ReSA -The Review School of Accountancy Management Advisory Services

ReSA Batch 42 (October 2021 CPALE)

MAS PREWEEK - THEORIES
MASPW – Theories shall be used in conjunction with MASPW – Problems and will be deemed incomplete without
revisiting selected multiple-choice questions of the following:
✓ MAS Quiz 1: 5, 10, 15, 18, 20
✓ MAS Quiz 2: 3, 5, 11, 12, 18, 20
✓ MAS Quiz 3: 2, 5, 7, 8, 11, 16, 19, 20
✓ MAS Quiz 4: 1, 3, 5, 10, 11, 20
✓ MAS First Pre-Board Exams: 27, 43, 47, 49
✓ MAS Final Pre-Board Exams: 3, 8, 28, 42, 46, 52, 62, 66
✓ MAS – 42A: 2, 12, 14, 19, 20
✓ MAS – 42B: Wrap-Up 4, 9, 10, 12  Self-Test 4, 6, 17, 26, 27
✓ MAS – 42C: Wrap-Up 5, 9, 11  Self-Test 3, 7, 9, 22, 27, 28, 36, 38
✓ MAS – 42D: Wrap-Up 2, 15, 16, 19, 20  Self-Test 1, 3, 10, 20, 21, 22, 28, 34
✓ MAS – 42E: Wrap-Up 2, 5, 8, 20  Self-Test 1, 2, 3, 4, 23, 33, 39, 46
✓ MAS – 42F: Wrap-Up 6, 8, 9, 11, 18  Self-Test 2, 3, 18, 29
✓ MAS – 42G: Wrap-Up 2, 3, 4, 8  Self-Test 1, 2, 3, 4, 5, 11, 24, 25, 40, 66
✓ MAS – 42H: 7, 8, 16, 21, 30, 36, 43, 48, 50, 63, 71, 78, 84, 90, 96, 98, 104, 113, 124, 128
✓ MAS – 42I: Wrap-Up 6, 13  Self-Test 1, 26, 27, 28, 34
✓ MAS – 42J: Wrap-Up 3, 4, 6, 10  Self-Test 1, 2, 11, 13, 30
✓ MAS – 42K: Wrap-Up 2, 5, 12, 13, 14, 19, 23, 28, 33, 37  Self-Test 24, 25, 37, 60, 79
✓ MAS – 42L: Wrap-Up 1, 4, 8  Self-Test 9, 11, 15, 43
✓ MAS – 42M: Wrap-Up 1, 4, 7, 8, 12, 14, 15, 17  Self-Test 14, 29, 42, 60
✓ MAS – 42N: Wrap-Up 4, 16, 20, 21, 22  Self-Test 4, 7, 68, 74, 82
✓ MAS – 42O: Wrap-Up 6, 8, 10  Self-Test 7, 9, 36, 64
✓ MAS – 42P: 5, 10, 12, 17, 18, 19, 20, 24, 25

MAS Syllabus
 Part I – Management Accounting (35 items = 50% of 70 items)
 Part II – Financial Management (28 items = 40% of 70 items)
 Parts III, IV – Management Consultancy & Economics (7 items = 10% of 70 items)

Part I: Management Accounting

1. Management accountants, in order to satisfy their intended information users, should do all the following, EXCEPT
B a. Provide users with high quality information
b. Focus on preparing information for external financial reporting
c. Provide specialized information that specific managers can use
d. Continuously strive to provide better quality information faster and at a lower cost
2. Managerial accounting is very similar to financial accounting in this particular aspect.
D* a. Users of reports c. Emphasis between past and future
b. Type of data provided to users d. Reliance on the accounting database
3. Which financial executive is primarily responsible for both management and financial accounting?
B a. Treasurer c. Chief financial officer
b. Controller d. Auditor
4. A position on the organizational chart that is directly related to achieving the basic objectives of an organization.
C a. Controller c. A line position
b. Chief financial officer d. A staff position
5. In contrast to the position of a treasurer, the controller is primarily a
B* a. Line function c. Managerial position
b. Staff function d. Rank-and-file position
6. The latest version of Standards of Ethical Professional Practice for management accountants comprise of (A) competence,
(B) confidentiality, (C) integrity and (D) credibility. “Credibility” requires management accountant to:
D* 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
7. A management accountant who fails to comply with applicable law or legislation is acting contrary to which of the
following ethical standards?
A a. Competence c. Integrity
b. Confidentiality d. Credibility
8. 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
D* 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
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9. Value-added activities
C* 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
10. 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
11. The three major types of competitive strategic cost management include
C* a. Differentiation, focus and productivity c. Cost leadership, focus and differentiation
b. Cost leadership, focus and productivity d. Cost leadership, differentiation and productivity
12. 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
13. JIT is based on notion that ‘work is initiated only in response to customer orders.’ This practice is described as
A* a. Demand-pull c. Supply-pull
b. Demand-push d. Supply-push
14. 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
15. Which of the following is NOT a benefit of JIT processing?
D a. Production cost savings c. Reduction of rework costs
b. Enhanced product quality d. Planning and control of significant inventory balances
16. Which of the following internal controls is not one typically eliminated when a just-in-time inventory system is introduced?
C a. Sophisticated inventory tracking system c. Statistical methods for quality assurance
b. Central receiving dock d. Hard copy receiving report
17. Which of the following quality tools is another term for gradual yet continuous improvement?
B* a. Theory of constraints c. Six-sigma
b. Kaizen d. Lean manufacturing
18. 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
19. 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
20. 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
21. In which of the following organization does total quality management (TQM) work best?
D a. Hierarchal c. Teams of people from the same specialty
b. Specialists working individually d. Teams of people from different specialties
22. Business Process Reengineering (BPR) is a more radical approach to improvement than TQM since BPR
B* 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
23. 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.
B* a. Appraisal costs c. Internal failure costs
b. Prevention costs d. External failure costs
24. 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
25. Productivity is measured by the
C* 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
26. 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
27. The comparison of a company's practices and performance levels against those of other organizations (or against the
best possible level of performance) is most commonly known as
A a. Benchmarking c. Comparative analysis
b. Re-engineering d. Continuous improvement
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28. 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.
29. In the standard regression equation y = a + bx, the letter b is best described as a(n)
D* a. Independent variable c. Constant coefficient
b. Dependent variable d. Variable coefficient
30. 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
31. 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
32. Simple regression provides the means to evaluate a line of regression that is fitted to a plot of data and represents
A* 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.
33. 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.
34. Committed costs are
C a. Costs that management decides to incur in the current period to enable the company to achieve objectives
other than the filling the orders placed by customers
b. Costs that are likely to respond to the amount of attention devoted to them by a specified manager
c. Costs that are governed mainly by past decisions that established the present levels of operating and
organizational capacity and that only change slowly in response to small changes in capacity
d. Amortization of costs that were capitalization in previous periods
35. Costs that arise from periodic budgeting decisions that have no strong input-output relationship are commonly called
B a. Committed costs c. Opportunity costs
b. Discretionary costs d. Differential costs
36. A cost that bears an observable and known relationship to a quantifiable activity bases is a(n)
A a. Engineered cost c. Sunk cost
b. Indirect cost d. Target cost
NOTE: In contrast to discretionary costs, engineered costs are costs that have a clear input-output relationship (e.g., the
cost of direct materials)
37. 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
38. To which function of management is cost-volume-profit (CVP) analysis most applicable?
A a. Planning c. Organizing
b. Directing d. Controlling
39. 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
40. If Company A has a higher degree of operating leverage than Company B, then
D* 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
41. The distinction between absorption costing and variable costing is most important for which type of industry?
A* a. Manufacturing c. Retail
b. Marketing d. Service
42. Which one of the following considers the impact of fixed overhead costs?
A a. Full absorption costing c. Direct costing
b. Marginal costing d. Variable costing
43. Under variable costing, which of the following expenses are excluded from inventory costs?
D a. Direct manufacturing labor and variable manufacturing overhead
b. Direct materials and variable manufacturing overhead
c. Direct materials and manufacturing labor
d. Marketing and administrative
44. 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
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45. In target costing

A* 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
46. In a decision-making case, which of the following costs is NOT likely to contain a relevant cost component?
D a. Labor cost c. Factory overhead cost
b. Selling cost d. Depreciation cost of an existing asset
47. Comparing actual results with a budget based on achieved (actual) volume is possible with the use of a
D a. Monthly budget c. Rolling budget
b. Master budget d. Flexible budget
48. 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
49. 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.
50. 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
51. A life-cycle budget is a budgeting tool or process
D* 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
52. ‘Kaizen’ budgeting refers to the budgeting process where
C* 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}
53. What is a budget that describes the long-term position, goals, and objectives of an entity?
D a. Capital budget c. Cash management budget
b. Operating budget d. Strategic budget
54. 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
55. Pro forma financial statements are part of budgeting process. Normally, the last pro forma statement prepared is the
C a. Income statement c. Statement of cash flows
b. Statement of cost of goods sold d. Statement of manufacturing costs
56. In the preparation of a cash budget with clear-cut information on sources and uses of funds, all of the following would
classified as a cash flow under investing activities, EXCEPT:
D a. Collection of a loan from subsidiary c. Sale of plant assets
b. Purchase of a patent from an inventor d. Dividends received on stock investment
57. A firm most often uses a standard costing system in conjunction with:
A* a. Flexible budgets c. Target (hurdle) rate of return
b. Management by objectives d. Participative management programs
58. A difference between standard costs used for cost control and the budgeted costs of the same manufacturing 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
59. Variance analysis should be used
A* 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
60. 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.
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61. Variance analysis would be appropriate to measure performance in
D* a. Cost centers c. Investment centers
b. Profit centers d. Cost, profit and investment centers
62. 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
63. 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
64. For performance evaluation, variable costs of a service department should be charged to operating departments using:
B a. The actual variable rate and the budgeted level of activity for the period.
b. The budgeted variable rate and the actual level of activity for the period.
c. The budgeted variable rate and the budgeted level of activity for the period.
d. The actual variable rate and the peak-period or long-run average servicing capacity.
65. 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
66. Residual income is a better measure for performance evaluate of an investment center manager than return on
investment because
B* 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
67. 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
68. 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
69. Managers are most likely to accepts allocations of common costs based on
A a. Cause and effect c. Fairness
b. Ability to bear d. Benefits received
70. Traditional overhead allocations as opposed to Activity-Based Costing (ABC) result in which of the following situations?
D a. Resulting allocations cannot be used for financial reports.
b. Overhead costs are assigned as period costs to manufacturing operations.
c. Allocations are characterized by using multiple cost drivers for a single cost pool.
d. High-volume products are assigned too much overhead costs, and low-volume products are assigned
too little overhead costs.
71. If ABC is implemented in an organization without any other changes being effected, total overhead costs will
A* a. Remain constant and simply be spread over products differently
b. Be reduced because of elimination of non-value-added activities
c. Be reduced because organizational costs will not be assigned to products or services
d. Be increased because of additional personnel needed to obtain data on cost drivers and cost pools
72. 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
73. 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
74. A balanced scorecard is primarily concerned with
B* a. Staff c. Systems
b. Strategy d. Structure
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75. 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.
76. Which balanced scorecard performance measure would be part of those used for internal business processes perspective?
A* a. Cycle time c. Customer retention
b. Employee satisfaction d. Return on investment
77. 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
78. In a PERT network, slack is the
D* a. Most likely time estimate for an activity
b. Average of the time estimates for an activity
c. Path that requires the longest completion time
d. Time an activity can be delayed without causing delay to the entire project
79. Expected value in decision analysis is
A* a. An arithmetic mean using the probabilities as weights.
b. A standard deviation using the probabilities as weights.
c. The standard deviation divided by the coefficient of variation.
d. A measure of the difference between best possible outcome and outcome of the original decision
80. What is the cost factor that is LEAST likely to be affected by the learning curve?
A* a. Materials c. Indirect labor
b. Direct labor d. Variable overhead

Part II: Financial Management

1. As a company becomes more conservative in working capital policy, it would tend to have a (an)
B* 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)
D 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
C* 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?
D* 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
C* 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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11. Which statement best summarizes the factor that affects the level of safety stock that a firm will carry?
D a. The amount of idle cash that management believes it has to invest in safety stock
b. The rapidity with which the inventory position will turn over
c. The level of production the firm’s bank is willing to finance
d. The level of uncertainty with respect to a stock-out condition that management is willing to accept
12. 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
13. An increase in sales resulting from an increased cash discount for prompt payment would be expected to cause:
A* 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
14. 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
15. A short-term bank loan will have a higher effective financing cost if it has which combination of characteristics?
D* 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
16. 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
17. Generally, the most expensive source of financing for a firm is:
D a. Debt c. Retained earnings
b. Preferred stock d. New common stock
18. 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
19. 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
20. The Gordon model (Dividend Growth model) assumes that the return on share of common stock is comprised of a:
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
21. Under CAPM, “beta” can best be described as the
D* 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
22. 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
23. 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
24. 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
25. What relationship does risks and returns normally have?
A a. Direct relationship c. Spurious relationship
b. Inverse relationship d. Illicit and discreet relationship
26. 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
27. Of the following four investments, which is considered the safest?
D a. Commercial paper c. Treasury bonds
b. Corporate bonds d. Treasury bills
28. 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
29. External capital requirements (i.e., AFN) are LOWER for entities with which one of the following characteristics?
D* a. Lower profit margins c. Higher sales growth rates
b. Lower retention ratios d. Lower capital intensity ratios
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30. 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
31. 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
32. 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
33. A company has an acid-test ratio of 1.5 to 1.0. Which will cause this ratio to deteriorate for the company?
C* 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
34. 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 decrease near the end of the accounting period
d. The write-off of an uncollectible account (assume the use of allowance for doubtful accounts method)
35. Return on investment may be calculated by multiplying total asset turnover by
B a. Average collection period c. Debt ratio
b. Profit margin d. Fixed-charge coverage
36. 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
37. Times-interest-earned (TIE) ratio is primarily an indication of
B* a. Liquidity c. Profitability
b. Solvency d. Asset management
38. 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
39. 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 2021 is 10% greater than it was in 2020 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 2021 is 5% of sales
40. 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
41. In capital budgeting, which of the following is NOT considered in the net investment for decision making purposes?
D* 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
42. 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
43. 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
44. 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
45. As a capital budgeting technique, the payback period considers depreciation expense (DE) and time value of money
(TMV) as follows:
B* a. DE, relevant and TVM, relevant c. DE, irrelevant and TVM, relevant
b. DE, irrelevant and TVM, irrelevant d. DE, relevant and TVM, irrelevant
46. 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
47. 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
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48. The discount rate that equates the PV of expected cash flows with the cost of investments is the
B a. Net present value c. Accounting rate of return
b. Internal rate of return d. Payback period
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:
B* 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.

Parts III & IV: Management Consultancy & Economics

1.Which of the following is a characteristic of Management Advisory Services (MAS)?
D a. Human relations do not play a vital role in each engagement
b. Services rendered are for third parties
c. Engagements are usually recurring
d. It involves problem solving
2. CPAs are in a more advantageous position than members of other professions to render MAS because
A a. The CPA is already familiar with the client and his business and enjoys the confidence of the client
b. A CPA is a person with recognized standing
c. Most CPAs are highly educated
d. Only CPAs may render MAS
3. A CPA engaged in MAS practice may not
A a. Disclose confidential information unless authorized or legally obligated
b. Accept other employment while serving as management consultant
c. Act as independent auditor of the same client-firm
d. Be independent in mental attitude
4. Consulting services differ fundamentally from CPA’s function of attesting to another party’s assertions in the sense that
B a. The client develops findings, conclusions and recommendations.
b. The work is generally performed only for the use and benefit of the client.
c. The nature and scope of work is determined solely by the consulting services practitioner.
d. The practitioner expresses a conclusion about reliability of assertion that is responsibility of assertor.
5. Most definitions of consultancy would include such services related to the following, EXCEPT:
A a. Legal advisory c. Corporate strategy
b. Information technology d. Systems and operations management
6. A proposal letter is
B a. A contractual agreement used when the client has already agreed that the practitioner will conduct the
engagement {engagement letter}
b. An offer of service. When accepted and approved, it becomes a contractual agreement
c. A brief and concise statement or an agreement previously reached with a client {confirmation letter}
d. A legal document generally prepared by the client incorporating a proposal letter or engagement letter
prepared by the practitioner {contract}
7. In project feasibility studies, the explicit statements about the possible future behavior of certain variables affecting a
project which serve as the premise for projecting probable financial results.
B a. Theories c. Conclusion
b. Assumptions d. Recommendation
8. A project feasibility study assists in minimizing the risk of failure of business ventures, reducing wastage of valuable
resources, and accelerating economic growth. Which is NOT necessarily an attribute of a good feasibility study?
B a. Simple c. Objective
b. Accurate d. Comprehensive
9. Which of the following procedures is usually NOT done in preparing a project feasibility study?
C a. Evaluation and analysis of obtained data
b. Formulation of conclusions and recommendations
c. Recording the obtained data in the books of accounts
d. Gathering and collection of data through research work
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
D* 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}
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.
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11. It is the total amount of expenditures for consumer goods and investment for a period of time, which includes purchases
by customers, businesses, government and foreign entities.
D a. Gross domestic product (GDP) c. Aggregate supply
b. Gross national product (GNP) d. Aggregate demand
12. 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.
13. 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
14. Which is a positive effect of inflation?
C* 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
15. In macroeconomics, a deflationary spiral is a situation where
B* 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
16. The most effective FISCAL policy program for reducing demand-pull inflation is to:
A* 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
17. Which of the following is NOT an instrument of MONETARY policy by which money supply is controlled?
D a. Open-market operations c. Changing the discount rate
b. Changing the reserve ratio d. Manipulation of government spending
18. 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
19. 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)
20. 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
21. 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
22. If the value of US dollar in foreign currency markets changes from US $1 = 0.95 Euros to US $1 = 0.90 Euros,
C* 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
23. 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
24. 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
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25. 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
26. The movement along the demand curve from one price-quantity combination to another is called a(n).
C* a. Change in demand c. Change in the quantity demanded
b. Shift in the demand curve d. Increase in demand
27. 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
28. 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
B a. Horizontal c. Relatively elastic
b. Relatively inelastic d. Income proof
29. 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
C a. Vertical c. Relatively elastic
b. Relatively inelastic d. robust
30. When the demand for a product is elastic, a decrease in the price of a product will
B* a. Increase competition c. Decrease total revenue
b. Increase total revenue d. Not affect total revenue
31. 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
32. A shift in the supply curve may result from the following, EXCEPT
C* 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
33. The competitive model of supply and demand predicts that a surplus can arise only if there is a
D* 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
34. If the price of a good is below the equilibrium price,
B a. Suppliers will find inventories building, will increase output and raise prices
b. Suppliers will find inventories being depleted, will increase production and raise prices
c. The demand curve will shift down until an equilibrium is established at the existing price
d. The supply curve will shift up until an equilibrium is established at the existing price
35. 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
36. 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
37. Monopolistic competition is characterized by
A 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
38. 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
39. In economics, personal income minus personal taxes equals
D a. Net income c. Take home pay
b. Income after tax d. Disposable income
40. The marginal propensity to consume is calculated by
D a. Dividing consumption by disposable income
b. Dividing disposable income by consumption
c. Dividing the change in disposable income by the change in consumption
d. Dividing the change in consumption by the change in disposable income

 END 