I.

TRUE OR FALSE

_____ 1. The basic purpose of statements of cash flows is to provide information about the cash
receipts and cash payments of a business entity during the accounting period.
_____ 2. A decrease in inventory, an increase in account receivable and an increase in sale are
usually considered favourable development when occurring concurrently.
_____ 3. The ratio of total cash trade receivable and marketable securities to current liabilities
is current ratio.
______ 4. In a common size income statement, net income is given an equivalent of 100%.
______ 5. Industry standard tend to place the performance of a company in a more meaningful
perspective.
______ 6. An increase in total liabilities raises the DEBT equity ratio.
______ 7. In rate of return ratio (ROR), the numerator is usually the net income figures.
______ 8. Financial statements have their limitations and one of these is that not all relevant
data about a company can be discerned therefrom.
______9. Obtaining a short term loan does not affect a current ratio of 2:1.
______10. Transaction that decrease current assets and current liabilities by the same current
amount Improve the current ratio.
______11. A common size statement is one where each item is expressed in terms of pesos.
______12. The factors that affect gross profit are the changes in volume, unit SP and unit cost.
______13. Cash dividend have no effect on corporate working capital.
______14. When the debt / equity ratio and prevailing interest rates and very low, it is
advisable to issue capital stock.
______15. The statement of cash flows compliments rather than replaces the balance sheet
and income statement.
______16. Obtaining a long – term loan increases the working capital.
______17. Short term creditors generally have concerned with vertical analysis than horizontal
analysis.
______18. Horizontal analysis is possible for both an income statement and balance sheet.
______19. Vertical analysis involves company figures in the financial statements of a single
period.
______20. The period for calculating percentage changes when conducting horizontal analysis
is usually the most recent period
.

II. IN WHICH OF THE FOLLOWING DECISION PROBLEMS ARE THE ITEMS BELOW
RELEVANT?

A. Continue Operation temporary Shutdown

B. Retention or closure of an organizational segment
C. Accept or reject a social order
D. Continue making or buy
E. Sell or process further

1. Allocated expenses
2. Direct departmental costs not directly related to sales
3. Fixed factory overhead
4. Fixed operating expenses
5. Production costs in additional processing
6. Additional costs such as packing and shipping
7. Variable operating expense
8. Additional costs for security and maintenance
9. Variable manufacturing costs
10. Foregone savings in fixed factory overhead
III. True or False

1. A product is profitable to manufacture and sell when it has a positive contribution margin.
2. In determining the optimum product mix, all products with positive contribution margin
should be produced.
3. Shutdown point is 2, 000 units of sales. At sales volume of 1,500 units, less from operations
would be bigger than less during a shutdown.
4. It is always advisable to have a temporary shutdown when a company reaches the shutdown
point.
5. The relevant items in a decision problem may include qualitative and quantitative factors.
6. A special order should be accepted only when the requested price is equal to regular selling
price.
7. Variable operating expenses are relevant in determining whether a special order should be
accepted or not.
8. The breakeven selling price for special orders enables the company to recover all incremental
costs and expenses related to said orders.
9. Historical costs are not relevant in a decision problem.
10. Allocated expenses are relevant in determining whether a branch should be retained or
closed because the amount charged to a branch varies with the volume of transactions.

IV. ESSAY

1. How does management accounting facilitate the carrying out of

Management functions?

2. Though management relies heavily on accounting information, it cannot be

Considered as a complete answer to management problems. Why?

3. Why is it imperative for an organization, be it political, civic or business, to have

financial statements?

V. Problems.

1. The following data are given in the operations Silang Trading for 2015.
Net cash flow from operations, P 100 000; Dividends paid, 50 000; Proceeds from sale of
Equipment, 20 000; Cost of land acquired, 70 000; Payment of long term loans, 25 000;
Proceeds from issuance of capital stock, 30 000.

Required:

a. Net change in cash balance

b. Net cash inflow (outflow) from financing activities
c. Net cash inflow (outflow) from investing activities

2. Mina Company has two divisions A and B which are both classified as investment
Centers. Net income and total assets for each division are shown below:
A B

Net Income P 150 000 P 250 000

Total Assets 600 000 1 250 000

a. Evaluate the two divisions according to;

1. Net Income 2. ROI
b. Assume the desired rate of return for Mina is 19%, evaluate the two divisions
according to residual income;
 3. Office equipment with a cost of P 10 000 and accumulated depreciation of P 9 500
was sold for P 1000 cash.
a. What was the gain or loss on the sale?
b. What was the effect of the transaction on working capital?
c. How would the transaction be reported in the cash flow statement?

4. The sales, net income and asset investment of two companies in the same industry are
As follows:

Company X Company Y

Sales 300 000 450 000

Net Income 30 000 45 000
Assets 200 000 900 000

a. What is the percentage of net income to sales for each company?

b. What is the rate of return on assets for each company?
c. As far as the data permit, comment on the relative performance of the two
companies.

5. The following data were taken from the balance sheet of Haydee Company:

Cash P 92 000 Prepaid Expense P 12 500

Marketable Securities 50 000 Accounts Payable 175 000
Accounts Receivable (net) 122 000 Accrued Liabilities 45 000
Merchandise Inventory 273 500

Determine the following. Show solutions.

a. Working Capital b. Current Ratio c. Acid Test Ratio

What conclusions can be drawn from these data as to the company’s ability to meet its
Currently maturing debts?

6. The accounting records of Ching Company show the following data:

2015 2016

Units Sold 2 500 4 000

Selling Price per Unit P 140 P 125
Cost per Unit P 80 P 70

Required: Prepare a statement accounting for the changes in sales, cost of sales and
gross profit.

7. From the following information for the Sweet Corporation, prepare a statement of
cash flows for the year ended December 31, 2015.

Amortization of patent P 2 200

Depreciation expense 7 000
Issuance of common stock 25 000
Issuance of new bonds payable 15 000
Net Income 44 000
Payment of Dividends 22 500
Purchase of Equipment 33 200
Retirement of long term debt 45 000
Sale of land (no gain, no loss) 3 500
Net decrease in cash for the period 4 000
8. Carreon Corp. was able to acquire second hand goods worth P 100, 000 in an auction. The
 goods can be sold as is for P120 000 or reconditioned at a cost of P 30, 000 and sold for
P 170, 000.

a. Identify the irrelevant cost in this problem.

b. What alternative should be chosen.
c. What is the opportunity cost of reconditioning the goods?

9. The three product lines of Grand Corp. earn the ff. contribution margin per unit: X – P 10,
Y – P 15, Z – P – 12. All the three products require the use of Material A. The needed
quantities of Material A per unit of the products are 5, 3 ,4 for products X, Y, Z respectively.
A labor strike in the company manufacturing material A limits the supply of the material to
Only 200, 000 units per month which is not enough to meet the monthly production
Requirements (based on sales demand) of 20, 000 for X; 10, 000 for Y and 30, 000 for Z,
Fixed manufacturing costs for the three products amount to P 100,000 per month.

Determine the number of units that must be produced for each product that will
Maximize total contribution margin and optimize utilization of the 200,000 units of
Material A.

10. You have been assigned the task of evaluating Mariano, Inc.’s management of merchandise
Inventory and receivables. You decided that inventory turn – over, accounts receivable
Turnover, and average age of receivables statistics will prove valuable in your analysis, The
ff. data were available from Mariano’s annual report:

Merchandise Inventory Cost of goods Sold 2, 480 000

Cash Sales 1, 000, 000
Jan. 1 P 245, 000 Total Sales 5, 100, 000
Dec. 31 375, 000 Mariano’s Credit terms Net 30 days

Accounts Receivable

Jan. 1 250 000

Dec. 31 297 000

REQUIRED: 1. Inventory turnover

2. Accounts receivable turnover
3. Average age of receivables
4. Is Mariano doing a good job in
Managing Inventory & receivable?