ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  October 2022 CPALE  Pre-Week Summary Lecture

MANAGEMENT SERVICES A. LEE  E. ARAÑAS  K. MANUEL

MS PREWEEK – THEORIES

‘MS Preweek – Theories’ shall be used in conjunction with ‘MS Preweek – Problems’ and will be deemed
incomplete without revisiting the following selected multiple-choice questions:
✓ MS Quiz 1: 4, 6, 10, 12
✓ MS Quiz 2: 3, 8, 11, 16, 18, 20
✓ MS Quiz 3: 2, 5, 7-9, 12-14
✓ MS Quiz 4: 1, 3-8, 16-17
✓ MS First Pre-Board Exams: 1, 9, 14, 16, 20, 35, 40, 50, 63
✓ MS Final Pre-Board Exams: 1, 5, 9, 20, 24, 36, 38, 40, 50
✓ MS-44L Self-Test Exercises on “Risks” and other related topics: 102-105, 108-109, 125-133

Breakdown of 70 items in MANAGEMENT SERVICES

 40 items: Part I – Management Accounting
 25 items: Part II – Financial Management
 5 items: Part III – Economics

Part I – Management Accounting

1. Which of the following best describes management accounting information?
D a. It is driven by rigid rules c. It is verifiable and reliable
b. It is prepared for shareholders d. It provides reasonable and timely estimates
2. The person most likely to use management accounting information is a (an):
B a. Governmental taxing authority c. Banker evaluating a credit application
b. Assembly department supervisor d. Shareholder evaluating a stock investment
3. Managerial accounting is very similar to financial accounting in this particular aspect.
a. Users of reports c. Emphasis between past and future
b. Type of data provided to users d. Reliance on the accounting database

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
4. Which financial executive is primarily responsible for both management and financial accounting?
B a. Treasurer c. Chief financial officer
b. Controller d. Auditor
5. The person (s) directly responsible for attaining of organizational objectives is/are the:
C a. Controller c. Line management
b. Chief financial officer d. Staff management
6. Staff management includes
D a. Purchasing managers c. Manufacturing managers
b. Distribution managers d. Human-resource managers
7. As teamwork has become more prominent in the last few years, differences between staff and line management:
B a. Have increased c. Have become more important relative to promotions
b. Have diminished d. Have only been evident in employee reward system
8. Management accounting plays three key roles in a business organization: (1) Scorekeeping, (2) Attention-Directing
(3) Problem-Solving. Problem-solving is best illustrated in which of the following situations?
a. A daily sales report {scorekeeping}
b. Tracking the type of product returned {attention-directing}
c. Making a recommendation regarding the lease or purchase of a fleet of vehicles
d. None of the choices illustrates problem-solving or any important role in management accounting
NOTE: Scorekeeping entails accumulating data and reporting results describing how the organization is doing. Attention-
directing involves reporting and interpreting information that helps managers focus on operational inefficiencies and
opportunities. Problem-solving involves identifying several available alternatives and often recommends the best course
of action. For control decisions, emphasis is placed on the ___ role(s) of management accounting.
D a. Scorekeeping c. Problem-Solving
b. Attention-Directing d. Both Scorekeeping and Attention-Directing
9. For strategic decisions, emphasis is placed on the ___ role(s) of management accounting.
C a. Scorekeeping c. Problem-Solving
b. Attention-Directing d. Both Scorekeeping and Attention-Directing
10. The latest version of IMA Standards of Ethical Professional Practice for management accountants comprises of (A)
competence, (B) confidentiality, (C) integrity and (D) credibility. “Integrity” requires management accountant to:
a. Maintain an appropriate level of professional expertise by continually developing knowledge and skills
and perform duties in accordance with relevant laws, regulations, and technical standards
b. Keep information confidential unless disclosure is authorized or legally required
c. Mitigate actual conflicts of interest and refrain from engaging in any conduct that would prejudice
carrying out duties ethically
d. Communicate information fairly and objectively and disclose all relevant information expected to
influence an intended user’s understanding of the reports, analysis and recommendations
11. If a management accountant has a problem in resolving an ethical conflict or unethical behavior, the first action that
should normally be taken is to
a. Notify the law enforcement agency c. Resign from the company
b. Consult with the board of directors d. Discuss the problem with immediate superior
12. The annual insurance premium for a factory building would be a:
D a. Fixed cost, period cost, and indirect cost with regard to units of product.
b. Fixed cost, product cost, and direct cost with regard to units of product.
c. Variable cost, product cost, direct cost with regard to units of product.
d. Fixed cost, product cost, indirect cost with regard to units of product.
13. In the standard regression equation y = a + bx, the letter b is best described as a(n)
a. Independent variable c. Constant coefficient
b. Dependent variable d. Variable coefficient
14. When activity changes, this cost shifts upward or downward by a certain interval.
A a. Step cost c. Shifting cost
b. Cost interval d. Incremental cost
15. The cost function derived by the simple least-squares method is
A a. Linear c. Parabolic
b. Curvilinear d. Derived from the maximum and minimum points
16. Simple regression provides the means to evaluate a line of regression that is fitted to a plot of data and represents
a. The way costs change in respect to the independent variable.
b. The way costs change in respect to the dependent variable.
c. The variability of expense with dollars of operations.
d. The variability of expense with dollars of production.
17. The slope of the line of regression is
C a. The level of total fixed costs. c. The rate at which the dependent variable varies.
b. The level of total variable costs. d. The rate at which the independent variable varies.
18. Cost-volume-profit (CVP) analysis is MOST essential in the determination of the
D a. Production level that is equal to sales
b. Volume of operations in order to break-even
c. Variable costs necessary to equal fixed costs
d. Relationship between revenues and costs at various levels of operations
19. As projected profit increases, the
D a. Breakeven point goes down c. Contribution margin goes up
b. Margin of safety stays constant d. Degree of operating leverage declines

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
20. If Company A has a higher degree of operating leverage than Company B, then
a. Company A is less risky
b. Company B is less profitable
c. Company A has higher fixed operating expenses
d. Company A’s profits are more sensitive to percentage changes in sales
21. The distinction between absorption costing and variable costing is most important for which type of industry?
a. Manufacturing c. Retail
b. Marketing d. Service
22. In determining the lowest price that can be quoted for a special order that will use idle capacity within a production
area, the best allocation method to use is
B a. Process costing c. Job order costing
b. Variable costing d. Absorption costing
23. In target costing
a. The market price of the product is taken as a given
b. Only raw materials, labor, and variable overhead cannot exceed a threshold target
c. Only raw materials cannot exceed a threshold target
d. Raw materials are recorded directly to cost of goods sold
24. A budget can serve as:
C a. A control tool c. A planning and control tool
b. A planning tool  usual mistake ☺ d. A basis for preparing financial statements
25. The master budget embraces the impact of
A a. Operating and financing decisions c. Financing and managerial decisions
b. Operating and managerial decisions d. Operating, managerial, and financing decisions
26. The steps to follow when preparing the operating budget are
A a. Revenue budget, production budget, and direct materials purchases budget.
b. Costs of goods sold budget, production budget, and cash budget.
c. Revenue budget, overhead budget, and production budget.
d. Revenue budget, cash inflows, and production expenditures.
27. In the budgeting and planning process for a firm, which one of the following should be completed first?
D a. Sales budget  usual mistake ☺ c. Cost management plan
b. Financial budget d. Strategic plan
28. Pro forma financial statements are part of budgeting process. Normally, the last pro forma statement prepared is:
C a. Income statement c. Statement of cash flows
b. Statement of cost of goods sold d. Statement of manufacturing costs
29. Unlike zero-based budgeting, incremental budgeting
C a. Starts from a base of zero {Zero-based budgeting}
b. Requires a manager to justify the entire budget for each year {Zero-based budgeting}
c. Simply adjusts the current year’s budget to allow for changes planned for the coming year
d. Eliminates the need to review all functions periodically to obtain optimum use of resources
30. A life-cycle budget is a budgeting tool or process
a. Which emphasizes the cost of activities {Activity-based budget}
b. Which summarizes all of a company’s budgets and plans {Master budget}
c. Which requires each manager to justify the unit’s entire budget each period {Zero-based budget}
d. In which estimates of revenues and expenses are prepared for each product beginning with the product’s
research and development phase and traced through its customer support phase
31. ‘Kaizen’ budgeting refers to the budgeting process where
a. The budget is based on only one level of activity {Static budget}
b. The budget is based on many levels of activity so that the budget may be adjusted based on actual
activity {Flexible budget}
c. The budget is based not on the existing system, but on changes or improvements that are to be made
d. A product’s revenues and expenses are estimated over its entire life cycle (i.e., from R&D phase to
customer support phase) {Life-cycle budget}
32. The process of preparing a budget:
D a. Reduces overcapacity
b. Increases accounting efficiencies
c. Promotes production automation
d. Forces coordination and communication across business functions
33. A firm most often uses a standard costing system in conjunction with:
a. Flexible budgets c. Target (hurdle) rate of return
b. Management by objectives d. Participative management programs
34. A difference between standard costs used for cost control and the budgeted costs of the same effort can exist
because
A a. Standard costs represent what costs should be, whereas budgeted costs are expected actual costs
b. Budgeted costs are historical costs, whereas standard costs are based on engineering studies
c. Budgeted costs include some slack, whereas standard costs do not
d. Standard costs include some slack, whereas budgeted costs do not
35. Variance analysis should be used
a. To understand why variances arise
b. To encourage employees to focus on meeting standards
c. As the only source of information for performance evaluation
d. To administer appropriate disciplinary action to employees that do not meet standards

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
36. The production department should generally be responsible for material price variances that resulted from
B a. Purchases made in uneconomical lot-sizes. c. Purchase of the wrong grade of materials.
b. Rush orders arising from poor scheduling. d. Changes in the market prices of raw materials.
37. Variance analysis would be appropriate to measure performance in
a. Cost centers c. Investment centers
b. Profit centers d. Cost, profit and investment centers
38. A primary consideration in tracing a cost in responsibility accounting is
C a. Whether it is fixed or variable
b. Whether it is production or administrative
c. Who or what caused the cost to be incurred
d. Where in the organizational structure the cost occurred
39. A report showing the actual financial results for a period compared to the budgeted financial results for that same
period would most likely be called a:
C a. Revised plan c. Performance report
b. Strategic plan d. Management forecast
40. Which of these items will LEAST likely appear in the internal performance report prepared by a profit center manager?
D* a. Intersegment and external sales c. Direct variable cost
b. Discretionary fixed cost d. Committed fixed cost
41. Residual income is a better measure for performance evaluation than return on investment because
a. The problems associated with measuring the asset base are eliminated
b. Desirable investment decisions will not be neglected by high-return divisions
c. Only the gross book value of assets needs to be calculated
d. The arguments about the implicit cost of interest are eliminated
42. Managerial performance can be measured in many different ways, including return on investment (ROI) and residual
income. A good reason for using residual income instead of ROI is that
B a. Residual income can be computed without regard to identifying an investment base
b. Goal congruence is more likely to be promoted by using residual income
c. Residual income is well understood and often used in the financial press
d. ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage
43. Which one of the following items would most likely not be incorporated into the calculation of a division’s investment
base when using the residual income approach for performance measurement and evaluation?
B a. Fixed assets employed in division operations
b. Land being held by the division as a site for a new plant
c. Division inventories when division management exercises control over the inventory levels
d. Division accounts payable when division management exercises control over the amount of short-term
credit used
44. A firm earning a profit can increase its return on investment by
D a. Increasing sales revenue and operating expenses by the same peso amount
b. Decreasing sales revenues and operating expenses by the same percentage
c. Increasing investment and operating expenses by the same peso amount
d. Increasing sales revenues and operating expenses by the same percentage
45. Managers are most likely to accept allocations of common costs based on
a. Cause and effect c. Fairness
b. Ability to bear d. Benefits received
46. Using the balanced scorecard approach, an organization evaluates managerial performance based on
B a. A single ultimate measure of operating results, such as residual income
b. Multiple financial and nonfinancial measures
c. Multiple nonfinancial measures only
d. Multiple financial measures only
47. The balanced scorecard has been adopted by many corporations. Which best describes the balanced scorecard?
D a. A strategy that meets management’s objectives.
b. A diagram illustrating cause and effect relationships
c. A table of key actions to achieve strategic objectives
d. A strategic performance measurement and management framework
48. A balanced scorecard is primarily concerned with
a. Staff c. Systems
b. Strategy d. Structure
49. Strategy specifies:
D a. The demand created for products and services
b. Standard procedures to ensure quality products
c. Incremental changes for improved performance
d. How an organization matches its own capabilities with the opportunities in the marketplace
50. Which of the following is NOT a component of the balanced scorecard?
D a. Strategic objectives c. Strategy initiatives
b. Targets d. Assessment of human resources
51. Which balanced scorecard performance measure would be part of those used for internal business processes
perspective?
a. Cycle time c. Customer retention
b. Employee satisfaction d. Return on investment

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
52. On a balance scorecard, which of the following is NOT an appropriate measure of internal business process
performance?
D a. Quality costs c. Manufacturing cycle efficiency
b. Delivery cycle time d. Number of customer complaints
53. Strategy should focus PRIMARILY on the organization’s
B a. Products c. Employees
b. Customers d. Shareholders
54. _________ is an operational factor that directly affects the economic viability of the organization.
A a. A key success factor c. Customer focus
b. Continuous improvement d. Supply chain
55. The approaches and activities of managers in short-run and long-run planning and control decisions that increase
value for customers and lower costs of products and services are known as
A a. Cost management c. Enterprise resource planning
b. Value chain management d. Customer value management
56. The process of managing various activities in the value chain, along with the associated costs, is commonly known
as
B a. Activity-based costing c. Total quality management
b. Strategic cost management d. Computer-integrated costing
57. Value-added activities
a. Shall be removed or eliminated
b. Cannot be distinguished from non-value-added activities
c. Involve usage of resources that customers are willing to pay for
d. Cause additional costs to a product without affecting the selling price
58. The three major types of competitive strategic cost management include
a. Differentiation, focus and productivity c. Cost leadership, focus and differentiation
b. Cost leadership, focus and productivity d. Cost leadership, differentiation and productivity
59. The primary objective of just-in-time (JIT) processing is to
A a. Eliminate or reduce inventories c. Identify relevant activity cost drivers
b. Identify non-value-added activities d. Accumulate overhead in activity cost pools
60. JIT is based on notion that ‘work is initiated only in response to customer orders.’ This practice is described as
a. Demand-pull c. Supply-pull
b. Demand-push d. Supply-push
61. Which of the following is among the benefits of adopting a JIT system?
D a. Increase in the number of suppliers c. Reduction in the number of deliveries
b. Performance of non-value-added activities d. Maximization of standard delivery quality
62. Which of the following quality tools is another term for gradual yet continuous improvement?
a. Theory of constraints c. Business process reengineering
b. Kaizen d. Kanban system
63. It is an approach to continuous improvement that focuses on serving customers and uses front-line workers to
identify and solve problems systematically.
C a. ABC system c. Total quality management (TQM)
b. Just-in-time (JIT) system d. Process value analysis
64. Total Quality Management (TQM) should be viewed as
C* a. Goal centered and standard driven c. Customer centered and employee driven
b. Policy centered and procedure driven d. Management centered and technology driven
65. What is a common characteristic of total quality management (TQM)?
B a. Quality by final inspection c. Management by objectives (MBO)
b. Education and self-improvement d. On-the-job training by some workers
66. Business Process Reengineering (BPR) is a more radical approach to improvement than TQM since BPR
a. Requires a change in the company’s products
b. Involves completely redesigning business processes by outside consultants
c. Involves redesigning business processes and eliminating value-added activities
d. Empowers front-line workers to solve problems and it focuses on attention on solving problems rather
than on finger-pointing
67. A company that wants to be known as a world-class manufacturer of quality products shall spend more heavily on
this type of quality costs.
a. Appraisal costs c. Internal failure costs
b. Prevention costs d. External failure costs
68. Which of the four quality costs would be the MOST damaging to a company’s ability to build a reputation as a world-
class manufacturer of quality products?
D a. Appraisal costs c. Internal failure costs
b. Prevention costs d. External failure costs
69. Productivity is measured by the
a. Total quantity of input used to generate total quantity of output for a time period
b. Total quantity of output generated from a limited amount of input during a period
c. Quantity of good output generated from a specific amount of input during a period
d. Quantity of good output generated from the quantity of good input used during a period
70. Under Theory of Constraints (ToC), improvement efforts should be focused
A a. Work center that is a constraint c. Cost center that incurs the highest costs
b. Work center that has no constraint d. Cost center that has least number of constraints

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
71. To be successful, a company needs to be:
B a. Employee driven c. Management driven
b. Customer driven d. “Driven” by the board of directors
72. Which of the following is NOT a way for a company to improve customer response time?
C a. Use faster delivery procedures c. Purchase material in larger quantities
b. Produce the product more quickly d. Increase capacity of bottleneck operations
73. The primary criterion when faced with a resource allocation decision is:
D a. Cost minimization
b. Achievement of organizational goals
c. Reduction in the amount of time requirement to perform a particular job
d. How well the alternative options help achieve organization goals in relation to the costs incurred for
these systems
74. Which of the following statements is false regarding learning curve?
a. Learning curves differ from company to company
b. Changes in personnel can change the learning curve
c. Learning curves can always be used for indirect labor
d. The learning curve may spike for a short time even if it is going to drop in the long run
75. Which one of the following courses of actions would not be taken by a firm wanting to pursue a learning curve
steeper than the industry average?
D a. Building on shared experience
b. Focusing on continuing cost reduction
c. Focusing on productivity improvement
d. Keeping capacity equal to demand to control costs

Part II – Financial Management

1.As a company becomes more conservative in working capital policy, it would tend to have a (an)
a. Decrease in acid test ratio
b. Increase in the ratio of current assets to units of output
c. Increase in the ratio of current liabilities to non-current liabilities
d. Increase in funds invested in common stock and a decrease in funds invested in securities
2. The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm’s
maturing obligations is the policy that finances (where: CA = current assets)
a. Temporary CA with long-term debts c. Permanent CA with long-term debts
b. Fluctuating CA with short-term debts d. Permanent CA with short-term debts
3. A consultant recommends that a company hold funds for the following two reasons:
Reason #1: Cash needs can fluctuate substantially throughout the year
Reason #2: Opportunities for buying at a discount may appear during the year
The cash balances used to address the reasons given above are correctly classified as
Reason # 1 Reason # 2
a. Speculative balances Speculative balances
b. Speculative balances Precautionary balances
c. Precautionary balances Speculative balances
d. Precautionary balances Precautionary balances
4. Which of the following is true about a firm’s float?
a. A firm strives to minimize the float for both cash receipts and cash disbursements
b. A firm strives to maximize the float for both cash receipts and cash disbursements
c. A firm strives to maximize the float for cash receipts and minimize the float for cash disbursements.
d. A firm strives to maximize the float for cash disbursements and minimize the float for cash receipts.
5. All of the following are valid reasons for a business to hold cash and liquid assets, EXCEPT to:
C a. Meet future needs c. Earn maximum return on investment assets
b. Satisfy compensating balance requirements d. Maintain adequate cash needed for transactions
6. The Baumol Cash Model is used to determine the optimal split between cash and marketable securities. This model
assumes all of the following, EXCEPT that:
A a. Cash flow requirements are random
b. Interest rates are constant over the short run
c. The cost of a transaction is independent of the peso amount of the transaction
d. There is an opportunity cost associated with holding cash, beginning with the first peso
7. Which security is most often held as a substitute for cash?
A a. Treasury bills c. Gold
b. Common stock d. AAA corporate bonds
8. EOQ is the order quantity that results in
a. No inventory shortages c. The minimum total annual inventory costs
b. Maximum inventory costs d. The maximum total annual inventory costs
9. Which of the following would tend to increase the holdings of inventory quantity in the future?
B a. Increased computer control c. Standardization of products
b. Increased rate of sales growth d. Limiter variety of products
10. A decrease in inventory order costs will tend to
B a. Increase the reorder point c. Decrease the holding cost percentage
b. Decrease the economic order quantity d. Have no effect on the economic order quantity

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
11. Which statement best summarizes the factor that affects the level of safety stock that a firm will carry?
D a. The level of production the firm’s bank is willing to finance
b. The rapidity with which the inventory position will turn over
c. The amount of idle cash that management believes it has to invest in safety stock
d. The level of uncertainty with respect to a stock-out condition that management is willing to accept
12. An Enterprise Resource Planning System can be best described as:
D a. A collection of programs that use a variety of unconnected databases
b. A sophisticated means of linking two or more companies to facilitate their planning processes
c. A database that is primarily used by a purchasing department to determine the correct amount of a
particular supply item to purchase
d. A single database that collects data and feeds it into applications that support each of the company’s
business activities, such as purchases, production, distribution, and sales
13. When a company analyzes credit applicants and increase the quality of accounts rejected, a company is attempting
to:
B a. Maximize sales c. Increase bad debt losses
b. Maximize profit d. Increase average collection period
14. An increase in sales resulting from an increased cash discount for prompt payment would be expected to cause:
a. A decrease in cash conversion cycle c. An increase in operating cycle
b. A decrease in purchase discounts taken d. An increase in average collection period
15. An entity obtaining short-term financing with trade credit will pay a higher percentage financing cost when the
D a. Discount percentage is lower c. Items purchased have a lower price
b. Items purchased have a higher price d. Supplier offers a longer discount period
16. A short-term bank loan will have a higher effective financing cost if it has which combination of characteristics?
a. A 10% compensating balance and regular interest
b. A 10% compensating balance and discount interest
c. A 20% compensating balance and regular interest
d. A 20% compensating balance and discount interest
17. Short-term, unsecured promissory notes issued by large firms are known as:
A a. Commercial paper c. Bankers’ acceptances
b. Agency securities d. Repurchase agreements
18. Generally, the most expensive source of financing for a firm is:
D a. Debt c. Retained earnings
b. Preferred stock d. New common stock
19. Which of the following is NOT a component used in calculating the cost of capital?
B a. Cost of long-term debt c. Cost of common stock
b. Cost of short-term debt d. Cost of retained earnings
20. The value of the stock increases as the
D a. Value of the debt decreases c. Required rate of return increases
b. Dividend growth rate decreases d. Required rate of return decreases
21. The Gordon model (Dividend Growth model) assumes that the return on share of common stock is comprised of a:
a. Dividend yield and capital gains yield c. Capital gains yield and dividend growth rate
b. Dividend yield and expected price next year d. Capital gains growth rate and dividend growth rate
22. Under CAPM, “beta” can best be described as the
a. Weighted-average return of an investment portfolio
b. Variability of standard deviation of the investment returns
c. Investment return’s sensitivity to changes in interest rates
d. Investment return’s sensitivity to changes in the market’s returns
23. The additional return one must expect to receive for assuming risk?
B a. Risk discount c. Risk-free rate of return
b. Risk premium d. Expected rate of return
24. The type of risk that is not diversifiable and affects the value of a portfolio is
B a. Default risk c. Nonmarket risk
b. Market risk d. Liquidity risk
25. When purchasing temporary investments, which one of the following best describes the risk associated with the
ability to sell the investment in a short period of time without significant price concessions?
D a. Interest-rate risk c. Financial risk
b. Purchasing-power risk d. Liquidity risk
26. What relationship does risks and returns normally have?
a. Direct relationship c. Spurious relationship
b. Inverse relationship d. Illicit and discreet relationship
27. Investments available in Philippine capital markets generally consists
A* a. Debt and equity securities
b. Pag-ibig funds, mutual funds and UITFs
c. Real estate, multi-level marketing and networking
d. Franchising, entrepreneurship, loans and lending arrangements
28. Of the following four investments, which is generally considered the safest?
D a. Commercial paper c. Treasury bonds
b. Corporate bonds d. Treasury bills

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
Batch 44 – October 2022 CPA Licensure Examination
MS Preweek (T)
29. Additional funds needed (AFN) are best described as:
D a. The amount of assets required per peso of sales
b. Funds that are obtained automatically from routine business transactions
c. A forecasting approach in which the forecasted percentage of sales for each item is held constant
d. Funds that a firm must raise externally through borrowing or by selling new common/preferred stock
30. External capital requirements (i.e., AFN) are LOWER for entities with which one of the following characteristics?
a. Lower profit margins c. Higher sales growth rates
b. Lower retention ratios d. Lower capital intensity ratios
31. If a high percentage of an entity’s total costs is fixed, the entity’s operating leverage will be
B a. Low c. Unchanged
b. High d. Unable to be determined
32. If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the
largest?
C a. Return on total assets c. Return on common equity
b. Return on operating assets d. Return on total equity
33. When establishing optimal capital structure, firms should strive to
D a. Maximize the marginal cost of capital c. Minimize the amount of debt financing used
b. Maximize the amount of equity financing d. Minimize the weighted average cost of capital
34. A company has an acid-test ratio of 1.5 to 1.0. Which will cause this ratio to deteriorate for the company?
a. Sale of equipment at a loss c. Borrowing short-term loan from a bank
b. Sale of inventory on account d. Payment of cash dividends previously declared
35. Accounts receivable turnover will normally decrease as a result of:
B a. An increase in cash sales in proportional to credit sales
b. A change in credit policy to lengthen the period for cash discounts
c. A significant sales volume decreases near the end of the accounting period
d. The write-off of an uncollectible account (assume the use of allowance for doubtful accounts method)
36. Return on investment may be calculated by multiplying total asset turnover by
a. Average collection period c. Debt ratio
b. Profit margin d. Fixed-charge coverage
37. What effect will the issuance of common stock for cash at year-end have on the following ratios?
Return on Total Assets Debt-Equity Ratio
D a. Increase Increase
b. Increase Decrease
c. Decrease Increase
d. Decrease Decrease
38. Times-interest-earned (TIE) ratio is primarily an indication of
a. Liquidity c. Profitability
b. Solvency d. Asset management
39. Identify the set of ratios that is most useful in evaluating solvency.
D a. Debt ratio, current ratio, and TIE c. Debt ratio, quick ratio, and TIE
b. Debt ratio, TIE, and RoA d. Debt ratio, TIE, and cash flow to debt
40. Horizontal and vertical analyses are techniques used by analysts in understanding the financial statements of
companies. Which of the following is an example of a vertical, common-size analysis?
D a. Commission expense in 2022 is 10% greater than it was in 2021 which serves as base year
b. A comparison in financial ratio between two or more firms in the same industry
c. A comparison in financial ratio between two or more firms in different industries
d. Commission expense in 2022 is 5% of sales
41. In deciding whether to replace a machine, which of the following is NOT a sunk cost?
D a. Book value of the existing machine c. Depreciated cost of the existing machine
b. Original cost of the existing machine d. Expected resale price of the existing machine
42. In capital budgeting, which of the following is NOT considered in the net investment for decision making purposes?
a. Additional working capital requirements
b. Tax shield on loss of disposal of old machine
c. Salvage value of the old machine to be replaced
d. Salvage value of the new machine for replacement
43. In computing the initial investment for decision-making, taxes would be relevant for all of the following, EXCEPT:
C a. Avoidable repairs of old asset
b. Profit on sale of old asset replaced by a new one
c. Increase in working capital required to support new capital investment
d. Loss on write-off of other assets disposed because of new capital investment
44. For a certain capital project, the return that investors demand for investing in a firm is known as:
D a. DCF rate of return c. Payback
b. Net present value d. Cost of capital
45. In an investment in plant asset, the return that keeps the market price of the firm stock unchanged is
B a. Net present value c. Adjusted rate of return
b. Cost of capital d. Unadjusted rate of return
46. As a capital budgeting technique, the payback period considers depreciation expense (DE) and time value of money
(TMV) as follows:
a. DE, relevant and TVM, relevant c. DE, irrelevant and TVM, relevant
b. DE, irrelevant and TVM, irrelevant d. DE, relevant and TVM, irrelevant

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47. The payback method assumes that all cash inflows are reinvested to yield a return equal to
D a. The discount rate c. The internal rate of return
b. The hurdle rate d. Zero
48. Which capital budgeting method assumes that the funds are reinvested at the company’s cost of capital?
C a. Payback c. Net present value
b. Accounting rate of return d. Time adjusted rate of return
49. Everything else being equal, the internal rate of return (IRR) of an investment project will be lower if:
D a. Cash inflows are larger c. The project has a shorter payback period
b. The investment cost is lower d. Cash inflows are received later in project life
50. The project profitability index and the internal rate of return:
a. Will always result in the same preference ranking for investment projects.
b. Will sometimes result in different preference rankings for investment projects.
c. Are less dependable than the payback method in ranking investment projects.
d. Are less dependable than net present value in ranking investment projects.

Part III – Economics

1.___ economics is analysis that generates objective descriptions or predictions about the world that can be verified
with data.
A a. Positive c. Normative
b. Negative d. Marginal
2. Which of the following is an example of a positive economic statement?
a. Economics is the most useful social science
b. An increase in income causes an increase in savings
c. The government should ideally work as a welfare state
d. Eliminating poverty is more important than reducing inflation
3. ___ economics prescribes what an individual or society ought to do.
C a. Positive c. Normative
b. Negative d. Behavioral
4. Which of the following is an example of a normative economic statement?
a. An increase in income is accompanied by an increase in savings
b. An increase in income is accompanied by an increase in consumption
c. An increase in the money supply will lead to an increase in inflation rate
d. An increase in government expenditure will lead to an increase in well-being
5. Which of the following statements correctly differentiates between positive and normative economics?
A a. Positive economics is descriptive, whereas normative economics is advisory.
b. Positive economics is based on judgments, whereas normative economics is not.
c. Positive economics describes what people ought to do, whereas normative economics describes what
people actually do.
d. Positive economics is applied to microeconomics, whereas normative economics is applied to
macroeconomics.
6. The 3 basic principles in modern economics are optimization, equilibrium and empiricism. EMPERICISM refers to:
a. The process of choosing the best option from a set of alternatives, given the available information
b. A special situation where everyone is simultaneously optimizing, so that nobody will benefit personally
by changing his or her behavior
c. The analysis that is evidenced-based as it uses data to test theories and to determine what is causing
things to happen in the world
d. The study of how economic agents choose to allocate scarce resources and how the choices affect society
7. The term “free riders” refers to people who:
A a. Don’t contribute but still benefit from others’ actions
b. Make economic decisions randomly and are not rational
c. Selflessly pay for others’ consumption of goods and services
d. Haggle over the prices of the goods and services that they buy
8. Which of the following is an example of free riding?
a. An individual who sneaks inside a music concert
b. A consumer who buys his groceries from a nearby store
c. A tax payer who exercises in the public park near his house
d. A club member who makes voluntary contributions to the club
9. Assume that a house is rented by 4 students. When it comes to keeping the house clean, each of the four roommates
has an incentive to leave cleaning to the others. As a result, the house is never clean. What is the best solution to
this problem of free riding?
B a. Ask every roommate to clean the house if they dirty it
b. Require every roommate to contribute to a cleaning service
c. Require each room mate to pay more toward the house rent and groceries
d. Assign one roommate the responsibility to keep a watch over the other students
10. A business cycle is a sequence of economic activity in a nation’s economy that is typically characterized by four
phases – recession, recovery, growth and decline. DECLINE refers to
a. Most unwelcome stage of business cycle where levels of buying, selling, production and employment
typically diminish. {recession}
b. An ‘upturn’ stage in the business cycle where the economy troughs out and start working its way up to
better financial footing. {recovery}

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c. The stage in the business cycle where the economy goes through sustained expansion, increased
consumer confidence, and high levels of business activity. {growth}
d. A ‘downturn’ or contraction stage in the business cycle that marks the end of the period of growth and
where the economy experiences decreased level of production by businesses and consumer purchases.
11. Gross domestic product (GDP) is the
C a. Total purchases by consumers, business, government, and foreign entities {Aggregate demand}
b. Total amount of expenditures for consumer goods and investment for a period of time {Aggregate
demand}
c. Value of all final goods and services produced by the country by both domestic and foreign-owned
companies
d. Value of all goods and services produced by the country by domestic firms, excluding those produced
by foreign-owned companies.
12. Which of the following may provide a leading indicator of a future increase in gross domestic product?
D a. A reduction in the money supply
b. A decrease in the issuance of building permits
c. An increase in the timeliness of delivery by vendors
d. An increase in the average hours worked per week of production workers
13. Which is a positive effect of inflation?
a. Uncertainty about future inflation may discourage investment and saving
b. Loss in stability in the real value of money and other monetary items over time
c. Mitigation of economic recessions and debt relief by reducing the real level of debt
d. Shortages of goods if consumers begin hoarding in anticipation of price increase in the future
14. In macroeconomics, a deflationary spiral is a situation where
a. Decreases in production lead to decreases in prices, which in turn lead to lower wages and demand
b. Decreases in prices lead to lower production, which in turn leads to lower wages and demand, which
leads to further decreases in prices
c. Decreases in prices lead to higher production, which in turn leads to higher wages and demand, which
results into increase in prices
d. Increases in prices lead to a vicious cycle, and a problem exacerbates its own cause
15. Stagflation is defined as the “double trouble” of high level of inflation combined with the increase in
a. Unemployment c. The money supply
b. The price level d. Corporate profits
16. Workers who are unemployed because they lack the skills needed by employers are called
D a. Cyclically unemployed c. Frictionally unemployed
b. Seasonally unemployed d. Structurally unemployed
17. Which type of unemployment is likely to increase the most in a severe recession?
A a. Cyclical unemployment c. Frictional unemployment
b. Seasonal unemployment d. Structural unemployment
18. The most effective FISCAL policy program for reducing demand-pull inflation is to:
a. Decrease government spending and increase taxes
b. Increase government spending and decrease taxes
c. Increase both government spending and taxes
d. Decrease the money supply
19. Which of the following is NOT an instrument of MONETARY policy by which money supply is controlled?
a. Open-market operations c. Changing the discount rate
b. Changing the reserve ratio d. Manipulation of government spending
20. When the interest rate is extremely high,
B a. Opportunity cost of holding money is low c. Supply of money will be relatively small
b. Opportunity cost of holding money is high d. No cost to holding money (purchasing power is constant)
21. If Bangko Sentral raises interest rates sharply, the country’s currency will most likely
A a. Increase in relative value
b. Decrease in relative value
c. Remain unchanged in value
d. Decrease sharply in value at first and then return to its initial value
22. Balance of payments is an accounting statement that records monetary transactions between:
C a. Two residents of the same nation c. Residents of a nation and the rest of the world
b. Residents and non-residents of a nation d. Non-residents of a nation and the rest of the world
23. Trade deficit occurs when
A a. Export of goods < imports of goods c. Export of services > imports of services
b. Export of goods > imports of goods d. Export of services < imports of services
24. When a country imports more than it exports, the country
B a. Has negative net imports c. Is suffering from inflation
b. Has negative net exports d. Is experiencing an income boom
25. Which of the following is an economic rationale for government intervention in trade?
A a. Protecting infant industries c. Dealing with friendly countries
b. Preserving national identity d. Maintaining spheres of influence
26. If the value of US dollar in foreign currency markets changes from US $1 = € 0.95 to US $1 = € 0.90,
a. US exports to Europe shall decrease
b. The Euro has depreciated against the dollar
c. Products imported from Europe to the U.S. will become more expensive
d. US tourists in Europe will find their dollars capable of buying more European products

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27. A Philippine importer of English clothing has contracted to pay an amount fixed in British pounds three months from
now. If the importer worries that the Philippine peso may depreciate sharply against the British pound in the interim,
it would be well advised to
B a. Sell pounds in the forward exchange market c. Sell pesos in the futures market
b. Buy pounds in the forward exchange market d. Buy pesos in the futures market
28. A company has recently purchased some stock of a competitor. However, it is somewhat concerned that the market
price of this stock could decrease over the short run. The company could hedge against the possible decline in the
stock’s market price by:
B a. Selling a put option on that stock c. Purchasing a call option on that stock
b. Purchasing a put option on that stock d. Obtaining a warrant option on that stock
29. If people expect the price of coffee to rise next month, the demand for coffee will
B a. Decrease now c. Stay the same now and increase next month
b. Increase now d. Stay the same now and next month
30. If both the supply and the demand for a good increase, the market price will
D a. Increase c. Not change
b. Decrease d. Not be predictable with only these facts
31. If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded
of the good, demand is said to be
C a. Unit-elastic c. Relatively inelastic
b. Relatively elastic d. Perfectly inelastic
32. If a small percentage increase in the price of a good results in a rather large percentage reduction in the demanded
of the good, demand is said to be
B a. Unit-elastic c. Relatively inelastic
b. Relatively elastic d. Perfectly inelastic
33. When the demand for a product is elastic, a decrease in the price of a product will
a. Increase competition c. Decrease total revenue
b. Increase total revenue d. Not affect total revenue
34. According to the law of supply,
A a. Producers are willing to supply larger amounts of a good as its price increases
b. A direct relationship exists between the price of a good and the amount buyers choose to buy
c. An inverse relationship exists between the price of a good and the amount buyers wish to buy
d. An inverse relationship exists between the price of a good and the amount producers supply
35. A shift in the supply curve may result from the following, EXCEPT
a. Changes in production technology
b. Changes in the number of sellers in the market
c. Changes in the number of buyers in the market
d. Changes or expected changes about future prices of resources
36. The competitive model of supply and demand predicts that a surplus can arise only if there is a
a. Maximum price above the equilibrium price c. Maximum price below the equilibrium price
b. Minimum price below the equilibrium price d. Minimum price above the equilibrium price
37. If there is a decrease in both the supply and demand for a good, which of the following will definitely occur?
D a. The price of the good will increase c. The equilibrium quantity will increase
b. The price of the good will decrease d. The equilibrium quantity will decrease
38. Compared with firms in a perfectly competitive market, a monopolist tends to
A a. Produce substantially less but charge a higher price
b. Produce substantially more and charge a higher price
c. Produce the same output and charge a higher price
d. Produce substantially less and charge a lower price
39. Monopolistic competition is characterized by
a. A relatively large group of sellers who produce differentiated products
b. A relatively small group of sellers who produce differentiated products
c. A monopolistic market where the consumer is persuaded that there is perfect competition
d. A relatively large group of sellers who produce a homogenous product
40. A profit-maximizing monopolist will produce at an output level where:
C a. Marginal revenue equals average total cost c. Marginal revenue equals marginal cost
b. Marginal cost equals average total cost d. Demand equals average total cost

END

Strategic analysis to operating income is generally broken down into three (3) major components:
1) GROWTH component is the change in the operating income due to the change in the units sold by considering the
effect on both the costs and the revenues.
2) PRICE-RECOVERY component is the change in the operating income due to the change in the selling price of the
units sold, change in the input prices and the per-unit price of capacity.
3) PRODUCTIVITY component measures the changes in the costs attributable to the changes in the quantity of inputs
to produce the same output.

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(A) (B)
(C) (D) (E)

(F) (G) (H)

(I)

(J)

Based on the PRC REG Form No. 001 (Rev. Nov 2007) or otherwise known as “Panunumpa ng
Propesyonal,” what Filipino words are represented by the following letters?

(A) ________________________________ (F) ________________________________

(B) ________________________________ (G) ________________________________

(C) ________________________________ (H) ________________________________

(D) ________________________________ (I) ________________________________

(E) ________________________________ (J) ________________________________

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