CHAPTER 13

--STRAIGHT PROBLEMS--

1. Horizontal and Vertical analysis. The financial position of Twig Company at

the end of 2011 and 2012 is as follows:

(in thousands)
2011 2012
ASSETS
Cash P P
3,000 5,000
Accounts receivable 40,000 25,000
Inventory 27,000 30,000
Long-term investments 15,000 0
Land, Building and equipment (net) 100,000 75,000
Intangible assets 10,000 10,000
Other assets 5,0 20,0
00 00
Total assets P P
200,000 165,000

LIABILITIES
Current liabilities P P
30,000 47,000
Long-term liabilities 88,0 74,0
00 00
Total liabilities 118,0 121,0
00 00

STOCKHOLDER’S EQUITY
8% Preference Shares P 9,000
10,000
Ordinary Shares 54,000 42,000
Share Premium 5,000 5,000
Retained Earnings 13,000 (12,000)
Total shareholder’s equity 82,00 44,00
0 0
Total liabilities and shareholder’s P P
equity 200,000 165,000
Sales and cost of goods sold insignificantly change in 2012 in relation with 2011.

Required:
1. Prepare a comparative balance sheet showing peso and percentage changes
for 2012 as compared with 2011.
2. Prepare a common-size balance sheet as of December 31, 2011 and 2012.
3. Based on your data derived in requirements 1 and 2, comment on the
financial position of Twig Company as of December 31, 2012.
2. Horizontal and vertical analysis. The operating activities of Metro Company
for the year ended December 31, 2012 and 2011 are summarized on the next
page.

(in thousands)
2011 2012
Sales P P
45,000 50,000
Sales returns 1, 2,
000 000
Net sales 44,000 48,000
Cost of goods sold 24,0 35,0
00 00
Gross profit 20,000 13,000
Selling and general expenses 12,0 10,0
00 00
Operating Income 8,000 3,000
Other expenses 3,0 3,5
00 00
Income (loss) before income tax 5,000 (500)
Income tax (refund) 2,0 (20
00 0)
Net income (loss) P P
3,000 (300)

Required:
1. Prepare a comparative income statement showing the peso change and
percentage changes for 2012 as compared with 2011.
2. Prepare a comparative income statement offering a percentage analysis of
component revenue and expense items of net sales for each year.
3. Based on the above percentages, comment on the Metro Company’s results
of operations for 2012.

3. Common-size balance sheet. The balance sheet data of South Corporation

and North Corporation at December 31, 2012 are shown below (in thousand of
pesos):

North South
ASSETS
Current Assets P P
51,000 240,000
Long-term investments 5,000 280,000
Land, Building and equipment (net) 48,000 520,000
Intangible assets 6,000 100,000
Other assets 5,0 60,0
00 00
 Total assets P P
115,000 1,200,000

LIABILITIES AND
STOCKHOLDER’S EQUITY
Current liabilities P P
15,000 180,000
Long-term liabilities 25, 300,0
000 00
Deferred revenues 5,000 70,000
Preferred stock 5,000 100,000
Common stock P 200,000
30,000
Additional paid-in capital 25,000 185,000
Retained earnings 10,00 165,0
0 00
Total liabilities and shareholder’s P P
equity 115,000 1,200,000

Required:
1. Prepare a comparative common-size balance sheet for South Corporation and
North Corporation.
2. Based on your prepared common-size balance sheet, which company is
better, financial position wise? Why?

4. Financial mix ratios. The data given below were obtained from the financial
records of Menace V. Corporation for the year ended December 31, 2012.

Menace V. Corporation
Statement of Financial Position
December 31, 2012
(000s omitted)

ASSETS
Cash P 85,000
Marketable Securities, net 25,000
Trade receivables, net 245,000
Inventory, at cost 220,000
Prepaid expenses 10,000
Equipment, net 320,000
Other assets 15,000
Total Assets P 920,000
EQUITIES
Trade payables P 165,000
Accrued Expenses 25,000
Other current liabilities 10,000
Mortgage payable 120,000
 Share Capital, 100 par 300,000
Share Premium 30,000
Retained earnings – appropriated 80,000
Retained earnings – unappropriated 190,000
Total equities P 920,000

Menace V. Corporation
Income Statement
Year Ended December 31, 2012
(000s omitted)

Net sales P 1,000,000

Cost of goods sold:
Inventory, December 31, 2011 P 250,000
Purchases 720,000
Inventory, December 31, 2012 (220,000)
750,000
Gross profit 250,000
Selling, administrative and other 125,000
expenses
Income before taxes 125,000
Provision for income taxes 35,000
Net income for the year 90,000
Retained earnings, beginning 130,000
Total 220,000
Dividends paid 30,000
Retained earnings, end P 190,000

Required:
1. Net working capital.
2. Current ratio.
3. Acid-test ratio.
4. Accounts receivable turnover and average collection period.
5. Inventory turnover and average days to sell inventory.
6. Gross profit rate on sales.
7. Book value per ordinary share.
8. Rate of return on sales.
9. Earnings per share.
10.Rate of return on invested capital.
11.Debt-to-equity ratio.
12.Debt ratio.

5. Triangle company has acquired a controlling interest in Golden Company. After a

thorough study, Triangle Company noted that the Golden Company was too
conservatively managed and had thought that with an aggressive leadership, the
sales volume, the rate of return on sales and the rate of return for the
 stockholders can be improved. Accordingly, the company had invested heavily in
modern equipment and has promoted additional sales volume.

The new management has been in control for the last three years and hereunder
are the comparative data based on the annual report submitted under the old
and new management.

Old New
Management Management
Current assets P 640,000 P 900,000
Plant assets, net of depreciation 335,000 1,940,000
Total assets P 975,000 P 2,870,000

Current liabilities P 185,000 P 623,500

Long-term notes payable - 1,000,000
Mortgage payable 75,000 250,000
Capital stock 250,000 250,000
Retained earnings 465,000 746,500
Total equities P 975,000 P 2,870,000

Net sales P 1,610,000 P 5,620,000

Net income P 87,000 P 483,000

As an outside consultant, you have been requested by Triangle to make a

comparison between conditions now and conditions under the old management.
Your comparison will either support or not support a request for additional loans.
Support your evaluation by computing the following relationships from both sets
of data:
1. Rate of return on net sales.
2. Rate of return on assets.
3. Rate on return on stockholders’ equity.
4. Percentage of debt-to-equity structure.

6. Trend ratios. Uptown Girl Corporation’s sales, current assets, and current
liabilities have been reported as follows over the last five years (amounts in
thousands):

2012 2011 2010 2009 2008

Sales P P P P P
8,775 7,800 7,475 7,020 6,500
Current assets:
Cash 96 108 132 138 120
Accounts receivable 425 440 450 475 500
Inventory 488 464 440 420 400
Total current assets 1,009 1,012 1,022 1,033 1,020
Current liabilities 475 450 350 325 250
 Required: Express all the sales, current assets, and current liabilities on trend
index. Round your decimals up to two (2) places.
1. Use 2008 as the base year.
2. Use 2012 as the base year.

7. Financing ratios. The data were taken from the financial records of East
Company and West Company on December 31, 2012 (in thousands):

East Company West Company

Debt P 200,000 P 300,000
Shareholders’ equity 300,000 200,000
Total equity P 500,000 P 500,000

Preference dividends P 1,000 P 3,500

Ordinary shareholders’ equity P 200,000 P 150,000

Earnings before interest and tax P 10,000 P 12,000

Interest expense 2,000 6,000
Income before income tax P 8,000 P 6,000
Income tax (40%) 3,200 2,400
Income tax P 4,800 P 3,600

Required: Calculate the following ratios for East Company and West Company for
2012:
1. Debt ratio.
2. Equity ratio.
3. Debt equity ratio.
4. Equity multiplier.
5. Times interest earned.
6. Financial leverage.

8. Profitability ratios. Horizons, Inc. provided the following selected financial

information relative to the 2012 operations (in thousands):

Contribution margin P 40,000

Fixed costs and expenses (28,000)
Earnings before interest and tax 12,000
Interest expense (2,000)
Income before income tax 10,000
Tax (30%) (3,000)
Net Income 7,000
Preference dividends (10% x P60 x 20,000 shares) (120)
Earnings available to ordinary shareholders P 6,880

Average total assets P 20,000

Average shareholders’ equity 8,400
Liquidation value of preference shares 80 per share
 Net sales (after sales returns of P350,000
P500,000)

Required:
1. Calculate the following ratios for Horizons, Inc., for the year ended December
31, 2012:
a. Return on sales.
b. Return on assets.
c. Return on shareholders’ equity.
d. Return on ordinary shareholders’ equity.
e. Times preference dividend earned.
f. Earnings per share.
g. Degree of operating leverage.
2. The management wants to double its return on assets in 2013 by increasing
its net returns on sales to 5%. What should Horizon’s asset turnover in 2013?
3. Disregarding your answer in question 1 above, what would be the estimated
debt ratio in 2013 assuming management wants to double its return on total
equity last year by increasing its return on sales to 6% and its assets turnover
to 20 times.

9. Growth ratios. The following comparative data were taken from the records of
Mindoro Corporation and Tarlac Corporation on December 31, 2012:

Mindoro Corporation Tarlac Corporation

Earnings per share P 50 P 30
Market price per share 200 90
Dividend per share 20 25
Net shareholders’ equity 10,000,000 12,000,000
Preference share at par 4,200,000 4,000,000
Preference shares 40,000 shares 40,0000 shares
outstanding

The preference shares have a liquidation value of P120 and P150 for Mindoro
Corporation and Tarlac Corporation, respectively. The number of shares issued
equals that of the preference shares.
Required: Calculate the following ratios for Mindoro Corporation and Tarlac
Corporation for 2012:
1. Price-earnings ratio.
2. Payout ratio.
3. Yield ratio.
4. Book value per preference share.
5. Book value per ordinary share.
6. Market value to book value per ordinary share.

10. Growth ratios. The controller of Randy Corporation provided the following
ratios and data related to the corporation’s performance in 2012.

Payout ratio 40%

 Earnings per share P50
Price-earnings ratio 4

Required:
1. Market price per share.
2. Dividend per share.
3. Yield rate.

11. Liquidity ratios. The records of JS Corporation and DV Corporation revealed

the following data in relation to its operating activities in 2012 (in thousands):

JS DV
Corporation Corporation
Net Cash sales P 10,000 P 45,000
Net credit sales 190,000 240,000
Cost of goods sold 110,000 180,000
Net cash purchases 5,000 20,000
Net credit purchases 96,000 112,000
Average trade receivables 9,500 16,000
Average inventories 2,750 7,200
Average trade payables 2,400 3,500
Cash operating expenses 18,000 17,600
Average cash 600 800
Average total assets 80,000 95,000
Suppliers’ credit terms 2/10, n/30 2/10, n/30

Required:
1. Calculate the following ratios for JS Corporation and DV Corporation in 2012
(use a 360-day year):
a. Inventory turnover and inventory days.
b. Receivables turnover and collection period.
c. Payables turnover and payment period.
d. Operating cycle.
e. Net cash cycle.
f. Net working capital.
g. Working capital turnover.
h. Cash turnover and days in operating expenses.
i. Assets turnover.
2. Comment on the corporation’s ability to meet their suppliers’ credit terms.

12. Liquidity ratios. The President of DTS Corporation is reviewing the financial
data of his company for years ended December 31, 2011 and 2012 as shown
below, in thousands:

2011 2012
Cash P 500 P 400
Marketable securities 1,200 1,600
 Accounts receivable 3,400 2,800
Materials inventory 1,000 1,200
Work-in-process inventory 800 1,400
Finished goods inventory 2,200 2,500
Prepaid expenses 100 200
Current liabilities 2,100 2,525
Cash operating expenses 4,320 3,240
Depreciation and amortization expenses 1,200 1,200
Net sales 56,400 53,720
Materials used 10,000 10,800
Cost of goods manufactured 26,000 42,000
Cost of goods sold 30,800 40,000
The company uses a 360-day work year.

Required: calculate the following financial ratios for DTS Corporation for 2011 and
2012:
1. Materials inventory turnover and materials inventory days.
2. Work-in-process inventory turnover and WIP inventory days.
3. Finished goods inventory turnover and FG inventory days.
4. Cash turnover and days in cash operating expenses.
5. Current assets turnover.
6. Quick-assets ratio.
7. Defensive-interval ratio.

13. Effects of leverage on return on common equity. You are in the process of
organizing a new company to produce and sell a lady beauty product. You fell
that P4 million would be enough to finance the new company’s operations. You
are considering following financing mix in raising the needed money for
investment.

All the P4 million would be raised by

Straight ordinary equity
Shareholders’ equity mix
Leverage and equity mix
:
issuance of ordinary shares.
P2.5 million would be raised from
ordinary shares issuances and P1.5
:
million from the sale of P100 par,
10%, preference stock.
P1.5 million would be obtained from
ordinary shares issuances and P2.5
:
million from issuance of a 12%
bonds payable.

You estimated that the operations would generate an earning of P600,000 each year
before interest and taxes. The tax rate is 30%.

Required: Determine the best financing mix that would maximize return on ordinary
equity.
 --Multiple Choice--

1. Which of the following does not belong to the list?

a. Common-size financial statements
b. Peso and percentage changes on financial statements
c. Financial ratios
d. Long-form report

2. A major problem in comparing profitability measures among companies is the

a. Lack of general agreement over which profitability.
b. Differences in the size of the companies.
c. Differences in the accounting methods used by the companies.
d. Differences in the dividend policies of the companies.

3. Last year, a business has no long-term investment. This year, long-term

investments amount to P100, 000. In a horizontal analysis, the change in a
long-term investment should be expressed as
a. An absolute value of P100, 000 and an increase of 100%.
b. An absolute value of P100, 000 and an increase of 1,000%.
c. An absolute value of P100, 000 and no value for a percentage change.
d. No change in any terms because there was no investment in the
previous year.

4. When a balance sheet amount is related to an income statement amount in

comparing a ratio
a. The balance sheet amount should be converted to an average for the
year.
b. The income statement amount should be converted into an average for
the year.
c. Comparisons should be converted to market value.
d. The ratio losses its historical perspective because at the beginning of
the year amount is combined with an end of the year amount.

5. In 2010, MPX Corporation’s net income was P800, 000 and in 2011 it was
P200, 000. What percentage increase in net income must MPX achieve in
2012 to offset the 2011 decline in net income?
a. 60%
b. 600%
c. 400%
d. 300%
6. The following common size income statement are available for Sparky
Corporation for the two years ended December 31, 2012 and 2011:
2011 2012
Sales 100% 100%
Cost of Sales 55 70
Gross profit on sales 45 30
Operating expenses (including
Income tax expense) 20 18
Net income 25% 12%

The trend percentages for sales are as follows:

2012 130%
2011 100%

What should be the trend percentage for gross profit on sales for 2012?
a. 58.5%
b. 150%
c. 130%
d. 195%

Questions 07 and 08 are based on the following information:

Nory Company is preparing its common-size financial statements and

revealed the following information:

(In thousand pesos)

Accounts Receivable 10, 000
Inventory 20, 000
Total Current Assets 35, 000
Total Assets 84, 000
Bonds Payable 21, 000
Retained Earnings 7, 000
Sales Revenue 75, 000
Cost of Goods Sold 62, 000
Income Taxes Expense 22, 000

7. How would Nory’s inventory appear on a common-size balance sheet?

a. 11.9% c. 23.8%
b. 57.15% d. 65.3%

8. How would Nory’s retained earnings appear on a common-size balance

sheet?
a. 8.3%
b. 20.0%
 c. 9.4%
d. 33.3%

9. Index numbers would probably be the most interested in which ratio?

a. Trend analysis c. Ratio analysis
b. Vertical analysis d. Common-size statements

10. An income statement showing only component percentages is known as

a. Common pesos income statement.
b. Condensed income statement.
c. Common-size income statement.
d. Comparative income statement.

11.Horizontal, vertical and common-size analyses are techniques that are used
by analysts in understanding the financial statements of companies. Which of
the following is an example of vertical, common-size analysis?
a. Commission expense in 2012 is 10% greater than it was in 2011.
b. A comparison in financial ratio from between two or more firms in the
same industry.
c. A comparison in financial form between two or more firms in different
industries.
d. Commission expense in 2012 is 5% of sales.

12.State whether the following statements are true or false.

Statement 1 – Ratios can be used for comparing similar situations of various
companies within the same industry.
Statement 2 – Vertical analysis is a study of relationship of each component
part of the financial statements to the total in the statement.

Statement 1 Statement 2
a. True True
b. True False
c. False True
d. False False

13.Which of the following is not recorded on a common-size balance sheet?

a. The debt structure of the firm.
b. The capital structure of the firm.
c. The peso amount of assets and liabilities.
d. The distribution of assets in which funds are invested.

14.It refers to the practice of financing assets with borrowed capital. Its
extensive use may impact on the return on common stockholders’ equity to
be above or below the rate of return on total assets.

a. Discounting
b. Mortgage
 c. Leverage
d. Arbitrage

15.In the process of investing of surplus cash, the term “riding the yield curve”
refers to
a. Diversifying securities portfolio so that the firm has an equal balance
of long-term versus short-term securities.
b. Swapping different maturities of similar quality debt securities in order
to obtain higher yield.
c. Purchasing only the longest maturities for given rates of return.
d. Adherence to the liquidity preference theory of securities investment.

16.When compared to a debt-to-asset ratio, a debt-to-equity ratio would

a. Be lower than the debt-to-asset ratio.
b. Be higher than the debt-to-asset ratio.
c. Be about the same at the debt-to-asset ratio.
d. Have no relationship at all to debt-to-asset ratio.

17.If the ratio of total liabilities to stockholders equity increases, a ratio that
must also increase is
a. Time interest ratio c. The current ratio
b. Total liabilities to total assets d. Return on stockholders’ equity

18.A measure of the company’s long-term debt paying ability is

a. Return on assets
b. Dividend payout.
c. Time interest earned
d. Length of the operating cycle

19.All of the following statements are correct except:

a. The matching of asset and liability maturities is considered
desirable because this strategy minimizes interest rate risk.
b. Default risk refers to the inability of the firm to pay off its maturing
obligations.
c. The matching of assets and liability maturities lowers default risk.
d. An increase in the payables deferral period will lead to reduction in
the need to non spontaneous funding.

20.Securing of funds for investment at a fixed rate of return to fund suppliers, to

enhance the well being of the common stockholders is known as:
a. Financial leverage
b. Prudent borrowing
c. Fund management
d. Financial arbitrage

21.The following situations are descriptive of SBD Corporation. Which would be

considered as the most favourable for the common stockholders
 a. Book value per share of common stock is substantially higher than the
market value per share; return on common stockholder’s equity is less
than the rate of interest paid to creditors.
b. Equity ratio is high; return on assets exceeds the cost of borrowing
c. SBD stops paying dividends on its cumulative preferred stock; the price
earnings ratio of common stock is low.
d. Equity ratio is low; return on assets exceeds the cost of borrowing.

Gold Corporation
Selected Financial Data
For The Year Ended, December 31, 2012

Operating Income P 900, 000

Interest Expense 100, 000
Income before income tax 800, 000
Income tax expense 320, 000
Net Income 480, 000
Preference shares dividends 200, 000
Net income available to ordinary shareholders 280, 000
Ordinary share dividends 120, 000
Increase in retained earnings 160, 000

22.The time interest earned ratio is

a. 2.8 to 1
b. 8.0 to 1
c. 4.8 to 1
d. 9.0 to 1

23.The times preferred dividend earned ratio iswyer

a. 1.4 to 1
b. 2.4 to 1
c. 1.7 to 1
d. 4.0 to 1

24.The ratio of earnings before interest and taxes to total interest expense is a
measure of
a. Liquidity
b. Profitability
c. Risk
d. None of these

25.Debt capital, be it long-term or short-term in nature, can be it raised from a

number of different sources including
a. Trade credit
b. All of the given
c. Bank loan
d. None of the given
Profitability Ratios
26.Which of these ratios are measures of a company’s profitability:
1. Earnings per
share
2. Current ratio
3. Return on
sales
4. Debt-equity
ratio
5. Return on
assets
6. Inventory
turnover
7. Receivables
turnover
8. Price earnings
ratio

a. All eight ratios.

b. 1, 3, 5 and 8 only.
c. 1, 3, 5, 6, 7 and 8 only.
d. 1, 3 and 5 only

27. Ginalyn Corporation’s books disclosed yje following information as of and for
the year ended December 31, 2014:

Net credit sales P2000,000

a. Net cash sales 500,000 4%
b. Merchandise purchases 1000,000 9%
c. Inventory at beginning 600,000 44%
d. Inventory at end 200,000 56%
Accounts receivable at
300,000
beginning
Accounts receivable at
700,000
ending
Net Income 100,000

Questions 28-30 are based on the following information:

Northern Division reported the following results for 2014:

Annual Sales P500,000
Net earnings 80,000
Investment 250,000

28. What is Northern Division’s return on sales?

a. 16%
b. 20%
c. 25%
 d. 32%

29.What is Northern Division’s asset turnover?

a. 0.5 to 1
b. 1 to 1
c. 2 to 1
d. 3.125 to 1

30. What is Northern Division’s return on investment?

a. 10%
b. 16%
c. 24%
d. 32%

31.Which of the following is an appropriate for return on investment?

a. Income divided by total assets
b. Income divided by assets
c. Sales divided by total assets
d. Sales divided by stockholder’s equity

32.If the return on total assets is 10% and if the return on ordinary shareholder’s
equity is 12% then
a. The after-tax cost of long –term debt is probably greater than 10%.
b. The after-tax cost of long –term debt is 12%.
c. Leverage s negative.
d. The after-tax cost of long –term debt is probably less than 10%.

33.Selected information for Moore Corporation is as follows:

December 31
2013 2014
Preference shares P 180,000 P 180,000
Ordinary shareholders 648,000 840,000
Retained earnings 192,000 360,000
Net income for the year
144,000 240,000
ended

a. 16.0% c. 23.5%
b. 20.0% d. 26.0%
e.
34.Selected information for Irving Company is as follows:
f. g. December 31
h. i. 2013 j. 2014
k. Preference
shares, 8%
par
P100,nonco l. P 125,000 m. P 125,000
nvertible,
noncumulati
ve
n. Ordinary o. 300,000 p. 400,000
 shareholder
s
q. Retained
r. 75,000 s. 785,000
earnings
t. Dividends
paid on
preference
u. 50,000 v. 120,000
shares for
the year
ended
w. Profit x. 170,000 y.
z.
aa.Irvington Company’s return on ordinary shareholders’ equity, rounded
to the nearest percentage point, for 2014 is
a. 17% c. 23%
b. 19% d. 25%
e.
35.Real Estates Corp. has shareholders’ equity equal to 60% of total liabilities
and stockholders’ equity of P 120 million. If the return on total assets
invested registers at 9% what is the return on shareholders’ equity?
a. 10.00% c. 15.00%
b. 6.00% d. 12.00%
e.
36.Financial ratios, which assets the profitability of a company, include all of the
following except the
a. Dividend yield ratio.
b. Gross profit percentage.
c. Earnings per share ratio.
d. Return on sales ratio.
f.
37.Which of the following statements is incorrect?
a. Profitability evaluation ratios have a higher power than solvency
determination ratios predicting for performance for both income and
solvency.
b. Gross profit percentages do not vary a great deal among industries.
c. It is appropriate to a company’s current financial ratio with same
financial ratio for (1) that company in prior years and/or (2) the ratio
for the industry in which the company is affiliated.
d. Companies were product costs present a high percentage of total costs
could be expected to have a low gross profit percentage.
g.
38.This ratio of analytical measurement measures the productivity of assets
regardless of capital structures.
a. Return on total assets.
b. Quick ratio.
c. Current ratio.
d. Debt ratio.
h.
39.JC Goods, Inc. has a total assets turnover of 0.30 and a profit margin of 10
percent. The president is unhappy with the current return on assets; and he
 thinks it could be doubled. This could be accomplished (1) by increasing the
profit margin to 15 percent and (2) by increasing the total assets turnover.
What new asset turnover ratio, along with the 15 percent profit margin, is
required to double the return on assets?
a. 35%
b. 45%
c. 40%
d. 50%
i.
40.A fire has destroyed many of the financial records of R. Son & Co. You are
assigned to put together a financial report. You have found the return on
equity to be 12% and the debt ratio was 0.40. What was the return on assets?
a. 5.35%
b. 8.4%
c. 6.60%
d. 7.20%
j.
41.Deb & Co. has a debt ratio of 0.50, a total assets turnover of 0.25, and a
profit margin of 10%. The president is unhappy with the current return on
equity, and he thinks it could be doubled. This could be accomplished (1) by
increasing the profit margin and (1) by increasing debt utilization. Total assets
turnover will not change. What new debt ratio , along with the 14% profit
margin, is required to double the return on equity?
a. 0.75
b. 0.70
c. 0.65
d. 0.55
k.
42.Selected information for Brain Corporation is as follows:
l. m. December 31
n. o. 2013 p. 2014
q. Preference
r. P 180,000 s. P 180,000
stock
t. Common
u. 648,000 v. 840,000
stock
w. Retained
x. 192,000 y. 360,000
earnings
z. Net income
for the year aa.144,000 ab.240,000
ended
ac.
a. 16.0%
b. 20.0%
c. 23.5%
d. 26.0%
ad.
ae.Questions 43 to 46 are based on the following information:
af.
ag.The management of Quaker Corporation is preparing its plans for the
year 2012. The average assets to be employed for the year are
 estimated at P 2,600,000 with 20% of this amount borrowed at no
interest cost. Materials and labor cost for the year is budgeted at P
4,000,000 while operating costs is estimated at P 1,500,000. All sales
are to be billed at 162.5% of materials and labor cost. Income taxes is
an average of 35% of income before income tax.
ah.
ai. 43. The estimated rate of return on sales for 2012 is
a. 10.00% c. 14.29%
b. 12.50% d. 27.86%
e.
f. 44. The estimated rate of return on average total assets for 2012 is
a. 20.00% c. 31.25%
b. 25.00% d. 40.50%
e.
f. 45. The expected asset turnover for 2012 is
a. 1.5 times c. 3.36 times
b. 2.5 times d. 3.75 times
e.
f. 46. The rate of return on stockholders’ equity for 2012 is
a. 20.00% c. 31.25%
b. 25.50% d. 40.50%
e.
f. Growth Ratios
g.
h. 47. At December 31, 2011, Morgan Inc. had 100,000 shares of P10 par value
ordinary share issued and outstanding. There was no change in the number of
shares outstanding during 2012. Total shareholders’ equity at December 31,
2012, P 2,800,000. The net income for the year ended December 31, 2012, was P
800,000. During 2012 Morgan paid P3 per share in dividends on its ordinary
share. The quoted market value of Morgan’s ordinary share was P48 per share on
December 31, 2012. What was the price-earnings ratio on ordinary share for
2012?
a. 9.6 to 1 c. 6.0 to 1
b. 8.0 to 1 d. 3.5 to 1
e.
f. 48. Data pertaining to Classic Corp.’s common stock are presented for the fiscal
year ending May 31, 2012:
g.
h. Ordinary shares i. P 750,000
outstanding
j. Stated value per share k. 15.00
l. Market price per share m. 45.00
n. 2008 dividends paid o. 4.50
per share
p. 2009 dividends paid q. 7.50
per share
r. Basic earnings per s. 11.25
share
t. Diluted earnings per u. 9.0
share
 v.
w. The price-earnings ratio of ordinary share of Classics Corp is:
a. 3.0 times. c. 6.0 times.
b. 7.0 times. d. 5.0 times.
e.
f. 49. Associated Co. paid out one-half of its 2011 earnings by dividends. Its
earnings increased by 20% and the amounts of its dividends increased by 15% in
2012. Associated dividend payout ratio for 2012 was
a. 51.5% c. 75.00%
b. 52.3% d. 47.90%
e.
f. 50. Earnings per share amount to P10.00 and the price-earnings ratio is 5. If the
dividend yield is 8%.
g. a. Market price of the stock must be P40.
h. b. Market price of the stock cannot be determined.
i. c. The amount of dividend cannot be determined.
j. d. The dividend is P4.00 per share.
k.
l. 51. How are the dividends per share for common stocks used in the
calculation of the following?
m. Dividend per share n. Earnings per share
payout ratio
o. a. Denominator p. Denominator
q. b. Denominator r. Not used
s. c. Numerator t. Not used
u. d. Numerator v. Numerator
w.
x. 52. How are the following used in the calculation of the dividend payout ratio
for a company with only common stock outstanding?
y. z. Earnings per aa.Book value
Dividends per share per share
share
ab.a. ac. Numerator ad.Not Used
Denominator
ae.b. af. Not Used ag.Numerator
Denominator
ah.c. ai. Denominator aj. Not Used
Numerator
ak. d. al. Not Used am. Denomi
Numerator nator
an.
ao. Items 53 and 54 are based on the following data:
ap.Perry Company was organized on January 2, 2012, with the following capital
structure:
aq. a. 10% cumulative preference share, par
ar. value P100 Perr
y’s b. and liquidation value, d. P 100,000 net
P105;authorized, issued
c. and outstanding 1,000 shares
e. Ordinary share, par value P25, authorized
100,000
g. P 250, 000
f. shares; issued and outstanding
10,000 shares
 income for the year ended December 31, 2012, was P 450,000, but no dividends
were declared.
as. 53. How much was Perry’s book value per preference share at December 31,
2012?
at. a. P100 au.c. P110
av. b. P105 aw. d. P115
ax.
ay. 54. How much was Perry’s book value per common share at December 31,
2012?
az. a. P45.00 ba.c. P69.50
bb.b. P68.50 bc. d. P70.00
bd.
be.55. Dolf Corporatiom’s equity at December 31, 2012, consisted of the
following:
bf. h. Preference share, P50 par value, 10% The
i. non-cumulative; 10,000 shares issued
k. P 500,000
and
j. outstanding
l. Ordinary share, P10 par value, 80,000
shares issued n. 800, 000
m. and outstanding 10,000 shares
o. Retained Earnings p. 300,000
preference share has a liquidating value of P55 per share. At December 31, 2012,
the book value per share is
bg.a. P14.38 bh.c. P13.13
bi. b. P13.75 bj. d. P10.00
bk.
bl. 56. Makati Corporation’s current balance sheet reports the following
shareholder’s equity balances:
bm. q. 5% cumulative preference share, P100 par Divi
den value, s. P 250,000 ds
in r. 2,500 shares issued and outstanding
t. Ordinary share, P3.50 par value, 100,000
shares v. 350, 000
u. issued and outstanding
w. Share Premium x. 125,000
y. Retained Earnings z. 300,000
arrears on the preference share amount to P25, 000. If Makati were to be liquidated,
the preference shareholders would receive par value plus a premium of P50, 000.
The book value per share is
bn.a. P7.75 bo.c. P7.25
bp.b. P7.50 bq.d. P7.00
br.
bs. 57. Lokan, Inc., was organized on January 2, 1010, with the following capital
structure:
bt. aa. 10% cumulative preference share, P100
bu. par value,
bv. ab. P105 liquidation value, 1,000 shares ad. P 100,000
bw. authorized,
ac. issued and outstanding
ae. Ordinary share, P25 par value, 100,000
shares
ah. P 250, 000
af. authorized, 10,000 shares issued and
ag. outstanding
 bx. Lokan’s net income for the year ended December 31, 2012 was P450, 000,
but no dividends were declared. The market price of the ordinary share at the
end of 20112 is P264.00. What is Lokan’s price-earnings multiple at December
31, 2012?
by. a. 5.9 bz. c. 6
ca. b. 45 cb. d. 44
cc.
cd. 58. Cyclone Corporation was authorized to issued 1, 000 shares of P100 par,
8% cumulative preference share and 100, 000 shares par ordinary share. The
equity account balances at December 31, 2012 are as follows:
ce. Cumulative preference share cf. P 50, 000
cg. Ordinary share ch. 90, 000
ci. Share premium cj. 9, 000
ck. Retained Earnings cl. 13, 000
cm. Treasury stock, ordinary – 100 shares cn. ( 2, 000)
at cost
co. cp. P 160, 000
cq. Dividends on preference shares are in arrears for the year 2011. The book
value of a share of ordinary share at December 31, 2012 should be
cr. a. P117.80 cs. c. P137.50
ct. b. P127.50 cu. d. P113.33
cv.
cw.59. For a company that has only ordinary share outstanding, total shareholder’s
equity divided by the number of shares outstanding represents the
cx. a. Return on equity cy. c. Book value per share
cz. b. Stated value per share da.d. Price-earnings per
share
db.
dc. 60. Given a year’s end net income of P1.5 million and 50, 000 ordinary shares
outstanding throughout the year with market price per share at year’s being P!
20, the price earning ratio is:
dd.a. 2 times de.c. 4 times
df. b. 3 times dg.d. 5 times
dh.
di. 61. The following data pertain to ABC Corporation for the calendar year 2012
dj.
dk. Net Income dl. P 240, 000
dm. Dividends paid on ordinary share dn. 120, 000
do.Ordinary share outstanding (unchanged dp. 300, 000
during the year) shares
dq. The market price per share of ABC’s ordinary share at December 31, 2012
was P12. The price-earnings ratio at December 31, 2012 was
dr. a. 9.6 to 1 ds. c. 15.0 to 1
dt. b. 10.0 to 1 du.d. 30.0 to 1
dv.
dw. 62. On December 31, 2011 and 2012, Simon Company had 100, 000
shares of ordinary share and 50,000 shares of non-cumulative and non-
convertible preference stock issued and outstanding. Additional information is as
follows:
 dx.Shareholder’s equity at December 31, dy. P 4, 500, 000
2012
dz. Net income for the year ended December ea. 1, 200, 000
31, 2012
eb.Dividends on preference share for the ec. 300, 000
year ended December 31, 2012
ed.Market price per share on ordinary share ee. 72
at December 31, 2012
ef. The price-earning ratio on ordinary share at December 31, 2012 was
eg.a. 5 to 1 eh.c. 8 to 1
ei. b. 6 to 1 ej. d. 9 to 1
ek.
el. 63. Information concerning the Snake Company’s ordinary share is as follows:
em. en.Per share
eo. Book value at December 31, 2012 ep.P 12
eq.Quoted market value on Philippine Stock er. 9
Exchange on December 31, 2012
es. Earnings for 2012 et. 3
eu.Par value ev. 2
ew. Dividend for 2012 ex. 1
ey. What was the price-earnings ratio on common stock for 2012?
ez. a. 2.00 to 1 fa. c. 3.00 to 1
fb. b. 2.67 to 1 fc. d. 4.00 to 1
fd.
fe. 64. At December 31, 2011, Continental Corporation had 100, 000 shares of P10
par value ordinary share issued and outstanding. There was no change in the
number of shares outstanding during 2012. Total shareholder’s equity at
December 31, 2012 was P2, 800, 000. The net income for the year ended
December 31, 2012 was P800, 000.
ff.
fg. During 2012, Continental paid P3 per share in dividends on its ordinary
shares. The quoted market value of Continental’s ordinary share on The
Philippine Stock Exchange was P24 on December 31, 2012. What was the price-
earnings ratio on ordinary share for 2012?
fh. a. 3.0 to 1 fi. c. 4.8 to 1
fj. b. 3.5 to 1 fk. d. 8.0 to 1
fl.
fm. Liquidity Ratios
fn. 65. Mr. Sharpy, the owner of Galactic Co. is arguing with his accountant as to the
best measure of liquidity. He was considering the following and you are to advise
him which one is best. Which one will you choose?
fo. a. Current assets minus inventories to current liabilities
fp. b. Total assets minus goodwill to total liabilities.
fq. c. Net income minus dividends to interest expense.
fr. d. Sales minus returns to total debt.
fs.
ft. 66. Super Corp. has an acid test ratio 1.5 to 1.0 which of the following will cause
this ratio to deteriorate?
fu. a. Payment of cash dividends previously declared.
fv. b. Borrowing short term loan from a bank.
 fw. c. Sale on inventory on account.
fx. d. Sale of equipment at a loss.
fy. 67. Information from Greg Corporation’s balance sheet is as follows:
fz. Current Assets: ga.
gb. Cash gc. P 2, 400, 000
gd. Marketable Securities ge. 7, 500, 000
gf. Inventories gg.57, 600, 000
gh. Prepaid Expenses gi. 1, 200, 000
gj. Total Current Asset gk. P 135, 000,
000
gl. gm.
gn.Current Liabilities: go.
gp. Notes Payable gq.P 1, 500, 000
gr. Accounts Payable gs. 19, 500, 000
gt. Accrued Expenses gu. 12, 500, 000
gv. Income Taxes Payable gw. 500,
000
gx. Payments due within one year on
long-term
gy. debt gz. 3, 500, 000
ha. Total Current Liabilities hb.P 37, 500,
000
hc. What is the quick (acid) test ratio?
hd.a. 1.60 to 1 he.c. 1.99 to 1
hf. b. 0.264 to 1 hg.d. 3.60 to 1
hh.
hi. 68. The computation of quick ratio is
hj. a. Cash + marketable securities divided by current liabilities
hk. b. Cash + marketable securities + net receivables divided by current
liabilities
hl. c. Cash + marketable securities divided by current assets
hm. d. Current assets divided by current liabilities
hn.
ho.69. How are the trade receivables used in the calculation of each of the
following:
hp. Acid test (quick) ratio hq. Receivable turnover
hr. a. Numerator hs. Numerator
ht. b. Numerator hu. Denominator
hv. c. Denominator hw. Denominator
hx.d. Not used hy. Numerator
hz.
ia. 70. If current assets exceed current liabilities, payments to creditors made on
the last day of the month will
ib. a. Decrease current ratio ic. c. Decrease net working
capital
id. b. Increase current ratio ie. d. Increase net working
capital
if.
ig. 71. GRX, Inc. has a current ratio of 4:1. Which of the following transactions would
normally increase its current ratio?
 ih. a. Purchasing inventory on account
ii. b. Purchasing machinery for cash
ij. c. Selling inventory on account
ik. d. Collecting on account receivable
il.
im.72. OTW Corporation has a current assets totaling P15 million and a current ratio
of 2.5 to 1. What is OTW’s current ratio immediately after it has paid P2 million
of its account payable?
in. a. 3.75 to 1 io. c. 3.25 to 1
ip. b. 2.75 to 1 iq. d. 4.75 to 1
ir.
is. 73. The effects on working capital and current ratio if a short-term payable is
converted into a long-term payable would
it. Working Capital iu. Current Ratio
iv. a. Decrease iw. Decrease
ix. b. Increase iy. Increase
iz. c. Increase ja. No effect
jb. d. Decrease jc. No effect
jd.
je. 74. Which of the following ratios measures short-term solvency?
jf. a. Current ratio jg. c. Creditor’s equity to
total assets
jh. b. Age of receivables ji. d. Return on investment
jj.
jk. 75. Short-term creditors would probably most interested in which ratio?
jl. a. Current ratio jm.c. Debt-to-equity ratio
jn. b. Earnings per share jo. d. Quick ratio
jp.
76.On December 31, 2012, Allan Company collected a receivable due from a major
customer. Which of the following ratios would be increase by this transaction?
a. Inventory turnover ratio.
b. Quick ratio.
c. Receivable turnover ratio.
d. Current ratio.
jq.
77.A company has a current ratio of 2 to 1. This ratio will decrease if the company
a. Receives a 5% stock dividend on one of its marketable securities.
b. Pays a large account payable which had been a current liability.
c. Borrows cash on a six-month note.
d. Sells merchandise for more than cost and record the sale using the
perpetual inventory method.
jr.
78.Recording cash dividend payment when declaration was recorded earlier would
a. Increase both current ratio and working capital.
b. Decrease both current ratio and working capital.
c. Have no effect on current ratio or earnings per share.
d. Increase current ratio but no effect on working capital.
js.
79.Wall Corporation’s books disclosed the following information as of and for the
year ended December 31,2013;
 jt. Net credit sales ju. P 3,000,000
jv. Net cash sales jw. 480,000
jx. Accounts receivable at
jy. 400,000
beginning
jz. Accounts receivable at ending ka. 800,000
kb. Wall’s accounts receivable turnover is
a. 3.57 times c. 5.36 times
b. 3.85 times d. 5.77 times
e.
80. Selected information from the operating records of Kay Company is as follows:
f. Net sales g. P 1,800,000
h. Cost of goods sold for 2012 i. 1,280,000
j. Inventory at 12/31/11 k. 360,000
l. Inventory at 12/31/12 m. 312,000
n. Kay’s inventory turnover for 2012 is
a. 3.57 times c. 5.36 times
b. 3.85 times d. 5.77 times
e.
81.Selected information from the accounting records of Goliat Company is as
follows:
f. Net sales for 2012 g. P 1,800,000
h. Gross profit rate on cost i. 20%
j. Current liabilities k. 500,000
l. Current ratio m. 3 to 1
n. Quick assets ratio o. 2.5 to 1
p.
q. Goliath inventory turnover for 2012 is:
a. 6.00 c. 8.64
b. 5.76 d. 12.00
e.
82.During 2012, Lilia Company purchased P960, 000 of inventory. The cost of goods
sold for 2011 was P900,000 and the ending inventory at December 31, 2012
was P180,000. What was the inventory turnover for 2012?
a. 6.4 c. 5.3
b. 6.0 d. 5.0
e.
83.Selected information from the accounting records of Dalton manufacturing
Company is as follows:
a. Net sales for 2012 b. P 1,800,000
c. Cost of goods sold for 2012 d. 1,200,000
e. Inventories at 12/31/11 f. 336,000
g. Inventories at 12/31/12 h. 288,000
i. Assuming there are 300 working days per year, what is the number of days’
sales in average inventories for 2012?
a. 78 c. 52
b. 72 d. 48
e.
84.The following computations were made from Bird Company’s 2012 books
 f. Number of days sales in inventory g. 61
h. Number of days sales in trade accounts
i. 33
receivable
j. What was the number of days in Bird’s 2012 operating cycle?
a. 33 c. 61
b. 94 d. 47
e.
85.Which of the following ratios should be used in evaluating the effectiveness with
which the company uses its assets?
a. Receivable turnover = No Dividend payout ratio = No
b. Receivable turnover = Yes Dividend payout ratio = No
c. Receivable turnover = Yes Dividend payout ratio = Yes
d. Receivable turnover = No Dividend payout ratio = Yes
f.
86. Sherlock Company’s net accounts receivable were P250,000 at December 31,
2011 and P300,000 at December 31, 2012. The accounts receivable turnover for
2012 was 5.0. What were Sherlock’s total net sales for 2012?
a. P1,375,000 c. P1,600,000
b. P1,500,000 d. P2,750,000
87.
88.How is the average inventory used in the calculation of each of the following?
89.Acid Test Inventory Turnover rate
a. Numerator Numerator
b. Numerator Denominator
c. Not used Denominator
d. Not used Numerator
90.
91.The ratio that measures a firm’s ability to generate earnings from its resources
is
a. Day’s sales inventory
b. Asset turnover
c. Sales to working capital
d. Day’s sales in receivables
92.
93.Minix Co. has a high sales-to-working-capital ratio. This could indicate
a. The firm is undercapitalized.
b. The firm is likely to have liquidity problems.
c. Working capital is not profitability utilized.
d. The firm is not profitable.
94.
95.For the year ending 31 August in 2012, Sinatra Inc. reported the following
statistics
96.In thousand pesos
97. August 31
98. 99.2012 100. 20
11
101. Net credit sales 102. 2,4 103.
82
104. Gross receivables 105. 14 106. 12
0 8
 107. inventory 108. 38 109. 31
4 2
110. Cost of goods sold 111. 1,7 112.
52
113. For the current year, using a 365-day year, the average number of
days to convert inventory to sales is
a. 65.00 days c. 72.56 days
b. 51.18 days d. 71.51 days
114.
115. If the average age of the inventory is 90 days, the average age of accounts
payable is 60 days, and the average age of accounts receivables is 65 days, the
number of days in the cash flow cycle is
a. 95 days c. 215 days
b. 125 days d. 85 days
e.
116. It is the policy of Franz Corp. that the current ratio cannot fall below 1.5 to
1.0. Its current liabilities are P400,000 and the present current ratio is 2 to 1.
How much is the maximum level of the new short-term loans it can secure
without violating the policy?
a. P 400,000 c. P 266,667
b. P 300,000 d. P 800,000
117. Selected data from the year-end financial statements of World Cup Corp. are
presented below. The difference between average and ending inventories is
immaterial.
a.
b. Current ratio c. 2.0
d. Quick ratio e. 1.5
f. Current liabilities g. P 600,000
h. Inventory turnover (based on cost i. 8 times
of sales)
j. Gross profit margin k. 40%
l.
m.World’s net sales for the year were
a. P 2.4 million. c. P 1.2 million.
b. P 4.0 million. d. P 6.0 million.
118.
119. Manang Corp. made a substantial one-time sale to a provincial based
customer, which was on credit and had been outstanding for six months. Before
the company could refer the account to a lawyer for collection, the customer
paid in full. Which of the following ratios would be increased by the unexpected
receipt.
a. Acid-test ratio. c. Current ratio.
b. Receivable turnover ratio. d. Inventory turnover ratio.
e. 95. The ratio sales to working capital is a measure of
a. Collectability. c. Liquidity.
b. Operational leverage. d. Financial Leverage.
f.
g. 96. Ram Corp. has a 2 to 1 current ratio. This ratio would increase more
than 2 to 1 if
a. The company wrote off an uncollectible receivable.
 b. The company purchased inventory on open account.
c. The company sold merchandise on open account that earned a normal gross
margin.
d. A previously declared stock dividend was distributed.
h.
i. 97. Jack & Sons, Inc. has a 2 to 1 acid test (quick) ratio. This ratio would
decrease to less than 2 to 1 if
a. The company purchased inventory on open account.
b. The company sold merchandise on open account that earned a normal gross
margin.
c. The company collected an account receivable.
d. The company paid an account payable.
j.
k.98. On December 31, 2012 Allan Company collected a receivable due from a
major customer. Which of the following ratios would be increased by this
transaction?
a. Inventory turnover ratio.
b. Quick ratio.
c. Receivable turnover ratio.
d. Current ratio.
l.
m. 99. OMB Inc.’s financial statement as the year ended December 31, 2012
show accounts receivables, net of P750,000 and sales at P15 million. Accounts
receivable remained relatively constant during the year. OMB’s accounts
receivable turnover in days is:
a. 18.25 c. 15.25
b. 20.25 d. 16.25
e.
f. 100. Inventory turnover indicates:
a. How many times in the course of a year the company is able to sell the
amount of its average inventory.
b. The flow assumption, which provides the most current valuation in the
balance sheet.
c. The average time period between the purchase of inventory and conversion
of this inventory back to cash.
d. A pattern of transferring unit cost from the inventory account to the cost of
goods sold.
g.
h. 101. State whether the following statements are true of false.
i. Statement 1: The conversion of the company’s short-term
debt into a long-term note payable would decrease both working
capital and the current ratio.
j. Statement 2: A user of financial statements who is a short-term
creditor is interested in the borrower’s ability to pay interest
regularly.
k. STATEMENT 1 STATEMENT 2
a. True True
b. True False
c. False True
d. False False
 l.
m. 102. State whether the following statements are true or false.
n. Statement 1: A current ratio of 2 to 1 is always considered
good.
o. Statement 2: For the most part, a company that has a small
inventory and readily collectible accounts receivable can operate
safely with a lower current ratio than a company whose cash
flow is less dependable.
p. STATEMENT 1 STATEMENT 2
a. True True
b. True False
c. False True
d. False False
q.
r. 103. A company’s current ratio is 2.2 to 1 and the quick ratio is 1.0 to 1 at the
beginning of the year. At the end of the year, the company has a current ratio of
2.5 to 1 and a quick ratio of 0.8 to 1. Which of the following could help explain
the divergence in the ratios from the beginning to the end of the year?
a. An increase in inventory levels during the year.
b. An increase in credit sales in relationship to sales.
c. An increase in the net of payable during the current year.
d. An increase in the collection rate of accounts receivable.
s.
t. 104. The quick assets of the company exceeded its current liabilities both before
and after the transaction described below. The company has positive profit in
2012 and a credit inventory policies and decided to write-off inventory in the
amount of P125,000 in 2012. The write-off would
a. Decrease the quick ratio. c. Increase net working capital.
b. Increase the quick ratio. d. Decrease the current ratio.
e.
f. 105. All of the following statements are valid except
a. The short-term creditor is more interested in cash flow and in working capital
management than he is on how much accounting net income is reported.
b. If the return on total assets is higher than the after-tax cost of long-term debt
than leverage is positive and the common stockholders will benefit.
c. The result of the financial statements analysis are of value only when viewed
in comparison with the results of other periods or other firms.
d. The inventory turnover is computed by dividing sales by average inventory.
g.
h. 106. Which of the following statements is correct?
a. An increase in a firm’s inventories will call for additional financing unless the
increase is offset by an equal or larger decrease in some other asset account.
b. A high quick ratio is always a good indication of a well-managed liquidity
position.
c. A relatively low return on assets (ROA) is always an indicator of managerial
incompetence.
d. A high degree of operating leverage lowers the risk by stabilizing the firm’s
earnings stream.
i.
j. 107. The company issued new common shares in a three-for-one stock split.
Identify the statements that indicate the correct effect(s) of this transaction.
k. 1. It reduced equity per share of common stock.
l. 2. Share of each common stockholder is reduced.
m. 3. The peso amount of capital stock is increased.
n. 4. Working capital and current ratio are increased.
o.
a. Statement 1 and 4 only are correct.
b. Statement 1 only is correct.
c. All four statements are correct.
d. Statements 3 and 4 only are correct.
p.
q. 108. The following information pertains to Al Corporation as of and for the year
ended December 31, 2012?
r. Liabilities
P 60,000
s. Shareholders’ equity P
500,000
t. Share of ordinary share issued and outstanding
10,000 shares
u. Net Income P
30,000
a. No ratios were affected.
b. Asset turnover increased to 5.4%
c. Debt equity ratio decreased to 12%
d. Earnings per share increased by P0.33.
v. 109. AMK Inc. has the following data as at year ending December 31, 2012:
w. Total assets x. P 5,000,000
y. Ordinary shares z. 2,500,000
outstanding
aa. Preference shares ab.1,000,000
outstanding
ac. Net Income ad.750,000
ae.Depreciation expense af. 500,000
ag.There were no changes in number of shares outstanding during the year,
AMK’s rate of cash flow to total liabilities is:
a. 30% c. 120%
b. 50% d. 167%
e.
f. 110. Aloha Company’s net accounts receivable were P500,000 at December 31,
2011, and P600,000 at December 31, 2012. Net cash sales for 2012 were
P200,000. The accounts receivable turnover for 2012 was 5.0. What was Alpha’s
net sales for 2012?
a. P 2,950,000 c. P3,200,000
b. P 3,000,000 d. P5,500,000
e.
f. 111. Selected information from the Beta Company's accounting records is as
follows:
g. Net accounts receivable at December 31, h. P
 2011 900,000
i. Net accounts receivable at December 31, j. 1,000,000
2012
k. Inventories, December 31, 2011 l. 1,100,000
m. Inventories, December 31, 2012 n. 1,200,000
o. Accounts receivable turnover p. 5 to 1
q. Inventory turnover r. 4 to 1
s. What was Beta Company’ gross margin for 2012?
a. P 150,000 c. P 300,000
b. P 200,000 d. P 400,000
e. Questions 112 and 113 are based on the following information:
f. Global Corporation registered accelerated increase in its net income from
P437,500 in 2011 to P1,260,000 in 2012. Rate of return on current assets
increased from 25% in 2011 to 30% in 2012. Current asset turnover, on the
other hand, went up to 2.87 turnovers in 2012 from 2.45 turnovers in 2011.
g. 112. The average investment in current assets of Global Corporation in 2012
was:
a. P 1,697,500 c. P 4,200,000
b. P 1,750,000 d. P 5,040,000
e.
f. 113. The cost of goods sold and operating expenses, including depreciation in
2012 amounted to:
a. P 10,794,000 c. P 6,022,500
b. P 5,022,500 d. P12,054,000
e.
f. For questions 114 to 117, math the ratios at the left with the definition at the
right.
g. l.
h. m.
i. 114. Price-earnings ratio. n. Ratio of pretax operating income
j. to annual interest expense.
k. o. Market price of a share of stock
o. divided by earnings per share.
p. 115. Days’ sales in receivables p. A measure of age or adequacy of
q. inventory, each calculated by the
s. ratio of ending inventory balance
t. 116. Days’ sales in inventory to average daily cost of sales for
u. the preceding period.
w. q. A measure of the receivables’ age
x. calculated by the ratio of ending
y. 117. Times interest earned. receivable balance to average
z. daily sales for the preceding
period.
n.
ab.
ac. Comprehensive questions
ad.
ae.Items 118 through 121 are based on the following information:
af.
ag.You are requested to reconstruct the account of Kalang Kalang Supplies for
analysis.
ah.The following data were made available to you:
ai.
 Gross margin for 2012 amounted to P472,500
 Ending balance of merchandise inventory was P200,000
 Long-term debt liabilities consisted of bonds payable with interest rate of
20%
 Total shareholders’ equity as of December 31, 2012 was P750,000
 Gross margin ratio, 35%
 Debt-to-equity ratio 0.8 to 1
 Times interest earned 10
 Quick ratio 1.3 to 1
 Operating expenses to sales 18%
aj.
ak. 118. What was the EBIT for 2012?
a. P 472,500 c. P 206,500
b. P 243,000 d. P 229,500
e.
f. 119. How much was the bonds payable?
a. P 400,000 c. P 114,750
b. P 200,750 d. P 370,500
e.
f. 120. Total current liabilities would amount to
a. P 600,000 c. P 485,250
b. P714,750 d. P 550,000
e.
f. 121. Total current assets would amount to
a. P 630,825 c. P 580,000
b. P 780,000 d. P 930,825
e.
f. Items 122 through 126 are based on the following information:
g. Tralala Corporation discloses the following in relation to its financial
statements in 2012.
h. Cash i. P 37, 500
j. Plant and equipment k. 441,000
l. Total assets m. 648,000
n. Income tax payable o. 37,500
p. Ordinary shares q. 450,000
r. Gross margin for 2012 s. 450,000
t. Accounts receivables, inventory, accounts payable, long-
u. ?
term debt and retained earnings
v. Total liabilities divided by total shareholders’ equity w. 0.8
x. Inventory turnover based on sales and ending inventory y. 15 times
z. Inventory turnover based on cost of goods sold and
aa. 10.5 times
ending inventory
ab.Current ratio at year end ac. 1.8 : 1
ad.
ae.122. What was the balance in trade accounts payable?
 a. P 169,500 c. P 182,000
b. P 100,500 d. P 207,000
e.
f. 123. What was the balance in retained earnings?
a. P (90,000) c. P (132,000)
b. P 90,000 d. P 132,00
e.
f. 124. The balance in the inventory account is
a. P 30,000 c. P 100,000
b. P 45,000 d. P135,000
e.
f. 125. The balance in the inventory account is
a. P 138,000 c. P 100,000
b. P 69,500 d. P 135,000
e. 126. The balance of long term-debt is
a. P 100,000 c. P150,000
b. P 92,000 d. P130,000
e.
f. Items 127 through130 are based on the following information:
g. Acid-test ratio h. 1.2
i. Times interest earned j. 8
k. Gross margin ratio l. 40%
m. Inventory turnover n. 6
o. Debt-to-equity ratio p. 0.9 to 1
q. Ratio of operating expenses to sales r. 15%
s. Total shareholders’ equity on December 31, 2012 was P900,000. Gross
margin for2012 amounted to P600,000. Beginning balance of merchandise
inventory was P200,000. The company’s long-term liabilities consisted of bonds
payable with interest at 15%. You decided to reconstruct the company’s financial
statements based on the limited information given to serve as a basis for further
analysis.
t.
u. 127. Panga’s operating income in 2012 is:
a. P 525,000 c. P 375,000
b. P 300,000 d. None of the given
e.
f. 128. Panga’s bonds payable balance at December 31, 2012 is
a. P 312,500 c. P 400,000
b. P 350,000 d. None of the given
e.
f. 129. The current liabilities balance at December 31, 2012 is
a. P 317,000 c. P 697,000
b. P 597,000 d. None of the given.
e.
f. 130. The company’s current assets amount to
a. P 317,000 c. P 697,000
b. P 597,000 d. None of the given.
e.
f. Items 131 to 133 are based on the following data pertaining to Fox Company
for the calendar year 2012:
 g.
h. Sales (on credit) i. P 2,000,000
j. Gross profit sales k. 900,000
l. Profit m. 150,000
n. Purchases o. 1,000,000
p. Inventory at the end of the year q. 200,000
r. Accounts receivable at the beginning of
the year s. 600,000
t. Accounts receivable at the end of the
year u. 400,000
v. Ordinary shares outstanding (unchanged
during the year) – 30,000 shares at par of
P1 per share P 300,000
w. Retained earnings 500,000 x. 800,000
y.
z. Dividends paid during the year totaled P 0.25 per share. The market price per
share of Fox’s stock was P5 at the end of the year.
aa.
ab.131. Fox’s inventory turnover for 2012 was
a. 2.0 times. c. 4.4 times.
b. 2.2 times. d. 3.0 times.
e.
f. 132. Fox’s accounts receivables turnover for 2012 was
a. 1.8 times. c. 4.0 times.
b. 2.0 times. d. 5.0 times.
e.
f. 133. The price-earnings ratio on Fox’s ordinary share at the end of the year
was
a. 2.0 to 1. c. 10.0 to 1.
b. 2.5 to 1. d. 21.0 to 1.
e.
f.
g. Questions 134 to 137 are based on the following information:
h.
i. Selected data taken from the financial statements of Johnny Company for the
year indicated:
j.
k.
l. m. 2010 n. 201 o. 2012
1
p. Accounts receivable, net q. P r. P s. P
40,0 42, 45,0
00 500 00
t. Inventory u. 40,0 v. 50, w. 45,0
00 000 00
x. Current assets y. 120, z. 140 aa.130,
000 ,00 000
0
ab.Total assets, net ac. 700, ad.750 ae.725,
000 ,00 000
 0
af. Current liabilities ag.70,0 ah.80, ai. 50,0
00 000 00
aj. Cash sales ak. 400, al. 420 am.
000 ,00 450,000
0
an.Credit sales ao. 120, ap.125 aq.131,
000 ,00 250
0
ar. Cost of sales as. 310, at. 324 au.345,
000 ,00 000
0
av. (Use 360 days in a year)
aw.
ax. 134. What should be the age of receivables for 2011?
a. 110 days. c. 130 days.
b. 120 days. d. 140 days.
e.
f. 135. What is the estimate number of days in inventory for 2010?
a. 50 days. c. 70 days.
b. 60 days. d. 80 days.
e.
f. 136. What is the working capital turnover for 2011?
a. 7.15 c. 9.9
b. 8.3 d. 9.0
e.
f. 137. At December 31, 2011, Johnny’s current ratio was
a. 1.50 to 1.00. c. 2.06 to 1.00.
b. 1.75 to 1.00. d. 3.10 to 1.00.
e.
f. Questions 138 through 140 are based on the following information.
g.
h. The following selected financial data were taken from the accounting records
of Jonna Corporation:
i.
j.
k. Jonna Corporation
l. Selected Financial Data
m. December 31
n. o. 2012 p. 2011
q. Cash r. P 170,000 s. P 90,000
t. Accounts receivable (net) u. 450,000 v. 400,000
w. Merchandise inventory x. 540,000 y. 420,000
z. Short-term marketable
securities aa. 80,000 ab.40,000
ac. Land and building (net) ad.1,000,000 ae.1,000,000
af. Mortgage payable-current
portion ag.60,000 ah.50,000
ai. Accounts payable and accrued aj. 240,000 ak. 220,000
 liabilities
al. Short-term notes payable am. 100,0
00 an.140,000
ao. Net credit sales totaled to P 3,000,000 and P 2,000,000 for the years ended
December 31, 2012 and 2011, respectively.
ap.
aq.138. At December 31, 2012, Joanna’s quick (acid) test ratio was
a. 1.50 to 1.00. c. 2.06 to 1.00.
b. 1.75 to 1.00. d. 3.10 to 1.00.
e.
f. 139. For 2012, Joanna’s accounts receivable turnover was
a. 1.17 c. 6.67
b. 1.5 d. 7.06
e.
f. 140. What is the amount of Joanna’s working capital at December 31, 2012?
a. P 41,000 c. P 50,000
b. P 840,000 d. P 91,000
e.
f. Questions 141 to 145 are based on the following information:
g.
h. Mojo Jojo Company is calculating its ratios relation to debt-paying ability for
the year ended December 31, 2012. Below is the relevant information:
i.
j.
k. Sales revenue l. P 325,000
m. Cost of goods sold and operating n. 75,000
expenses
o. Interest expense p. 20,000
q. Income tax expense r. 6,000
s. Profit t. 9,000
u.
v.
w. x. December 2012 y. January 1, 2012
z. Cash aa. P ab. P 16,000
10,000
ac. Accounts receivable ad. 25,000 ae. 15,000
af. Inventory ag. 45,000 ah. 60,000
ai. Accounts payable aj. 24,000 ak. 28,000
al. Taxes payable am. 11,000 an. 13,000
ao.
ap.
aq.141. What is Mojo’s current ratio at December 31, 2012?
a. 2.220 to 1 c. 3.250 to 1
b. 2.286 to 1 d. 3.420 to 1
e.
f. 142. What is Mojo’s acid test ratio at December 31, 2012?
a. 0.672 to 1 c. 1.000 to 1
b. 0.756 to 1 d. 1.767 to 1
e.
f. 143. What is Mojo’s average collection period for accounts receivable in
2012?
a. 58.40 days c. 91.25 days
b. 73.00 days d. 24.26 days
e.
f. 144. What is Mojo’s inventory turnover in 2012?
a. 1.143 times c. 1.429 times
b. 1.250 times d. 1.667 times
e.
f. 145. What is Mojo’s times interest earned?
a. 12. 5 c. 1.000
b. 0.750 d. 1.750
 e.
f. The income statement of Carlson Company for the year ended March 31,
2012 are as follows:
g.
h. i. (in million of pesos)
j. k. 2012 l. 2011
m. Sales n. P 320.5 o. P
305.4
p. Cost of sales q. 274.1 r. 253.9
s. Gross profit t. 46.4 u. 51.5
v. Distribution costs w. 11.6 x. 10.4
y. Administrative expenses z. 22.6 aa.23.5
ab.Other operating income ac. 4.5 ad.6.4
ae.Earnings before interest and taxes af. 16.7 ag.24.0
ah.Interest charges ai. 1.9 aj. 4.3
ak. Earnings before taxes al. 14.8 am. 19
.7
an.
ao. 146. Which of the following is correct?
a. The company sold more goods by volume in 2012 than in 2011.
b. The gross margin as a percentage of sales was higher in 2012 than in 2011.
c. The increase in distribution costs in 2012 over and above the 2011 amount is
due to the higher sales turnover.
d. The net profit margin as a percentage of sales fell in 2012 and about 2/3 of
the 2011 level.