DEPARTMENT OF ACCOUNTING EDUCATION

3rD
Examination – FIN22
1st
Mabini Street, Tagum City Term/1st Semester , 2018-2019

Test I-MULTIPLE CHOICE THEORY

1. Xanthe Corporation had the following transactions occur in the current year:
1. Cash sale of merchandise inventory.
2. Sale of delivery truck at book value.
3. Sale of Xanthe common stock for cash.
4. Issuance of a note payable to a bank for cash.
5. Sale of a security held as an available-for-sale investment.
6. Collection of loan receivable.
How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the
current year?
a. Five items b. Four items c. Three items d. Two items
2. The statement of cash flows provides answers to all of the following questions except
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. What is the impact of inflation on the cash balance at the end of the year?
d. What was the change in the cash balance during the period?
3. A measure of a company’s financial flexibility is the
a.
b. cash debt coverage ratio. d. free cash flow.
c. current cash debt coverage ratio. e. cash debt coverage ratio and free cash flow.
4. An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures of
the entity. This transaction should be treated in the cash flow statement as follows:
a. The purchase price of the building should be investing cash outflow and the issuance of debentures financing
cash outflows while the issuance of share of investing cash outflow.
b. The purchase of the building should be investing cash outflow and the issuance of shares and the debentures
financing cash outflows.
c. This does not belong in a cash flow statement and should be disclosed only in the footnotes to the financial
statements
d. Ignore the transaction totally since it is a noncash transaction. No mention is required in either the cash flow
statement or anywhere else in the financial statements.

5. An increase in inventory balance would be reported in a statement of cash flows using the indirect method
(reconciliation method) as a(n)
a. addition to net income in arriving at net cash flow from operating activities.
b. deduction from net income in arriving at net cash flow from operating activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.

6. At the break-even point, fixed costs are always

a. less than the contribution margin. c. more than the contribution margin.
b. equal to the contribution margin. d. more than the variable cost.

7.Given the following notations, what is the breakeven sales level in units?
SP = selling price per unit
FC = total fixed cost
VC = variable cost per unit
A. SP / (FC/VC) C. VC/(SP – FC)
B. FC/(VC/SP) D. FC/(SP – VC)

8. The degree of operating leverage for Alabang Company is 3.5, and the degree of operating leverage for Paranaque
Corporation is 7.0. According to this information, which firm is considered to have greater business risk?
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 a. Alabang Company.
b. Paranaque Corporation.
c. The degree of operating leverage is not a measure of business risk, so it is not possible to tell which firm has
the greater business risk given the above information.
d. To determine which firm has the greater business risk, we need to know the operating income (NOI or EBIT) of
each firm. Paranaque Corporation would have less business risk if its operating income is at least twice that of
Alabang Company.

9. Considering each action independently and holding other things constant, which of the following actions would
reduce a firm’s need for additional capital?
a. An increase in the dividend payout ratio.
b. A decrease in the profit margin.
c. A decrease in the days sales outstanding.
d. An increase in expected sales growth.

10. Which of the following best describes a firm's external funding requirement?
A. Growth in assets minus growth in liabilities minus net income
B. Growth in assets minus the current year's retained earnings
C. Growth in assets minus growth in current liabilities minus net income
D. Growth in assets minus growth in current liabilities minus the year's retained earnings

TEST II- PROBLEM SOLVING

Kerwin Corp.'s transactions for the year ended December 31, 2008 included the following:
 Purchased real estate for P550,000 cash which was borrowed from a bank.
 Sold available-for-sale securities for P500,000.
 Paid dividends of P600,000.
 Issued 500 shares of common stock for P250,000.
 Purchased machinery and equipment for P125,000 cash.
 Paid P450,000 toward a bank loan.
 Reduced accounts receivable by P100,000.
 Increased accounts payable P200,000.
1. Kerwin's net cash used in investing activities for 2008 was
a. P675,000. b. P375,000. c. P175,000. d. P50,000.
2. Kerwin's net cash used in financing activities for 2008 was
a. P50,000. b. P250,000. c. P450,000. d. P500,000.

3. Morgan Corporation reports the following information:

Net cash provided by operating activities P255,000 Dividends paid 60,000
Average current liabilities 150,000 Capital expenditures 110,000
Average long-term liabilities 100,000 Payments of debt 35,000
Morgan’s free cash flow is
a. P50,000. b. P85,000. c. P145,000. d. P195,000

Quince Holman Corporation reports:

Cash provided by operating activities P250,000
Cash used by investing activities 110,000
Cash provided by financing activities 140,000
Beginning cash balance 70,000
4. What is Holman’s ending cash balance?
a. P280,000 b. P350,000. c. P500,000. d. P570,000.

During 2008, Hogan Company earned net income of P384,000 which included depreciation expense of P78,000. In
addition, the company experienced the following changes in the account balances listed below:
Increases Decreases
Accounts payable P45,000 Accounts receivable P12,000
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 Inventory 36,000 Accrued liabilities 24,000
Prepaid insurance 33,000
5. Based upon this information what amount will be shown for net cash provided by operating activities for 2008?
a. P492,000 b. P465,000 c. P285,000 d. P267,000
The following information pertains to questions 7 to 9
Sales (75,000 units) P 750,000
Variable cost 225,000
Contribution margin P 525,000
Fixed Cost 187,500
Operating Income 337,500
Interest 75,000
Earnings before tax P 262,500
Taxes ( 31%) 81,375
Net Income P 18,125
6. The degree of operating leverage is
a. 1.56 x c. 1.57 x
b. 1.65x d. 1.75 x
7. The degree of financial leverage is
a. 1.29X C. 3.50x
b. 4.50X d. 1.32X
8. The degree of combined leverage
a. 2.1x c. 2.9x
b. 1.9x d. 2.0x

The following information pertains to questions 10 to 11

Brandon Company manufactures a single product. Each unit sells for P15. The firm's projected costs are listed below:
Variable costs per unit: P 6
Fixed costs: P 100,000
Estimated volume 20,000 units
9. What is Brandon's break even point in peso?
a. 166,667 c. 200,00
b. 133,333 d. 100,000
10. What is Brandon's projected margin of safety for the current year?
a. P133,333 c. P80,000
b. P150,000 d. P100,00

11. Mike is interested in entering the catfish farming business. He estimates if he enters this business, his fixed costs
would be P 50,000 per year and his variable costs would equal 30 percent of sales. If each catfish sells for P 2, how
many catfish would Mike need to sell to generate a profit that is equal to 10 percent of sales?
a. 40,000 b. 41,667 c. 35,000 d. none of the above

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