1.

This is defined as the management of the finances of an organization in order to achieve its
financial objectives.
a. Financial management
b. Cash management
c. Working capital management
d. Equity management

2. One of the major disadvantages of a sole proprietorship is

a. That there is unlimited liability to the owner
b. The simplicity of decision making
c. Low organizational costs
d. Low operating costs

3. The following are disadvantages of a partnership, except

a. Lack of continuity
b. Difficulty of transferring ownership
c. Ease of formation
d. Unlimited liability

4. This means that business owners are personally liable for any loss the business makes.
a. Agency
b. Unlimited liability
c. Limited liability
d. Capital investment

5. The partnership form of organization

a. avoids the double taxation of earnings and dividends found in the corporate form of
organization.
b. usually provides limited liability to the partners.
c. has unlimited life.
d. simplifies decision making.

6. A corporation is
a. owned by stockholders who enjoy the privilege of limited liability.
b. easily divisible between owners.
c. a separate legal entity with perpetual life.
d. all of the above

7. The following are advantages of a corporation, except

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

8. The following are included in financial planning, except

 a. Funding for planned purchases of non-current assets
b. Funding for purchase of inventory
c. Ensuring working capital requirements are met
d. All are included

9. The following are investment decisions internal to the business enterprise, except
a. Whether to engage in a joint venture with another enterprise
b. Whether to invest in new plant and machinery
c. Research and development of new products
d. Investment in a marketing or advertising campaign

10. This decision determines how scarce or limited resources in terms of funds of business firms are
committed to projects.
a. Investment decisions
b. Financing decisions
c. Dividend decisions
d. All of the above

11. This can be defined as the identification of possible ways of maximizing an organization’s net
present value and allocation of its scarce capital resources.
a. Financial management
b. Financial strategy
c. Management accounting
d. Financial accounting

12. A business trend where domestic firms invest and produce goods in foreign countries or when
these firms choose to rely on imports rather than build domestic plans and produce these goods
domestically.
a. Corporate governance
b. Globalization
c. Improving information technology
d. Outsourcing

13. STATEMENT 1. Financial accounting only provides information that is future-oriented and used as
a planning tool. STATEMENT 2. Management accounting is used to aid internal users of
information in their decision-making.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Neither statement is true

14. Firms may have important non-financial objectives including the following, except
a. Fulfillment of responsibilities towards customers
b. Welfare of employees
c. Profit maximization
d. Provision of service
15. All of the following are functions of the financial manager, except
a. analyzing and planning the company’s performance.
b. anticipating the company’s financial needs.
c. assigning the market price of the company’s stock.
d. allocating funds to the most profitable asset.

16. Through financial statement analysis, interested parties – such as managers, investors, and
creditors – can identify the company’s financial strengths and weaknesses and know about the
following, except
a. profitability of the business firm.
b. the firm’s ability to meet its obligations.
c. safety of investment in the business.
d. composition of management running the firm.

17. This is a common way of measuring financial performance concerned with comparing and
quantifying relationships between financial variables.
a. Performance measurement
b. Financial statement analysis
c. Horizontal analysis
d. Working capital management

18. In financial statement analysis, expressing figures for a single year as a percentage of a base
amount on the financial statement (for example, total assets in a balance sheet or sales in an
income statement) is called
a. Trend Analysis
b. Variance Analysis
c. Horizontal Common-size Analysis
d. Vertical Common-size Analysis

19. This is an analytical tool that involves comparing figures shown in the financial statements of two
or more consecutive periods.
a. Ratio analysis
b. Financial statement analysis
c. Horizontal analysis
d. Vertical analysis

20. This is a financial analysis technique that involves comparing figures shown in the financial
statements of a single period.
a. Ratio analysis
b. Financial statement analysis
c. Horizontal analysis
d. Vertical analysis

21. This is a financial statement analysis tool that involves developing mathematical relationships
between accounts in the financial statements
 a. Ratio analysis
b. Financial statement analysis
c. Horizontal analysis
d. Vertical analysis

22. In financial statement analysis, expressing all financial statement items as percentage of base
year amounts is called
a. Trend Analysis
b. Variance Analysis
c. Horizontal Common-size Analysis
d. Vertical Common-size Analysis

23. It involves the maintenance of appropriate level of cash and investment marketable securities to
meet the firm’s cash requirements and to maximize income on idle funds.
a. Cash Management
b. Inventory Management
c. Working Capital Management
d. Cash Conversion Management

24. In cash management, the difference between the bank balance for firm’s account and the cash
balance that the firm shows on its own books is called
a. Float
b. Bank charges
c. Interest income
d. Reconciling item

25. The length of time it takes for the initial cash outflows for goods and services to be realized as
cash inflows from sales is called
a. product life cycle
b. manufacturing cycle
c. vicious cycle
d. cash conversion cycle

26. Which of the following statements is correct?

a. Liquidity refers to the firm’s ability to pay all its obligations and to continue operations.
b. Solvency refers to a firm’s ability to survive in the long term by paying its short-term
obligations.
c. Trading on the equity refers to a firm’s sale of its own stocks in the stock exchange.
d. Ratio Analysis addresses such issues as the firm’s liquidity, use of leverage, management of
assets, cost control, growth and valuation.

27. This refers to the company’s ability to pay all its debts whether such liabilities are current or
noncurrent
a. Liquidity
b. Solvency
c. Profitability
 d. Cost-effectiveness

28. Solvency is a firm’s ability to survive in the long-term by paying its long-term obligations. Its key
ingredients are capital structure and earning power. Capital structure consists of
a. The capital stocks of the firm
b. The firm’s total assets
c. The firm’s sources of financing, whether long-term or short-term, of its assets
d. The stockholders’ equity accounts

29. Which of the following is incorrect?

a. Profitability varies directly with liquidity.
b. The greater the risk, the greater the potential for larger return.
c. Long-term financing has less liquidity risk than short-term financing, but has greater explicit
cost, hence lower cost.
d. More current assets lead to greater liquidity, but yield lower returns.

30. The risk that refers to fluctuations in securities’ price caused by changes in market interest rates.
a. default risk
b. interest rate risk
c. inflation risk
d. fluctuation risk

31. Which of the following ratios will measure short-term solvency?

a. Current ratio
b. Age of receivable
c. Return on investment
d. Return on sales

32. A more severe test of immediate solvency; test of ability to meet demands from current assets.
a. Current ratio
b. Quick ratio
c. Cash flow liquidity ratio
d. Defensive interval ratio

33. It expresses the direct relationship between two or more quantities in the statement of financial
position and statement of comprehensive income of a business firm.
a. Financial Statement Analysis
b. Business Trends
c. Financial Ratio
d. Outsourcing

34. Which of the following statements is correct?

a. The stockholder’s equity is a major component of working capital.
b. Net working capital is the difference between quick assets and current liabilities.
c. Working capital is a measure of long-term solvency.
d. Net working capital is the difference between current asset and current liabilities.
35. Net working capital is a firm’s
a. current assets
b. current liabilities
c. current assets less current liabilities
d. total assets less total liabilities

36. Which of the following statements describe working capital?

a. Excess of current assets over current liabilities
b. Excess of current liabilities over current assets
c. Excess of current assets over total liabilities
d. Excess of total assets over total liabilities

37. This refers to a firm’s short-term assets (that is, inventory, receivables, cash, and short-term
investments) and its short-term liabilities (that is, accounts payable and short-term loans).
a. Assets
b. Liabilities
c. Equity
d. Working Capital

38. In a conservative or relaxed working capital financing policy,

a. operations are conducted on a minimum amount of working capital
b. operations are operating with too much working capital.
c. short-term liabilities are used to finance not only temporary current assets, but also part of
the permanent current asset requirement.
d. the company is exposed to risk of illiquidity because of low working capital.

39. Measures recoverable amount in the event of liquidation if assets are realized at their book
values.
a. Earnings per share
b. Book value per share
c. Dividends per share
d. Times interest earned

40. Financing inventory build-up with a long-term debt is an example of

a. A conservative working capital policy
b. Matching policy
c. An aggressive working capital policy
d. Hedging policy

41. Restricted working capital management strategies involve

a. low-risk, low-return
b. low-risk, high-return
c. high-risk, high-return
d. moderate-risk, moderate-return
42. A company has a current ratio or 2 to 1. Which of the following will result to a decrease in the
current ratio?
a. Receive a 5% stock dividend on one of its marketable securities
b. Borrow cash on a five-month note
c. Pay a large account payable which had been a current liability
d. All of the choices

43. A company has a current ratio or 2 to 1. Which of the following will result to a decrease in the
current ratio?
a. Receive a 5% stock dividend on one of its marketable securities
b. Borrow cash on a five-month note
c. Pay a large account payable which had been a current liability
d. All of the choices

44. A company has a current ratio or 3:1 accompanied by an acid test or quick ratio of 1:1. This
indicates that
a. The greater portion of current assets is in quick assets
b. The greater portion of current assets is in inventory
c. The quick assets are equal to the inventory and prepaid assets
d. None of the choices

45. The rate or amount that sales may decline before losses are incurred is called
a. Sensitive level of income
b. Variable sales ratio
c. Margin of safety
d. Residual income rates

46. Contribution margin is the excess of revenues over

a. Direct cost
b. Manufacturing cost
c. Cost of goods sold
d. All variable costs

47. Break-even analysis assumes that over the relevant range

a. Selling prices are unchanged
b. Variable costs are nonlinear
c. Total costs are unchanged
d. Fixed costs are nonlinear

48. At break-even point, the contribution margin equals total

a. Variable costs
b. Sales revenues
c. Selling and administrative costs
d. Fixed costs
49. All of the following are methods that aid management in analyzing the expected result of capital
budgeting decisions, except
a. Accrual accounting rate of return
b. Payback method
c. Future value cash flow
d. Discounted cash flow rate of return

50. This ratio measures whether the company’s inventory is too high or low. This tells how many
times during the year the average inventory was sold.
a. Inventory divided by total assets
b. Quick assets divided by current liabilities
c. Cost of goods sold divided by net sales
d. Cost of goods sold divided by average inventory

51. Which of the following statements is incorrect?

a. The ratio of sales to working capital is a measure of liquidity and activity
b. The number of days’ sales in receivables is a measure of liquidity, as well as of activity
c. A high sales-to-working capital ratio would indicate that the firm is not susceptible to
liquidity problems.
d. The earnings per share ratio is a profitability ratio.

52. Financial ratios which assess the profitability of a company, include all of the following except
the
a. Dividend yield ratio
b. Gross profit percentage
c. Earnings per share
d. Return on sales ratio

53. Indicates proportion of assets provided by owners; Reflects financial strength and caution to
creditors.
a. debt to equity ratio
b. fixed assets to total equity ratio
c. debt ratio
d. equity ratio

54. A company has a quick ratio of 0.8. Which of the following actions would improve this ratio?
a. Sell some equipment for cash
b. Acquire some inventory on account
c. Collect accounts receivable
d. Use cash to pay off some accounts payable

55. A company’s current ratio is greater than 1. Purchasing raw materials on account would
a. Increase the current ratio
b. Decrease the current ratio
c. Increase net working capital
d. Decrease new working capital
56. If current assets exceed current liabilities, payments made to creditors at the end of the month
will
a. Increase the current ratio
b. Decrease the current ratio
c. Increase net working capital
d. Decrease new working capital

57. Which of the following is not a measure of asset utilization?

a. Inventory turnover
b. Average accounts receivable collection period
c. Debt to total assets
d. Fixed asset turnover

58. Obsolete inventory of P125,000 was written-off during the year. This transaction
a. Increased the net working capital
b. Decreased the current ratio
c. Increased the quick ratio
d. Decreased the quick ratio

59. Donny Traders sells on credit terms 2/10, net 30. Average daily credit sales is P50,000. On the
average, 70% of the customers avail of the discount and pay on 10% day after purchase, while
the rest pays on the last day of the credit term. How much is the company’s account receivable
balance?
a. P1,500,000
b. P450,000
c. P800,000
d. P1,050,000

60. If the average age of accounts payable is 15 days, the average age of accounts receivable is 60
days, and the average age of inventory is 10 days, the number of days in the operating cash
conversion cycle is
a. 70 days
b. 85 days
c. 55 days
d. 60 days

61. A company has a current ratio of 3:5 and acid test ratio of 2:8. Inventory amounted to P49,000
and there are no prepaid assets. The current liabilities must be
a. P70,000
b. P100,000
c. P49,000
d. P125,000

62. Alpha Company’s current liabilities are P50,000, its long-term liabilities are P150,000 and its
working capital is P80,000. If debt-to-equity ratio is 0.32, its long term assets must be
 a. P625,000
b. P745,000
c. P825,000
d. P695,000

63. Habagat, Inc. is planning to spend P600,000 for a machine that it will depreciate on a straight-
line basis over a ten-year period with no terminal disposal price. The machine will generate cash
flow from operations of P120,000 a year. Ignoring income taxes, what is the accounting rate or
return on the net initial investment?
a. 5%
b. 12%
c. 10%
d. 15%

64. A company considers a project that will generate cash sales of 50,000 per year. Fixed costs will
be 10,000 per year, variable costs will be 40% of the sales and depreciation of the equipment in
the project will be 5,000 per year. Taxes are 40%. The expected annual cash flow to the company
resulting from the project is
a. 15,000
b. 9,000
c. 19,000
d. 14,000

65. Star Company has current liabilities of P60,000, its long-term liabilities are P180,000 and its
working capital is P90,000. If debt-to-equity ratio is 0.32, its long term assets must equal
a. P490,000
b. P840,000
c. P600,000
d. P690,000

66. Mint Company purchased P500,000 of inventory last year. The cost of goods sold was P550,000
and ending inventory was P100,000. The inventory turnover for the year was
a. 4.0
b. 4.4
c. 5.5
d. 11.0

67. Last year, Page Company purchased P800,000 of inventory. Cost of goods sold was P750,000 and
ending inventory was P125,000. What was the inventory turnover?
a. 7.5
b. 6.0
c. 6.4
d. 8.0
68. For the coming year, the expected cash disbursement total P432,000.00. The interest rate on
marketable securities is 5% per annum. The fixed cost of selling marketable securities is P8 per
transaction. Using the Baumol Cash Management Model, the company’s cash optimal balance is
a. P11,757.55
b. P5,878.78
c. P142,000.00
d. P1,175.76

69. Wind Company has current assets of P400,000 and current liabilities of P500,000. The current
ratio would be increased by
a. Purchase of P100,000 inventory on account
b. Payment of P100,000 accounts payable
c. Collection of P100,000 accounts receivable
d. All of the choices

70. Schultz Company expects to manufacture and sell 30,000 baskets in 2020 for P6 each. There are
3,000 baskets in the beginning finished goods inventory with target ending inventory of 4,000
baskets. The company keeps no work-in-process inventory. What amount of sales revenue will
be reported on the 2020 budgeted income statement?
a. P174,000
b. P180,000
c. P186,000
d. P204,000