in 2019 and retained
earnings were P295,000. Wingardium Leviosa plans to sell new common stock in the amount of P75,000. The
firm’s profit margin on sales is 6%; 40% of earnings will be paid out as dividends.

Compute for the following:

69. Projected Sales

a. P2,500,000
b. P1,200,000
c. P3,125,000
d. P1,500,000

70. Projected Total Costs and Expenses

a. P2,937,500
b. P2,350,000
c. P1,000,000
d. P1,410,000

71. Projected Net Income

a. P187,500
b. P150,000
c. P100,000
d. P87,500

72. Projected Total Assets

a. P1,200,000
b. P1,500,000
c. P1,300,000
d. P1,000,000

73. Projected Accounts Payable

a. P93,750
b. P450,000
c. P375,000
d. P468,750

74. Projected Long-term Debt

 a. P375,000
b. P93,750
c. P105,000
d. P180,000

75. Projected Common Stock

a. P500,000
b. P425,000
c. P75,000
d. P605,000

76. Projected Retained Earnings

a. P295,000
b. P407,500
c. P482,500
d. P557,500

77. Projected Liabilities and Owner’s Equity

a. P1,200,000
b. P1,500,000
c. P1,481,250
d. P1,556,250

78. Additional Funds Needed (debt + equity)

a. P75,000
b. P18,750
c. P56,250
d. P93,750

79. New long-term debt in 2020

a. P93,750
b. P105,000
c. P18,750
d. P123,750

80. Total liabilities in 2019

a. P592,500
b. P105,000
c. P480,000
d. P123,750

Chapter 10. Budgeting

For numbers 81-92, the statement of financial position of Ollivanders Company, a distributor of wands, as of
September 30, 2019 is given below:
Ollivanders Company
Statement of Financial Position
September 30, 2019

Assets
Cash P 8,000
Accounts Receivable 72,000
 Inventory 30,000
Building and Equipment, net 500,000
Total Assets P 610,000
Liabilities and Equity
Accounts Payable P 90,000
Note Payable 15,000
Ollivanders, Capital 505,000
Total Liabilities and Equity P 610,000

Ollivanders Company has not budgeted previously, and for this reason it is limiting its master budget planning
horizon to just one month ahead-- namely, October. The company has assembled the following budgeted data
relating to October:
A. Sales are budgeted at P300,000. Of these sales, 50% will be received in cash; the remainder will be credit
sales. One-third of a month’s credit sales are collected in the month the sales are made, and the remaining
two-thirds is collected in the month following. All of the September 30 accounts receivable will be collected in
October.
B. Purchases of inventory are expected to total P150,000 during October. These purchases will all be on
account. 60% of all inventory purchases are paid for in the month of purchase; the remainder is paid in the
following month. All of the September 30 accounts payable to suppliers will be paid during October.
C. The October 31 inventory balance is budgeted at P50,000.
D. Operating expenses for October are budgeted at P48,000, inclusive of depreciation. These expenses will be
paid in cash. Depreciation is budgeted at P3,000 for the month.
E. P5,000 of the note payable on the September 30 statement of financial position will be paid during October.
The company’s interest expense for June (on all borrowing) will be P1,000, which will be paid in cash.
F. New warehouse equipment costing P15,000 will be purchased for cash during October.
G. During October, the company will borrow P18,000 from its bank by giving a new note payable to the bank
for that amount. The new note will be due in one year.

Compute for the following:

81. Budgeted cost of goods sold

a. P130,000
b. P180,000
c. P170,000
d. P230,000

82. Budgeted gross profit

a. P170,000
b. P120,000
c. P430,000
d. P70,000

83. Budgeted operating expense

a. P51,000
b. P45,000
c. P48,000
d. P49,000

84. Budgeted net operating income

a. P170,000
b. P122,000
c. P218,000
 d. P121,000

85. Budgeted net income

a. P122,000
b. P123,000
c. P71,000
d. P121,000

86. Cash receipts

a. P200,000
b. P222,000
c. P272,000
d. P122,000

87. Cash disbursements

a. P240,000
b. P225,000
c. P180,000
d. P195,000

88. Ending cash balance

a. P40,000
b. P52,000
c. P28,000
d. P58,000

89. Budgeted building and equipment, net

a. P500,000
b. P497,000
c. P512,000
d. P511,000

90. Budgeted capital

a. P627,000
b. P626,000
c. P628,000
d. P629,000

91. Budgeted total assets

a. P720,000
b. P716,000
c. P715,000
d. P714,000

92. Budgeted total liabilities and equity

a. P714,000
b. P715,000
c. P716,000
d. P720,000

93. Slytherin Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a
beginning inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases are
 a. P530,000
b. P790,000
c. P810,000
d. P1,070,000

94. Ravenclaw Company has budgeted purchases of P100,000. Cost of sales was P120,000 and the desired
ending inventory was P42,000. The beginning inventory was
a. P20,000
b. P32,000
c. P42,000
d. P62,000

95. The payment schedule of purchases made on account is: 60% during the month of purchase, 30% in the
following month, and 10% in the subsequent month, total credit purchases were P200,000 in May, and P100,000
in June. Total payments on credit purchases were P140,000 in June. What were the credit purchases in the
month of April?
a. P200,000
b. P100,000
c. P145,000
d. P215,000

96. Hedwig Company has a collection schedule of 60% during the month of sales, 15% the following month,
and 15% subsequently. The total credit sales in the current month of September were P80,000 and total
collections in September were P57,000. What were the credit sales in July?
a. P90,000
b. P30,000
c. P45,000
d. P32,000

97. Alohomora Company has P299,000 in accounts receivable on January 1,2019. Budgeted sales for January
are P860,000. Alohomora expects to sell 20% of its merchandise for cash. Of the remaining sales, 75% are
expected to be collected in the month of sale and the remainder the following month.

The January cash collections from sales are:

a. P815,000
b. P691,000
c. P471,000
d. P987,000

98. Oculus Reparo sells boxes of glasses to retailers for P8,000 per box. The company’s accountant has
prepared the following sales forecast (in boxes) for the first quarter of 2020:
January 600 boxes
February 1,000 boxes
March 700 boxes
Historically, the cash collection of sales has been as follows: 60% in the month of sale, 30% in the month
following the sale, and 9% in the second month following the sale.

Cash receipts for March are expected to be:

a. P6,192,000
b. P8,216,000
c. P3,360,000
d. P5,784,000
For numbers 99-100, Sirius Corporation expects the following transactions in 2019. Their first year of
operations:

Sales (90% collectible in 2019) P 1,500,000

Bad debt write-offs 60,000
Disbursements of costs and expenses 1,200,000
Disbursements for income taxes 90,000
Purchases of fixed assets 400,000
Proceeds from issuance of ordinary shares 580,000
Proceeds from short-term borrowings 100,000
Payments on short-term borrowings 50,000
Depreciation of fixed assets 80,000

99. What is the total amount of cash receipts at December 31,2019?

a. P2,030,000
b. P1,350,000
c. P1,450,000
d. P1,930,000

100. What is the total amount of cash disbursements at December 31,2019?

a. P1,290,000
b. P1,690,000
c. P1,820,000
d. P1,740,000