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14 x11 Financial Management B
Accountancy (STI College)
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Financial Management
(B. Working Capital Management)
B. WORKING CAPITAL MANAGEMENT

Conservative
2. As a company becomes more conservative with respect to working
THEORIES: capital policy, it would tend to have a(n)
Working capital management A. Increase in the ratio of current liabilities to noncurrent
1. Working capital management involves investment and financing liabilities.
decisions related to: B. Increase in the operating cycle.
A. plant and equipment and current liabilities. C. Decrease in the operating cycle.
B. current assets and capital structure. D. Increase in the ratio of current assets to current liabilities.
C. current assets and current liabilities.
D. sales and credit. Moderate
3. Short-term financing plans with high liquidity have:
17.The goal of managing working capital, such as inventory, should be A. high return and high risk
to minimize the: B. moderate return and moderate risk
A. costs of carrying inventory C. low profit and low risk
B. opportunity cost of capital D. none of the above
C. aggregate of carrying and shortage costs
D. amount of spoilage or pilferage Temporary & Permanent working capital
4. Temporary working capital supports
Working capital financing policy A. the cash needs of the company. C. acquisition of capital
Aggressive equipment.
5. Zap Company follows an aggressive financing policy in its working B. payment of long term debt. D. seasonal peaks.
capital management while Zing Corporation follows a conservative
financing policy. Which one of the following statements is correct? Cash Management
A. Zap has low ratio of short-term debt to total debt while Zing Motives for holding cash
has a high ratio of short-term debt to total debt. 7. The transaction motive for holding cash is for:
B. Zap has a low current ratio while Zing has a high current ratio. A. a safety cushion C. compensating balance
C. Zap has less liquidity risk while Zing has more liquidity risk. requirements
D. Zap finances short-term assets with long-term debt while Zing B. daily operating requirements D. none of the above
finances short-term assets with short-term debt.
Float
6. Which of the following would increase risk? 8. The difference between the cash balance on the firm's books and
A. Raise the level of working capital. the balance shown on the bank statement is called:
B. Decrease the amount of inventory by formulating an effective A, the compensating balance C. a safety cushion
inventory policy. B. float D. none of the above
C. Increase the amount of short-term borrowing.
D. Increase the amount of equity financing. Cash conversion cycle
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9. The length of time between payment for inventory and the A. Credit standards C. Accounts payable deferral
collection of cash is referred to as: period
A. payables deferral period C. operating cycle B. Credit limits D. Collection efforts
B. receivables conversion period D. cash conversion cycle
Inventory management
10.As a firm's cash conversion cycle increases, the firm: 16.The use of safety stock by a firm will:
A. becomes less profitable A. reduce inventory costs C. have no effect on inventory
B. increases its investment in working capital costs
C. reduces its accounts payable period B. increase inventory costs D. none of the above
D. incurs more shortage costs
18.When a specified level of safety stock is carried for an item in
11.The longer the firm's accounts payable period, the: inventory, the average inventory level for that item
A. longer the firm's cash conversion cycle is. A. decreases by the amount of the safety stock.
B. shorter the firm's inventory period is. B. is one-half the level of the safety stock.
C. more the delay in the accounts receivable period. C. Increases by one-half the amount of the safety stock.
D. less the firm must invest in working capital. D. Increases by the number of units of the safety stock.
12.The average length of time a peso is tied up in current asset is 19.Which of the following statements is correct for a firm that currently
called the: has total costs of carrying and ordering inventory that are 50%
A. net working capital. C. receivables conversion period. higher than total carrying costs?
B. inventory conversion period. D. cash conversion period. A. Current order size is greater than optimal
B. Current order size is less than optimal
Receivables management C. Per unit carrying costs are too high
13.All of these factors are used in credit policy administration except: D. The optimal order size is currently being used
A. credit standards C. peso amount of receivables
B. terms of trade D. collection policy Trade credit
20.With credit terms of 3/8, n/30, what is the customer’s payment
14.Which of the following statements is most correct? If a company decision date?
lowers its DSO, but no changes occur in sales or operating costs, A. Three days after the invoice is received.
then: B. The 8th day is the customer’s decision date.
A. the company might well end up with a higher debt ratio. C. Anytime during the period, 8th to the 30th.
B. the company might well end up with a lower debt ratio. D. The 30th day is the primary decision date.
C. the company would probably end up with a higher ROE.
D. the company's total asset turnover ratio would probably decline. PROBLEMS
Working capital financing
1
15.All but which of the following is considered in determining credit . Casie Company turns out 200 calculators a day at a cost of P250
policy? per calculator for materials and variable conversion cost. It takes
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6
the firm 18 days to convert raw materials into calculator. Casie’s . Samaritan Supplies, Inc. has P5 million in inventory and P2 million
usual credit terms extended to its customers is 30 days, and the in accounts receivable. Its average daily sales are P100,000. The
firm generally pays its suppliers in 20 days. company has P1.5 million in accounts payable. Its average daily
If the foregoing cycles are constant, what amount of working purchases are P50,000. What is the length of the company’s
capital must Casie Company finance? inventory conversion period?
A. P1,400,000 C. P 900,000 A. 50 days C. 120 days
B. P2,400,000 D. P1,800,000 B. 90 days D. 40 days
Cash conversion cycle Cash management

2
. Luke Company has an inventory conversion period of 60 days, a Economic conversion quantity (ECQ)
7
receivables conversion period of 45 days, and a payments cycle of . Simile Inc. has a total annual cash requirement of P9,075,000
30 days. What is the length of the firm’s cash conversion cycle? which are to be paid uniformly. Simile has the opportunity to invest
A. 90 days C. 54 days the money at 24% per annum. The company spends, on the
B. 75 days D. 105 days average, P40 for every cash conversion to marketable securities.
What is the optimal cash conversion size?
3
. The Spades Company has an inventory conversion period of 75 A. P60,000 C. P45,000
days, a receivables conversion period of 38 days, and a payable B. P55,000 D. P72,500
payment period of 30 days. What is the length of the firm’s cash
conversion cycle? Opportunity cost
8
A. 83 days C. 67 days . Hyperbole Corporation estimates its total annual cash
B. 113 days D. 45 days disbursements of P3,251,250 which are to be paid uniformly.
Hyperbole has the opportunity to invest the money at 9% per
4
. Samaritan Supplies, Inc. has P5 million in inventory and P2 million annum. The company spends, on the average, P25 for every cash
in accounts receivable. Its average daily sales are P100,000. The conversion to marketable securities and vice versa.
company has P1.5 million in accounts payable. Its average daily What is the opportunity cost of keeping cash in the bank account?
purchases are P50,000. What is the length of the company’s cash A. P3,825.00 C. P4,190.00
conversion period? B. P1,912.50 D. P 188.55
A. 50 days C. 30 days
B. 20 days D. 40 days Annual savings
9
. What are the expected annual savings from a lock-box system that
Days inventory collects 150 checks per day averaging P500 each, and reduces
5
. What is the inventory period for a firm with an annual cost of mailing and processing times by 2.5 and 1.5 days respectively, if
goods sold of P8 million, P1.5 million in average inventory, and a the annual interest rate is 7%?
cash conversion cycle of 75 days? A. P 5,250 C. P 21,000
A. 6.56 days C. 52.60 days B. P 13,125 D. P300,000
B. 18.75 days D. 67.50 days
Receivables management
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Carrying cost reduced to 1.5 percent of total sales, and the average collection
10
. The Camp Company has an inventory conversion period of 60 period would fall to 30 days. However, sales would also fall by an
days, a receivable conversion period of 30 days, and a payable estimated P300,000 annually. Variable costs are 75 percent of
payment period of 45 days. The Camp’s variable cost ratio is 60 sales and the cost of carrying receivables is 10 percent. Assume a
percent and annual fixed costs of P600,000. The current cost of tax rate of 40 percent and 360 days per year.
capital for Camp is 12%. What would be the decrease in investment in receivables if the
If Camp’s annual sales are P3,375,000 and all sales are on credit, change were made?
what is the firm’s carrying cost on accounts receivable, using 360 A. P 9,688 C. P 96,875
days year? B. P 12,988 D. P129,975
A. P281,250 C. P 20,250
B. P168,750 D. P 56,250 Comprehensive
Question Nos. 14 through 16 are based on the following data:
Average receivables Sonata Company is considering changing its credit terms from 2/15,
11
. Caja Company sells on terms 3/10, net 30. Total sales for the year net 30 to 3/10, net 30 in order to speed collections. At present, 40
are P900,000. Forty percent of the customers pay on the tenth percent of Sonata Company‘s customers take the 2 percent discount.
day and take discounts; the other 60 percent pay, on average, 45 Under the new term, discount customers are expected to rise to 50
days after their purchases. percent. Regardless of the credit terms, half of the customers who do
What is the average amount of receivables? not take the discount are expected to pay on time, whereas the
A. P70,000 C. P77,200 remainder will pay 10 days late. The change does not involve a
B. P77,500 D. P67,500 relaxation of credit standards; therefore bad debt losses are not
expected to rise above their present 2 percent level. However, the
12
. Palm Company’s budgeted sales for the coming year are more generous cash discount terms are expected to increase sales
P40,500,000 of which 80% are expected to be credit sales at terms from P2 million to P2.6 million per year. Sonata Company’s variable
of n/30. Palm estimates that a proposed relaxation of credit cost ratio is 75 percent, the interest rate on funds invested in
standards will increase credit sales by 20% and increase the accounts receivable is 9 percent, and the firm’s income tax rate is 40
average collection period from 30 days to 40 days. Based on a percent.
360-day year, the proposed relaxation of credit to standards will
14
result in an expected increase in the average accounts receivable . What are the days sales outstanding (DSO) before and after the
balance of change of credit policy?
A. P 540,000 C. P2,700,000 A. 27.0 days and 22.5 days, respectively C. 22.5 days and 21.5
B. P 900,000 D. P1,620,000 days, respectively
B. 22.5 days and 27.0 days, respectively D. 21.5 days and 22.5
Investment in receivables days respectively
13
. Currently, La Carlota Company has annual sales of P2,500,000. Its
average collection period is 45 days, and bad debts are 3 percent
15
of sales. The credit and collection manager is considering . The incremental carrying cost on receivable is
instituting a stricter collection policy, whereby bad debts would be A. P 843.75 C. P 643.75
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B. P8,889.00 D. P6,667.00 Relevant insurance, materials handling, breakage, etc., per

year 2 P 4.50
16
. The incremental after tax profit from the change in credit terms is What is the required annual return on investment per package?
A. P68,493 C. P60,615 A. P6,000 C. P1,200
B. P65,640 D. P57,615 B. P 250 D. P 600
Inventory management Order quantity

20
EOQ . For Raw Material L12, a company maintains a safety stock of 5,000
17
. What is the economic order quantity for the following inventory pounds. Its average inventory (taking into account the safety
policy: A firm sells 32,000 bags of premium sugar per year. The cost stock) is 12,000 pounds. What is the apparent order quantity?
per order is P200 and the firm experiences a carrying cost of P0.80 A. 18,000 lbs. C. 14,000 lbs.
per bag. B. 6,000 lbs. D. 24,000 lbs
A. 2,000 bags C. 8,000 bags
B. 4,000 bags D. 16,000 bags Optimal safety stock level
21
. Each stockout of a product sold by Arnis Co. costs P1,750 per occurrence. The
Annual demand company’s carrying cost per unit of inventory is P5 per year, and the company orders
18
. Marsman Co. has determined the following for a given year: 1,500 units of product 20 times a year at a cost of P100 per order. The probabilities
Economic order quantity (standard order size) 5,000 units of a stockout at various levels of safety stock are:
Total cost to place purchase orders for the year P40,000 Units of Safety Stock Probability of Stockout
Cost to place one purchase order P 100 0. 0.50
Cost to carry one unit for one year P 4 100. 0.30
What is Marsman’s estimated annual usage in units? 200. 0.14
A. 1,000,000 C. 500,000 300. 0.05
B. 2,000,000 D. 1,500,000 400. 0.01
The optimal safety stock level for the company based on the units
Required annual return on investment of safety stock level above is
19
. BIBO Company is a distributor of videotapes. Pirate Mart is a local A. 200 units C. 100 units
retail outlet which sells blank and recorded videos. Pirate Mart B. 300 units D. 400 units
purchases tapes from BIBO Company at P300.00 per tape; tapes
are shipped in packages of 20. BIBO Company pays all incoming 22
. Paeng Company uses the EOQ model for inventory control. The company has
freight, and Pirate Mart does not inspect the tapes due to BIBO an annual demand of 50,000 units for part number 6702 and has computed an
Company's reputation for high quality. Annual demand is 104,000
optimal lot size of 6,250 units. Per-unit carrying costs and stockout costs are
tapes at a rate of 4,000 tapes per week. Pirate Mart earns 20% on
its cash investments. The purchase-order lead time is two weeks. P9 and P4, respectively. The following data have been gathered in an attempt
The following cost data are available: to determine an appropriate safety stock level:
Relevant ordering costs per purchase order P80 P90.50 Units Short Because of Excess Number of Times Short
Carrying costs per package per year 3 Demand during the Lead Time in the last 40 Reorder
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Period Cycles guarantee this delivery schedule. In order to ensure availability of

100 8 these zippers, Diesel is considering the purchase of all these
200 10 90,000 units on January 1. Assuming Diesel can invest cash at
300 14 12%, the company’s opportunity cost of purchasing the 90,000
400 8 units at the beginning of the year is
What is the optimal safety stock level? A. P127,500 C. P123,750
A. 100 units C. 200 units B. P135,000 D. P264,000
B. 300 units D. 400 units
Trade credit
26
Annual inventory costs . If a firm is given a trade credit terms of 2/10, net 30, then the cost
23
. Durable Furniture Company uses about 200,000 yards of a to the firm failing to take the discount is:
particular fabric each year. The fabric costs P25 per yard. The A. 2.0%. C. 36.7%
current policy is to order the fabric four times a year. Incremental B. 30.0%. D. 10.0%.
ordering costs are about P200 per order, and incremental carrying
27
costs are about P0.75 per yard, much of which represents the . The cost of discounts missed on credit terms of 2/10, n/60 is
opportunity cost of the funds tied up in inventory. A. 2.0 percent C. 12.4 percent
How much total annual costs are associated with the current B. 14.9 percent D. 21.2 percent
inventory policy?
A. P19,550 C. P38,300 Bank loans
B. P18,750 D. P62,500 Discount loan
28
. You plan to borrow P10,000 from your bank, which offers to lend
Maximum interest rate you the money at a 10 percent nominal, or stated, rate on a one-
24
. Narra Company is considering a switch to level production. Cost year loan. What is the effective interest rate if the loan is a discount
efficiencies will occur under level production and after tax cost loan?
would decline by P70,000 but inventory would increase from A. 10.00% C. 12.45%
P1,000,000 to P1,800,000. Narra would have to finance the extra B. 11.11% D. 14.56%
inventory at a cost of 10.5 percent.
What is the maximum interest rate that makes level production Discount loan with compensating balance
29
feasible? . What is the effective rate of a 15% discounted loan for 90 days,
A. 7.00 percent C. 8.75 percent P200,000, with 10% compensating balance? Assume 360 days per
B. 5.83 percent D. 10.00 percent year.
A. 20.0% C. 17.4%
Opportunity cost B. 15.0% D. 22.2%
25
. Diesel Fashion estimates that 90,000 zippers will be needed in the
manufacture of high selling products for the coming year. Its Compensating balance with interest
30
supplier quoted a price of P25 per zipper. Diesel planned to . The Premiere Company obtained a short-term bank loan for
purchase 7,500 units per month but its supplier could not P1,000,000 at an annual interest rate 12%. As a condition of the
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loan, Premiere is required to maintain a compensating balance of the customer pay the invoice?
P300,000 in its checking account. The checking account earns A. Pay on the 1st. C. Pay on the 40th
interest at an annual rate of 3%. Premiere would otherwise B. Pay on the 10th D. Pay on the 60th
maintain only P100,000 in its checking account for transactional
purposes. Premiere’s effective interest costs of the loan is
35
A. 12.00% C. 16.30% . The Peninsula Commercial Bank and Island Corporation agreed to
B. 14.25% D. 15.86% the following loan proposal:
 Stated interest rate of 10% on a one-year discounted loan; and
Add-on  15% of the loan as compensating balance on zero-interest
31
. Perlas Company borrowed from a bank an amount of P1,000,000. current account to be maintained by Island Corporation with
The bank charged a 12% stated rate in an add-on arrangement, Peninsula Commercial Bank.
payable in 12 equal monthly installments. The loan requires a net proceeds of P1.5 million. What is the
A. 22.15% C. 25.05% principal amount of loan applied for as part of the loan agreement?
B. 24.00% D. 12.70% A. P1,666,667 C. P1,764,706
B. P2,000,000 D. P1,125,000
Financing alternative
32
. A company has accounts payable of P5 million with terms of 2%
discount within 15 days, net 30 days (2/15 net 30). It can borrow
funds from a bank at an annual rate of 12%, or it can wait until the
30th day when it will receive revenues to cover the payment. If it
borrows funds on the last day of the discount period in order to
obtain the discount, its total cost will be
A. P 51,000 less C. P 75,500 less
B. P100,000 less D. P 24,500 more
33
. Every 15 days a company receives P10,000 worth of raw materials
from its suppliers. The credit terms for these purchases are 2/10,
net 30, and payment is made on the 30th day after each delivery.
Thus, the company is considering a 1-year bank loan for P9,800
(98% of the invoice amount). If the effective annual interest rate
on this loan is 12%, what will be the net peso savings over the
year by borrowing and then taking the discount on the materials?
A. P3,624 C. P4,800
B. P1,176 D. P1,224
34
. An invoice of a P100,000 purchase has credit terms of 1/10, n/40. A
bank loan for 8 percent can be arranged at any time. When should
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1
. Answer: A
Daily working capital required: 200 x 250 50,000
Total working capital needed: 28 days x 50,000 1,400,000
CCC = 18 + 30 – 20 28 days
2
. Answer: B
Cash Conversion Cycle = Ave. collection period + Inventory cycle days – Ave.
Accounts Payable payment days
Inventory cycle in days 60 days
Average collection period 45 days
Operating cycle 105 days
Deduct Accounts payable payment days 30 days
Cash conversion cycle 75 days
3
. Answer: A
Inventory cycle in days 75 days
Average collection period 38 days
Operating cycle 113 days
Deduct Accounts payable payment days 30 days
Cash conversion cycle 83 days
4
. Answer: D
Inventory conversion period (See #4) 50.0 days
Average collection period (2M/0.1M) 20.0 days
Operating cycle 70.0 days
Less: Ave. Accounts Payable payment days (1.5M/0.5M)30.0 days
Cash conversion period 40.0 days
5
. Answer: D
Inventory turnover:
Cost of goods sold/Ave. Inventory (8M/1.5M) 5.33x
Inventory conversion period (360 days/5.33) 67.5 days
6
. Answer: A
Annual sales 360 days x 100,000 36.0M
Inventory turnover 36M/5M 7.2x
Inventory conversion period 360/7.2 50.0 days
7
. Answer: B
Optimal cash conversion size = (9,075,000 x 40 / 0.24)^1/2 = 55,000
8
. Answer: B
OTS: (2 x P3,251,250 x P25 ÷ 0.09)^1/2 = P42,500
Opportunity cost: P42,500 ÷ 2 x 0.09 P 1,912.50
9
. Answer: C
Reduction in cash float (2.5 + 1.5) 4.0 days
Additional free cash (4 days x 150 x P500) P300,000
Annual savings (P300,000 x 0.07) P 21,000
10
. Answer: C
Average AR 3,375,000/360 x 30 days 281,250
Average investment: 281,250 x 0.60 168,750
Carrying cost: 168,750 x 0.12 20,250
11
. Answer: B

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DSO = (.4 x 10) + (.60 x 45) 31 days

Average AR: 900,000/360x31 days P77,500
12
. Answer: D
Credit sale = 40,500,000 x 80% = 32,400,000
Increased credit sales: 32,400,000 x 1.2 = 38,880,000
New Average AR 38,880,000/360 x 40 = 4,320,000
Old Average AR 32,400,000/360 x 30 = 2,700,000
Increase in Average AR 1,620,000
13
. Answer: C
Change in average accounts receivables:
Planned: 2,200,000/360x30 183,333
Present: 2,500,000/360x45 312,500
Decrease in AR balance 129,667
Variable cost ratio 75%
Decrease in investment in AR 96,875
14
. Answer: A
Days’ sales outstanding
Old policy: (.4 x 15) + (.3 x 30) + (.3 x 40) 27.0 days
New policy (.5 x 10) + (.25 x 30) + (.25 x 40) 22.5 days
15
. Answer: A
Average receivable
New policy: 2.6M/360 x 22.5 162,500
Old policy: 2.0M/360 x 27 150,000
Incremental Accounts Receivable 12,500
Incremental carrying cost on receivable 12,500 x 0.75 x 0.09 843.75
16
. Answer: A
Incremental sales 600,000
Variable cost (.75 x 600,000) ( 450,000)
Additional bad debts (600,000 x 2%) ( 12,000)
Additional carrying cost ( 844)
Additional discounts (2,600,000 x .5 x 03) –(2,000,000 x .4 x .02) (
23,000)
Before tax increase in income 114,156
Less tax 45,663
Incremental income 68,493
17
. Answer: B
EOQ = (2 x 32,000 x 20  0.8)^1/2 = 4,000 bags
18
. Answer: B
Number of orders made 40,000/100 400
Annual requirement 400 x 5,000 2,000,000
19
. Answer: C
Investment in 1 package (20 x P300) P6,000
Required annual return: P6,000 x 0.2 P1,200
20
. Answer: C
Average inventory units 12,000
Less safety units 5,000
Average inventory based on EOQ 7,000

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Order size 7,000 x 2 14,000
21
. Answer: D
Safety stockStock out Costs (1)Carrying Costs @
P5Total10010,500500P11,0002004,9001,0005,9003001,7501,5003,2504003502,000
2,350
Stockout Costs
100 1750 x .30 x 20 orders = 10,500
200 1750 x .05 x 20 = 4,900
300 1750 x .05 x 20 = 1750
400 1750 x .01 x 20 = 350
Optimal safety stock is 400-unit level with a cost of only P2,350 cost.
22
. Answer: B
The optimal safety stock level represents the level that gives the lowest sum of
stock out costs and additional carrying costs. Based on the computation below,
the lowest combined costs is P3,340, corresponding to 300-unit level
First compute the stockout costs based on given probability of demand. Starting
with 100-unit level as safety stock, if the additional demand is 200, the company
has stockout of 100 units.
100: (100 x 32* x 0.25) + (200 x 32 x 0.35) + (300 x 32 x 0.20) + (100 x 9)
4,960
200: (100 x 32 x 0.35) + (200 x 32 x 0.20) + (200 x 9)4,200
300: (100 x 31 x 0.20) + (300 x 9) 3,340
400: (400 x 9) 3,600
stockout per unit x 8 orders per year.
23
. Answer: A
Ordering costs 4 x P200 800
Carrying costs (50,000 ÷ 2 x 0.75 18,750
Total 19,550
24
. Answer: C
Savings in Expenses/additional Investment in Inventory = Maximum Interest
Rate
70,000 / (1,800,000 – 1,000,000) = 8.75%
25
. Answer: C
Number of units to be purchased in advance: 90,000 – 7,500 82,500
Average investments in working capital: 82,500 x 0.5* x P25 1,031,250
Opportunity cost 1,031,250 x 0.12 123,750
*The average investment is one-half (82,500 + 0) ÷ 2
26
. Answer: C
k = (2  98) x (360  20 = 36.7%
The solution assumes that the company foregoes the discount only once during the
year.
27
. Answer: B
With credit terms of 2/10, n/60 one must pay on the 10th day choosing to finance
the net payment (invoice price minus the cash discount) at the rate of 2 percent
for 50 days, paying the loan on the 60th day. The annualized rate of foregoing the
discount is 14.9 percent.
k = 2/98 x 365/50 = 14.9%
28
. Answer: B

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k = 10 ÷ (100 – 10) = 11.11%

29
. Answer: C
Principal 200,000
Less: Discount 200,000 x 0.15 x 90/360 ( 7,500)
Compensating balance ( 20,000)
Net proceeds 172,500
Effective rate: (7,500/172,500) x 360/90 17.4%
30
. Answer: B
Interest expense 1M x 0.12 120,000
Less interest income on additional CA balance (200,000 x 0.03) 6,000
Net interest cost 114,000
Effective interest rate 114,000/(1,000,000 – 200,000)14.25%
31
. Answer: A
Interest for 1 year 1M x 12% 120,000
Average Principal: [1M + (1M/12)] ÷ 2 541,667
Estimated effective rate 120,000/541,667 22.15%
Alternative solution for approximate effective rate:
(2 x No. of payments x Interest) ÷ [(1 + No. of payments) x Principal]
(2 x 12 x P120,000) ÷ (13 x P1M) = 22.15%
32
. Answer: C
Discount 5M x 0.02 100,000
Interest (5M x 0.98 x 0.12) x 15/360 = 24,500
Savings = 75,500
33
. Answer: A
Purchase discount 10,000 x 0.02 x 200 purchases 4,800
Interest on borrowed money 9,800 x 0.12 1,176
Savings 3,624
Number of purchases: 360 days/15-day interval 200
34
. Answer: B
The cost of discounts missed is 12.3% which is more than the 8 percent that the
bank charges. The company should borrow on the 10th, pay the invoice, and
finance at 8% for the next 30 days (pay off the bank on the 40th).
Cost of foregoing discount: (1  99) x (360  30) = 12.31%
35
. Answer; B
Net proceeds in pesos P1,500,000
Divided by net proceeds percentage 1.00 – 0.1 – 0.15 0.75
Principal amount P2,000,000

lOMoARcPSD|31016586
Exam, questions and answers
Financial Accounting (Technological Institute of the Philippines)
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lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
MODULE1
0 3
. Sup
poseyoua r
ec ompar
ingtwofir
msi nt
hesteel
indust
ry
.Onefir
mislargean dt
heoth
eri
s
smal
l
.Whicht
y p
eo fnumberswouldb emo s
tmeaningf
ulf
orst
at
eme n
tanaly
sis?
FI
NANCI
ALST
ATEMENTANAL
YSI
S A.Ab s
olu
ten u
mb erswoul
db emo stme a
ning
fulf
orbot
hthela
rgeandsma l
lfi
r
m.
B.Ab s
olu
ten umberswoul
db emo s
t meani
ngf
uli
nt h
elarg
efir
m;rel
ati
venumb er
swoul
dbe
THEORI
ES: most
me ani
ngfuli
nthesma l
lfi
r
m.
6. Man
agemen
tisau seroffi
nanci
alanal
ysi
s.Wh i
cho fthefoll
owi
ngc
omme
ntsd
oesn
ot C.Re l
at
iv
en umb er
swo ul
db emo stme ani
ngf
ulfort
helar
gefir
m;absolu
ten umber
swoul
d
r
epr
ese
ntaf
air
stat
ement
astothemanagementper
spec t
i
ve? bemostmea n
ingf
ulf
orthesma ll
fi
rm.
A.Manage
me n
tisal
way
sint
e r
est
edi
nma xi
mump rofi
t
a bi
l
it
y. D.Re l
at
iv
en umb e
rswou l
db emo stme an
ingf
ulf
orbothth
elarg
ea ndsma l
lfi
rm,es
peci
al
ly
B.Manage
me n
tisi
nt
ere
ste
dinthevi
e wofi
nve
stor
s. f
ori
nte
rfi
r
mc o
mp ar
is
o n
s.
C.Manage
me n
tisi
nt
ere
ste
dinthefi
nanc
ial
str
uctu
reo ft
heenti
ty
.
D.Manage
me n
tisi
nt
ere
ste
dintheasset
str
uct
ureoftheenti
ty
. 4
. Whi
choft
hes
estat
ementsisfal
se?
A.Manycompani
eswil
lnotc l
ear
lyfi
tin
toanyonei
ndust
ry
.
Li
mita
ti
ons B.Afi
nanci
als
ervi
ceusesitsbestj
udgmentastowhi
chin
dust
ryt
hefi
rmbestfi
t
s .
1. Ali
mit
ati
onincalc
ulat
i
ngrati
osi
nfi
n a
n c
ial
stat
ementan
aly
sisi
stha
t C.Theanal
ysi
sofanen t
it
y'sfi
nanci
a l
sta
tement
scanbemo r
eme a
ning
fuli
ft
her es
ult
sar
e
A.itrequ
ir
e sacalc
ulat
or
. compar
edwit
hindu
stryaveragesandwit
hresul
t
sofcompet
i
tor
s.
B.n ooneo t
herth
anthema na
geme ntwoul
dbeint
er
est
edint
hem. D.Ac o
mp a
nycompari
sons houldnotbema d
ewithi
ndust
ryave
rag
esifth
ec ompanydoe
s
C.s omeacc o
untbal
ancesmayrefl
ectat
ypi
cald
ataaty
earend. notcl
ear
l
yfi
tin
toanyon eindust
ry
.
D.theyseldomident
if
yprobl
emareasinacompany.
Common-s
ize
dfina
nc i
alst
ate
me nt
s
2
. Whi
chof
thefo
ll
owi
ngi
snotal
i
mit
at
io
nof
fi
nanc
ial
stat
ement
an al
ysi
s? 9. Whi
choft
hefol
l
owinggener
al
lyi
sth
emo s
tus
efu
lina
nalyz
ingcomp
anie
sof
diff
ere
nts
iz
es?
A.Thecost
basi
s. C.Th edi
ver
si
fi
cati
onoffi
rms
. A.compara
ti
vesta
tement
s C.p r
ic
e-le
velac
coun
ti
ng
B.Theuseofes
ti
mat
es. D.Th eava
il
abi
l
ityofi
nfo
rmat
ion
. B.commo n
-si
zedfi
nan
cial
stat
emen
ts D.p r
ofi
t
a b
il
it
yin
dex
5
. Whi
choft
hef o
ll
owi
ngd oesn o
trepr
esen
tap r
oble
mwi t
hfi
nan c
ial
anal
ysi
s? 1
2.St
at
eme
ntsi
nwh i
chal
li
temsa
ree
xpr
ess
edo
nlyi
nre
lat
i
vet
erms(per
cen
tag
eso
fab
ase
)ar
e
A.Fin
an c
ialst
at
eme ntanaly
sisi
sa nart
;itr
equir
esjud
g mentdeci
si
onsonthep
arto
fth
e t
er
med:
anal
yst. A.Ver
ti
cal
sta
tement
s C.F u
ndsSt
atement
s
B.Fin
an c
ialana
lys
iscanb eusedtodet
ectappa
rentl
i
qui
ditypr
oble
ms. B.Hor
iz
onta
lStat
ement
s D.Co mmon
-SizeSt
at
ement
s
C.Thereareasma nyra
ti
o sfo
rfi
nanci
ala
na l
ys
isasth
erea r
ep a
ir
soffi
gur
es.
D.Somei n
d us
tr
yrati
oformulasvar
yfr
omso ur
cetosour
ce. 1
0.Th
eper
cento
fpr
oper
ty
,pl
ant
ande
qui
pme
ntt
oto
tal
asse t
sisane
xampl
eof
:
A.ve
rt
ica
lanal
ys
is C.profi
t
a bi
l
it
yanal
ys
is
7
7.Th
euseofal
t
erna
ti
veac c
ounti
ngmethods: B.so
lve
ncyanal
ys
is D.hori
zo n
tala
nal
ysi
s
A.isno
taprobl
eminrati
oa n
aly
si
sb ec
ausethefo
o t
not
esdi
scl
oset
hemetho
dused
.
B.maybeap r
obl
emi nrat
ioanal
ys
iseveni
fdi
s c
lose
d. 1
5.Ve
rt
ic
alanal
ys
isisatec
hni
quethate
xpre
s s
ese ac
hit
eminafi
nan
cia
lst
at
eme
nt
C.isno
taprobl
eminrati
oa n
aly
si
ss i
nceeve
ntual
lyal
lmet
hodswil
ll
eadt
othes
ameen
d. A.inpesosandcent
avos
.
D.ison
lyapro
bleminrat
ioanal
ysi
swit
hrespectt
oinve
nto
ry. B.asap er
centoft
heit
eminthepr
evi
ousye a
r.
C.asap er
centofabas
ea mount
.
I
ndus
tryAna
lys
is D.star
ti
ngwit
hthehi
ghestva
luedowntothel
owestv
alu
e.
567

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
A.p
rofi
t
a b
il
it
y C.l
eve
rag
e
1
7.I
npe
rf
ormi
ngavert
i
calana
lys
is,
theb
asef
orp
rep
aidexp
ensesi
s B.l
i
quid
ity D.r
i
skandre
tur
n
A.t
ota
lcur
ren
tasse
ts. C.tota
lli
abi
l
it
i
es.
B.t
ota
lass
ets. D.p r
epai
dexpen
sesi
nap
rev
iou
sye
ar. 6
9.Whi
chsu
ppli
er
soffun
dsbea
rth
egrea
tes
tri
skan
dsh
oul
dther
efor
eearnt
heg
rea
tes
tre
tur
n?
A.commonstoc
khol
der
s C.pr
efe
rre
ds h
areho
lder
s
Hor
izont
alana
lysi
s B.gener
alcr
edi
to
rssuc
hasbank
s D.bond
hold
ers
8. Thep e
rce
ntageanal
ys
isofi
ncr
eas
esa
ndde
cre
asesini nd
ivi
dua
lit
emsi
nco
mpa
rat
i
ve
fi
nan
cia
lst
ate
me n
tsi
scal
le
d: Measu
resofRi
sk
A.v er
ti
cal
anal
ysi
s C.p r
ofi
t
a bi
l
it
yanal
ysi
s 54
.Th efo
ll
owi
nggro
upsof
rat
i
osp ri
mari
lymea
sur
eri
sk:
B.s ol
ven
cyanal
ysi
s D.h or
i
zo n
tala
naly
si
s A.liqui
di
ty
,ac
ti
vi
ty
,an
dcommo ne qui
t
y C.li
qui
di
ty
,act
iv
it
y,a
nddebt
B.liqui
di
ty
,ac
ti
vi
ty
,an
dprofi
t
a b
il
it
y D.act
iv
it
y,de
bt,a
ndpro
fi
tab
il
it
y
1
1.Ho
ri
zon
tala
naly
si
sisa
lsok
nowna
s
A.li
neara
nal
ysi
s. C.t
r
enda
nal
ysi
s. F
ina
nci
alr
ati
os
B.ver
ti
calan
aly
si
s. D.c
ommons
iz
ea n
aly
si
s. 7
. Rat
i
osareuse
da sto
olsi
nfina
nci
alana
lysi
s
A.inst
eadofhor
iz
ontal
andvert
i
calan
a l
ys
es.
1
3.I
nwhi
choft
hefo
ll
owi
ngcasesmayap e
rcen
tag
ec h
angebecomputed? B.b e
causeth
eyc anprovi
deinf
or
mati
onthatmaynotb
ea p
pare
ntf
r
omi
nsp
ect
i
ono
fth
e
A.Thetr
endoft
heamount
sisdecr
easi
ngbuta
lla
mo u
ntsar
ep o
sit
iv
e. i
ndi
vi
dual
comp o
nentsofapar
ti
cul
arra
ti
o.
B.Ther
eisnoamou
n t
inth
eb as
eyear. C.b e
causeeve
ns i
ngl
erati
osbyt
hemselv
esareq
uit
emeani
ngf
ul
.
C.Ther
eisan e
gat
i
vea mounti
nthebaseyearandan e
gati
veamo u
n ti
nthes
ubs
equ
ent D.b e
causet
heyarepresc
ri
bedbyGAAP.
year
.
D.Ther
eisan e
gat
i
vea mounti
nthebaseyearandap o
sit
i
vea mountint
hesubs
equ
ent 1
8.I
ntheneart
erm,thei
mport
antrat
iost
hatp
rov
idetheinf
or
ma t
i
oncri
ti
ca lt
othes
hor
t-
run
year
. op
era
ti
onoft
hefi
rma r
e:
A.li
qui
di
ty,
acti
vi
ty
,andpr
ofi
t
a b
il
it
y C.liq
uidi
t
y,act
ivi
t
y,an
de qu i
t
y
1
4.Hor
iz
ont
alana
lys
isisatec
hni
queforeva
luat
i
ngas er
iesoffi
nanci
a ls
tat
eme
ntdat
aove
ra B.li
qui
di
ty,
acti
vi
ty
,andde
bt D.a ct
i
vit
y,deb
t,andp
rofi
t
a bi
li
ty
pe
ri
odoft
ime
A.that
hasbeenarr
ang
edfromthehi
ghe
stnumbert
othelowest
nu mber
. 7
5.Th
ea bi
l
it
yofabus
ine
sstop a
yit
sde
btsa
sth
eycomedueandt
oear
nar e
aso
nab
lea
mou
nto
f
B.that
hasbeenarr
ang
edfromthel
owest
numbertot
heh i
ghest
nu mber
. i
ncomeisr
efe
rr
edt
oa s:
C.todet
ermi
newh i
chi
t
emsa r
einer
ror
. A.s o
lven
cyandl
ever
a g
e C.sol
venc
yandl
iq
uidi
t
y
D.todet
ermi
netheamount
and/
orper
cent
agein
creas
eo rdec
reasethat
hast
ake
npla
ce. B.s o
lven
cyandpr
ofi
t
a bi
l
it
y D.sol
venc
yandequi
t
y
T
rendanal
ysis L
iqu
idi
tyra
ti
os
1
6.T r
endanal
ysisa
ll
owsafi
rmtocompar
eit
spe
rf
o r
man
ceto: I
nt
eres
tedpart
ies
A.o t
herfi
r
msinthein
dust
ry C.othe
rin
dust
r
ies 1
9.Th epri
ma r
yconcer
nofs
hor
t-
te
rmc
red
it
or
swhenass
essi
ngt
hestr
eng
tho
fafi
r
mist
he
B.o t
hert
imeperi
odswit
hi
nth
efir
m D.noneoft
heabov
e en
ti
ty’
s
A.s hor
t-
ter
mliq
uid
it
y C.mar
ketpr
i
ceofs
toc
k
Ri
ska
ndret
urn B.p r
ofi
tabi
l
it
y D.l
eve
rage
29
.Thep
res
entan
dpr
osp
ect
i
ves
toc
kho
lde
rsa
rep
ri
mar
i
lyc
onc
ern
edwi
t
hafi
r
m’
568

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
3
5.Sh
ort
-t
er
mc r
edi
t
orsa
reu
sua
ll
ymo
sti
nt
er
est
edi
nas
sessi
ng B.d
ebt
rat
i
o D.a
cco
unt
sre
cei
vab
let
ur
nov
er
A.sol
venc
y. C.mark
e t
abi
l
it
y.
B.li
qui
di
ty
. D.pr
ofi
t
a b
il
it
y. Notameas
u r
eo fl
i
quid
it
y
79
.Wh i
cho neoft
hefol
lowi
ngrat
i
oswoul
dno
tli
kel
ybeu
sedbyashor
t-
te
rmc
red
it
ori
nev
alu
ati
ng
3
6.Th
etwocat
egori
esofr
at
iost
hat
sho
uldb
eut
i
li
zedt
oass
esafi
rm’
str
ueli
qui
dit
yar
eth
e whe
thert
os el
loncr
editt
oacompan
y?
A.cur
renta
ndq ui
ckr
ati
os C.li
qui
di
tya
ndpr
ofi
t
a b
il
it
yrat
i
os A.a c
c o
u n
tsrec
eiv
ablet
urn
over
. C.aci
dtes
tra
ti
o.
B.li
qui
di
tyanddebtr
at
ios D.li
qui
di
tya
ndact
i
vit
yrat
ios B.a s
s e
t t
ur
nover
. D.cur
re
ntrat
i
o.
4
7.Whi
choft
hefol
l
owi
ngi
sth
emo
sto
fin
ter
est
toafi
r
m’ ssupp
li
ers
? Cur
ren
trat
i
o
A.pro
fi
tab
il
it
y C.a sse
tuti
l
iz
ati
on 24
.T y
pic
all
y,whi
chofth
efoll
owi
ngwo
uldb
eco
nsi
der
edt
obeth
emo s
tin
dic
ati
veof
afi
r
m'ss
hor
t-
B.debt D.liq
u i
di
ty t
ermdebtpayi
ngabi
li
ty
?
A.wo r
kingcapi
t
al C.a c
idt
est
rat
i
o
Measu
resofl
iq
uidi
t
y B.c ur
re
n tr
at
io D.d a
ys’
sal
esi
nrecei
vab
les
21
.Th era
ti
osthat
areusedtodet
ermi
neac ompan
y’ssho
rt
-ter
md ebt
p a
yin
ga b
il
it
yar
e
A.a sse
ttur
nove
r,t
i
me sin
ter
estear
ned,cu
rr
entra
ti
o,andrece
iva
b l
estu
rnov
er. 2
2.Th
ecu
rr
entra
ti
ois
B.t i
mesint
er
estea
rned,i
nvent
oryt
urno
ver
,curr
entr
ati
o,andre
ceiv
able
stur
nover
. A.ca
lcu
lat
edbydi
vi
din
gc u
rr
entl
i
abi
li
t
iesbycur
renta
sset
s.
C.t i
mesint
er
estea
rned,aci
d-
testr
at
io
,cur
rentr
at
io,a
n di
nvent
oryt
urnov
er. B.us
edtoeval
uat
eacompany’
sl
iqu
idi
t
ya ndshor
t-
te
rmdebtpay
inga
bil
i
ty.
D.c ur
rent
rat
io
,aci
d-t
estr
ati
o,re
cei
vabl
estur
nover
,andin
vent
orytur
nover
. C.us
edtoeval
uat
eacompany’
ssol
vencyandl
ong-
ter
md e
btpayi
ngabi
l
it
y.
D.ca
lcu
lat
edbysubt
r
acti
ngcu
rr
entl
ia
bil
it
ie
sfro
mc ur
ren
tasse
ts.
2
0.Whi
choft
hefol
l
owi
n gi
same as
ureof
thel
iq
uid
it
ypo
sit
i
ono
fac
orp
ora
ti
on?
A.earni
ngspe
rshare 3
0.Whi
chofthefo l
l
owin
gr a
ti
osisrat
edtobeapri
maryme
asur
eofl
i
qui
di
tya
ndc
ons
ide
redo
f
B.inv
ento
ryt
urno
ve r hi
ghe
stsi
g n
ifi
canc
erati
ngoft
heli
qui
di
tyr
ati
osaban
kana
lys
t?
C.curr
entr
at
io A.De bt
/Equi
ty
D.numberoft
imesint
er
est
char
gesear
ned B.Cu r
rentrat
io
C.De gr
eeo fFi
nanci
alLev
erag
e
3
7.Whi
cho neofthef
oll
owi
ngrat
i
oswou
ldn
otli
kel
ybeu sedbyas ho
rt
-t
er
mcr
edi
t
ori
n D.Ac c
ou n
tsRe c
eiv
abl
eT ur
nove
rinDay
s
ev
alu
ati
ngwhet
hert
osel
lonc
redi
tt
oac
ompa
ny?
A.Cu r
rent
rat
i
o C.As se
ttur
nove
r 4
1.Awe
akn
esso f t
hecur
ren
trat
i
ois
B.Ac i
d-
tes
tra
ti
o D.Re cei
vab
lest
urn
ove
r A.t
hedi
ffic
ult
yo f
thecal
cul
at
ion
.
B.t
hati
td oesnott
akei
ntoacc
ountt
hecompos
it
io
no ft
hecu
rre
ntass
ets
.
5
1.Whi
chofthefol
l
owin
gr at
i
oswoul
dbel
eas
thel
pf
uli
na ppr
ais
ingth
el i
qui
di
tyofc
urr
ent C.t
hati
ti
sr arel
yusedbysoph
ist
i
cat
edanal
yst
s.
as
set
s? D.t
hati
tc a
nb eexpr
essedasaperc
ent
age,
asarate
,orasaprop
ort
i
on.
A.Accou
ntsRecei
vabl
etur
nov
er C.Curr
entRat
io
B.Days’
sale
sinin
vent
ory D.Days’
sale
sinacco
untsre
cei
vab
le Ac
id-
te
sto
rquic
krat
io
42
.Ame asu
reofacompa
ny’
simmed
iat
esh
ort
-t
er
mli
qui
di
tyi
sth
e
5
3.Whi
chr
at
ioismost
hel
pf
uli
nap
pra
isi
ngt
hel
i
qui
di
tyo
fcur
re
ntass
ets
? A.curr
entr
ati
o.
A.cur
rent
rat
io C.aci
d-
tes
tra
ti
o B.curr
entca
shdeb
tcov
erag
erat
i
o.
569

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
C.c
ashdeb
tcov
era
ger
at
io
. As
sett
ur
nover
D.a
cid
-t
est
rat
i
o. 63
.Assett
ur
no v ermeasure
s
A.howo ft
e nac ompanyrep
lace
sit
sassets
.
2
3.Th
eacid
-t
estorqui
ckra
ti
o B.howe ffic
ient
l
yac ompanyusesi
tsass
e t
stogen
era
tes
ale
s.
A.isusedt
oq ui
ckl
ydet
ermi
neac o
mpany’
ssol
vencyandlong-
t
ermd e
btpayi
ngab
il
it
y. C.theportionoftheasse
tsth
athavebeenfi
nan
cedbycr
edi
t
ors
.
B.rel
ate
scash,shor
t-
te
rminve
stment
s,a
ndnetre
ceiv
able
stoc u
rr
entl
iab
il
it
i
es. D.theover al
lra
teo f
ret
urnonasse
ts.
C.iscal
cul
at
e dbyt
aki
ngo n
eit
emfromthei
ncomestat
eme n
tandoneit
emfromth
eb al
anc
e
s
heet
. 6
6.To
tal
assett
ur
nove
rme a
sure
sth
ea b
il
it
yofafi
r
mto
:
D.isth
es a
mea sthecur
ren
trat
i
oexcept
iti
sro
undedtothenear
estwhol
eperc
ent
. A.g e
nerat
epr
ofi
tsonsal
es
B.g e
nerat
esal
esth
rought
heuseofas
set
s
Notal
i
qui
di
tyrat
i
o C.coverl
ong-
te
rmd eb
t
28
.Wh i
choneofth
efol
l
owi
ngwo
uldn
otb
eco
nsi
der
edal
i
qui
di
tyra
ti
o? D.b u
yn e
wa s
set
s
A.Curre
ntrat
i
o. C.Quic
krat
io
.
B.Inv
entor
ytur
nov
er. D.Retu
rnonasse
ts. 7
6.Ame
asur
eofho
we ffic
ien
tl
yacomp
anyu
sesi
t
sass
etstogene
rat
esal
esist
he
A.ass
ett
ur
nove
rrat i
o. C.profi
tmar
gi
nrat
io
.
Act
ivi
tyrat
ios B.cas
hret
ur
nons a l
esrat
i
o. D.ret
urnonasse
tsr
ati
o.
Day
sreceiv
able&recei
vab
leturnov
er
Qual
it
yofrecei
vabl
es Sol
vencyrat
ios
25
.Wh i
choft
h ef
oll
owi
ngdo esnotbe
aronth
eq u
ali
tyofr
ece
iva
ble
s? I
nter
est
edparti
es
A.s hort
enin
gthecre
ditt
e r
ms 50.Lon
g -
ter
mc r
edi
tor
sar
eus
ual
l
ymo
sti
nt
er
est
edi
nev
alua
ti
ng
B.l engt
heni
ngthecr
ed i
tte
rms A.l i
qui
dit
y. C.pro
fi
tabi
l
it
y.
C.l engt
heni
ngtheout
s t
andi
ngperi
od B.ma rket
abi
li
t
y. D.sol
vency
.
D.a ll
o f
theabovebearonthequal
i
tyofr
ecei
vabl
es
Fi
nanc
ial
Lever
age
Day
srec
eiv
abl
e 45
.T r
adi
ngontheequ
it
y(le
verag
e)ref
erstothe
27
.Ag en
eralr
ulet
ouseinassess
ingtheave
ragecol
lec
ti
onper
i
odi
s A.a moun
tofwor
kin
gc ap
it
al.
A.thati
sshoul
dnotexc
e e
d3 0days. B.a moun
tofcap
it
alpr
ovi
dedb yowners
.
B.itc
anb eanyl
engt
ha slo
nga sthecu
sto
me rcon
ti
nuest
obu
yme
rch
and
ise
. C.u seof
borr
owedmoneytoincr
easethere
tur
ntoo
wne
rs.
C.thati
tshou
ldno
tg r
eat
lyexceedthed
isc
ountper
iod. D.e ar
ni
ngspers
hare.
D.thati
tshou
ldno
tg r
eat
lyexceedthec
redi
tt
e r
mp er
i
od.
9
0.Th
etenden
cyoft
her
at
eearn
edo ns
toc
khol
der
s'e
qui
tyt
ovarydi
spr
opo
rt
io
nat
el
yfr
omt
her
at
e
Assetut
il
izat
ionrati
os ea
rne
do nt
ota
las
set
siss
ometi
mesre
fer
re
dtoas:
Per
formanc
eme a sur
es A.leve
rage C.y i
el
d
65
.Al lo
fthefol
lowi
ngareas
setut
i
li
zat
i
onr
at
io
sex
c e
pt: B.solv
ency D.q ui
ckas
sets
A.a veragec o
ll
ect
i
onper
io
d C.recei
vab
lest
ur
nove
r
B.i nv
e n
torytur
nove
r D.retu
rnonass
ets 5
5.Usi
ngfi
nanc
iall
eve
rag
eisag
oodfi
nan
cia
lst
r
ate
gyf
r
omt
hev
iewp
oin
tofs
toc
kho
lde
rso
f
co
mp a
niesh
avin
g:
570

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
A.ahi
ghdeb
trat
i
o C.ast
eadi
l
ydecl
i
nin
gcur
ren
tra
ti
o C.t
heeffic
iencyoft
heu
seoft
o t
ala
sset
s
B.st
ead
yorr
isi
ngpr
ofi
t
s D.cy
cl
ic
alhi
ghsan
dlows D.t
hema gn
ifi
cat
i
onofea
rni
ngscaus
edbyl
eve
rag
e
4
6.Th
era
ti
othati
ndi
cat
esacompan
y’sd
egr
eeo
ffi
nan
c i
all
ever
ageist
he 7
8.Th
edebt
toto
tala
s s
etsrat
i
ome asures
A.cas
hd e
btcove
rager
at
io. C.freecashfl
owrat
i
o. A.th
ecompany’
sp r
ofi
tab
il
it
y.
B.debt
totot
ala
sset
s. D.times-
int
ere
s t
ear
nedr
at
io
. B.whet
heri
nte
restcanbepaidond e
btint
hecurr
enty
ear
.
C.th
epropor
ti
onofint
ere
stpaidrel
at
iv
etodiv
ide
ndspai
d.
7
3.I
nt
er
estex
p e
nsecre
atesmagni
fi
cati
onofearn
ing
sthro
ughfi
nanci
all
eve
rag
ebeca
use: D.th
eperce
ntageofthet
otal
a ss
etspr
ovid
edbycred
it
or
.
A.whil
eearni
ngsava
il
abl
etopayinter
estr
is
e,ear
nin
gstores
idu
alowner
sri
sef
ast
er
B.in
ter
estacc
ompaniesdebt
fi
na n
cing Debt
-t
o-
equi
tyrat
i
o
C.in
ter
estcos
tsar
ec hea
perth
a nthereq
uir
edrat
eofre
tur
ntoequi
tyown
ers 60
.Wh ic
ho f
thefo
ll
owings
tat
e men
tsbestc
o mpar
esl
ong-t
er
mb or
ro
wingcap
acit
yrat
i
os?
S.th
eu seofi
nt
eres
tcauseshi
gh e
re a
rni
ngs A.Th edebt
/equ
it
yrat
ioismorecon
servat
i
vetha
nthedebtr
at
io.
B.Th edebtt
otangi
bl
en etwo
rthr
ati
oismorecons
erv
ati
vet
hanthedeb
t/
equi
tyr
ati
o.
Measu
resofs
olv
ency C.Th edebt
/equ
it
yrat
ioismorecon
servat
i
vetha
nthedebtt
otan
gibl
enetwor
thr
ati
o.
34
.Th ese
tofra
ti
osth
atismostuse
ful
ineva
luat
i
n gsol
venc
yis D.Th edebtr
ati
oismoreconser
vat
i
vethanthede
bt/
equi
t
yrat
io.
A.d e
btrat
i
o,cur
ren
t r
at
io,a
ndti
mesint
ere
ste a
rned
B.d e
btrat
i
o,t
imesint
ere
stear
ned,a
ndret
urno nass
ets Ti
mesi
nte
res
te ar
ned
C.d e
btrat
i
o,t
imesint
ere
stear
ned,a
ndquickrat
io 74
.Atimesi
nter
estearne
dr a
ti
oof0.9
0to1me anst
hat
D.d e
btrat
i
o,t
imesint
ere
stear
ned,a
ndcashflowtodeb
t A.thefi
r
mwi l
l de
faul
tonit
sin
ter
estpa
yment
B.neti
nc o
mei sl
essthant
heint
ere
stexpe
nse
4
9.Whi
cho
fthefo
ll
owi
ngra
ti
osi
smo
str
el
eva
ntt
oev
alu
ati
ngsol
ven
cy? C.thecashfl
owislesst
hantheneti
ncome
A.Ret
urnonasse
ts C.Da ys
’pur
chase
sina
cco
unt
spa
yab
le D.thecashfl
owe xc
eedstheneti
nco
me
B.Debtr
ati
o D.Divid
endyi
eld
F
ixe
dcharg
ecove
rage
Fi
xedass
etstolong-t
ermliabi
l
it
i
es 6
1.Afix
edchar
gecover
age:
44
.Wh i
cho ft
h efol
lowi
ngrati
osprov
idesasol
venc
yme as
uret
hats
howsth
ema r
gi
nofs
afe
tyof A.isabal
anceshe
etin
dic
ati
onofde
btcarr
yi
ngabil
i
ty
no
teho
ldersorb ondho
lder
sandalsogi
vesanind
ica
ti
onoft
hepot
ent
i
alabi
l
it
yoft
heb
usi
nes
s B.isani
ncomesta
tementi
ndi
cat
i
onofdebtca
rry
ingabi
l
it
y
t
oborr
owa dditi
onalf
undsonalong-
ter
mb as
is
? C.fr
eque
ntl
yinc
lud
esresea
rchanddev
elop
me nt
A.rati
oo ffi
xedasset
stolong
-t
ermlia
bil
i
ti
es D.comput
at
ioni
sstand
ardfr
omfi
rmtofi
rm
B.rati
oo fnetsale
stoasset
s
C.n umberof days
'sal
esinre
ceiv
able
s Off
-bal
anc
es heetl
i
abi
li
ti
es
D.rateearnedo nsto
ckhol
der
s'equi
ty 62.Ifafi
r
mh assub
stant
ia
lcapit
alo
rfi
nanci
ngl
ease
sd i
sc
losedint
hen o
tesbutn
otc
api
tal
i
zedi
n
t
hefi
nanci
alst
at
eme nt
s,t
henthe
Debtr
ati
o A.ti
me sint
er
estearn
edrati
owil
lbeove
rst
at
ed,ba
sedupo nt
hefi
nanci
als
tat
eme
nts
59
.Th edebt
rat
i
oindic
ate
s: B.de btr
ati
owil
lbeunder
stat
ed
A.ac ompari
sonofl
i
abi
l
it
i
eswit
hto
tal
ass
ets C.wo rk
ingcapi
t
alwil
lbeunder
sta
ted
B.t h
eabil
i
tyofth
efi
rmt
op a
yit
scur
re
ntobl
i
gat
i
ons D.fi
x e
dc ha
rgerat
iowil
lbeove
rst
ate
d,bas
eduponthefi
nanci
als
tat
ement
s
571

lOMoARcPSD|31016586
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nanc
ialSt
atementAnal
ysi
s
5
6.Th
epri
ce/
ear
ni
ngsrat
i
o
Pr
ofit
abi
li
tyrat
ios A.measur
esthepas
t e
arn
inga
bil
i
tyoft
hefi
r
m
I
nt
erest
edpart
ies B.isagaug
eo ff
ut
ureear
ni
ngpowera
sseenbyi
nve
sto
rs
39
.Th ere
tur
no nasset
srat
i
oisa ff
ect
edbyt
he C.rel
at
espri
cetodi
vi
dend
s
A.a sse
t t
urn
overr
ati
o. D.rel
at
es
B.d ebtt
otota
lasse
tsra
ti
o.
C.p r
ofi
tma r
gi
nrat
io. 5
8.Wh i
choft
hefol
l
owi
ngrat
i
osu
sua
ll
yre
fl
ect
sin
v e
sto
rsopi
ni
onsofthef
ut
ur
epr
osp
ect
sfo
rth
e
D.a sse
t t
urn
overandpr
ofi
tma rg
inr
ati
os. fi
r
m?
A.d iv
ide
ndyi
el
d C.b oo
kval
uep e
rshar
e
5
2.St
ock
hol
dersar
emo
sti
nt
er
est
edi
nev
alu
ati
ng B.p ri
ce/
ear
ni
ngsr
at
io D.e ar
ni
ngspersha
re
A.li
qui
dit
y. C.pr
ofi
t
a b
il
it
y.
B.solv
ency. D.mar
ke t
abi
l
it
y. Di
vi
dendy
iel
d
57
.Wh i
chofthef
ol
lo
win
grat
io
sre
pre
sen
tsd
ivi
den
dsp
ercommo nshar
einr
el
at
io
ntoma
rke
t
Per
for
manc
eme a
sure
s pr
i
ceperco
mmonshar
e?
48
.Th es
etof
rat
iost
hat
aremost
usef
uli
nev
alu
ati
ngp
rofi
t
a bi
l
it
yis A.div
ide
ndpay
out C.pr
ic
e/e
arni
ngs
A.ROA,ROE, a
nddebtt
oequi
t
yrat
i
o C.ROA, ROE,anda
cid
-t
estr
ati
o B.div
ide
ndyi
el
d D.boo
kvalu
epe rs
har
e
B.ROA,ROE, a
nddiv
ide
ndyi
el
d D.ROA, ROE,andc
ashfl
owtodeb
t
Fi
nanc
ialSt
atementAnal
ysi
s
Ear
nin
gspershar
e Ac
count
sReceiv
abl
e
82
.Wh ic
hofth
efol
lowi
ngr
ati
osa
ppe
arsmo
stf
r
equ
ent
l
yinan n
ualr
epo
rt
s? 26
.Wh i
cho fthefol
lo
wingreason
ss houl
dn otbec onsid
eredinorde
rtoexpl
ai
nwh ythe
A.Ea r
ni
ngsperShar
e C.Profi
tMargi
n r
ecei
vab
lesappea
rtobeabnor
ma l
l
yhigh
?
B.Re t
ur
no nEqui
t
y D.Debt/
Eq ui
t
y A.Sa l
esvol
umed e
crea
sesma t
er
ial
l
ylat
eintheyear
.
B.Re c
eivab
leshav
ecoll
ect
i
bil
i
typro
ble
msa ndpossi
blysomesho
uldhav
ebe
enwri
tt
enoff
.
Ret
urnonasset
s C.Ma t
eri
alamounto
frec
eiv
able
sa r
eontheinst
al
lmentbasi
s.
64
.Re t
urnonassets D.Sa l
esvol
umee x
pandedmater
i
all
yla
tei
nthey e
a r
.
A. canbed et
ermi
nedbylo
okin
gatabal
anc
es h
eet
B. shoul
db esmall
ert
hanr
etur
nonsal
es 3
1.Anac
ce l
erat
i
onint
hec
oll
ect
i
ono
fre
cei
vab
leswi
l
ltendtoca
uset
heacc
oun
tsr
ece
iva
ble
C.c anbeaff
ecte
db yt
hecompany
’sc
hoi
ceofadep
rec
iat
i
onme
tho
d t
ur
nov
e rt
o:
D.s hou
ldbelarge
rtha
nret
urnonequ
it
y A.dec r
ease C.eit
heri
ncr
eas
eord
ecr
eas
e
B.rema i
nthes
ame D.incr
ease
Ret
urno
ninv
e s
tment
s
72
.Re t
ur
noninve
stment
me as
ures
: I
nve
n t
or
ies
A.ret
urntoal
lsu
ppl
ier
soffu
nds C.r
et
ur
ntoa
lll
ong
-t
ermsu
ppl
i
erso
ffu
nds 3
2.Wh ic
ho f
thefol
l
owingwoul
dbesti
ndi
cat
ethatt
hefi
r
misc
arr
yi
nge
xce
ssi
nve
nto
ry?
B.ret
urntoal
ll
ong-
t
ermcredi
to
rs D.r
et
ur
ntos
toc
khol
der
s A.ad ecl
inei
nthecurr
entr
ati
o
B.s t
abl
ec ur
re
ntrat
iowi
thdecl
i
nin
gq u
ickr
at
ios
Mar
kette
strat
ios C.ad ecl
inei
nd a
ys'sal
esi
ninve
ntor
y
Pr
i
ce-e
arni
ngsr
a t
i
o D.ar i
seintot
ala
ssett
urno
ver
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lOMoARcPSD|31016586
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nanc
ialSt
atementAnal
ysi
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8
6.Compani
esAa ndBareint h
es ameind
ustr
ya ndhavesi
mil
archa
rac
ter
is
ti
csexc
eptt
hat
8
9.WhenT r
i
-CCo r
p.comparesit
srat
i
ostoin
dust
rya
verag
es,ithasah i
ghe
rcurrentr
at
io
,an CompanyAismo r
ele
ve r
agedthanCompa n
yB.Bo t
hcompani
eshav
ethes a
meinco
me
av
era
g equi
ckra
ti
o,andalowinv
ent
oryt
ur
nove
r.What
mightyouassu
mea bou
tT r
i
-C? bef
or
einte
resta
ndtax
esa ndthes ametot
alasset
s.Basedonthi
sinf
or
ma t
i
onwec o
uld
A.Itscashbal
anc
eistoolow. C.Itscur
rent
lia
bil
i
ti
esaret
oolow. co
nclu
dethat
B.Itscosto
fgood
ss ol
distool
ow. D.Itsaver
ageinve
ntor
yist
oohigh. A.Co mpanyAhashi
ghernetinco
methanCo mpanyB
B.Co mpanyAhasalowerret
urnonass
etsthancompan
yB
Cur
ren
trat
io C.Co mpanyAismor
er i
skytha
nCo mpanyB.
33
.Wh ic
ho f
thefol
lo
wingwoul
dbemo s
tdet
ri
ment
alt
oafi
r
m'sc
urr
ent
rat
i
oif
tha
tra
ti
oisc
urr
ent
l
y D.Co mpanyAhasalowerdebtra
ti
otha
nc ompanyB
2.
0?
A.Bu yrawma t
eri
al
soncred
it Sensi
ti
vi
tyAnalys
is
B.Se l
lma r
ket
abl
es e
cur
it
i
esa t
cost Curr
entr
at
io
C.Pa yoffac
count
spaya
blewit
hcash 40
.Afirmhasac ur
ren
trati
oof1:
1.Ino r
dertoimpr
oveit
sli
qui
dit
yrat
ios
,thi
sfi
r
ms houl
d
D.Pa yoffapor
ti
onofl
ong-
ter
md e
btwit
hca
sh A.imp r
oveit
scoll
ect
ionpra
cti
ces,t
herebyin
creas
ingcashandincr
easi
ngit
scurr
entand
qui
ckrat
i
os.
F
ixe
dasset
tur
nove
rrat
io B.improveit
sc ol
l
e c
ti
onp r
act
ic
esa ndp ayaccount
sp aya
ble,t
heredecre
asi
ngc u
rre
nt
6
8.Wh i
choft
hefol
l
owin
gcir
cumstan
ceswi
l
lcaus
esale
stofi
xeda
sse
tst
obea
bno
rma
ll
yhi
gh? l
iab
il
it
i
esandincrea
sin
gthecurre
ntandq u
ickr
ati
os.
A.Alabor
-i
nt
ensi
vein
dust
ry. C.d ecr
easecurr
entli
abil
i
ti
esb yu t
i
li
zi
n gmorelong-t
er
md ebt
,the
rebyincr
eas
ingthe
B.Theuseofuni
ts
-of
-pr
oduct
i
ondepr
eci
at
io
n. cur
rent
andquickrat
i
os.
C.Ah i
ghl
ymechani
zedfa
cil
i
ty
. D.incre
aseinve
ntory
,the
rebyi
ncreas
ingcurr
entass
etsandthecur
ren
tandquic
krat
ios
.
D.Highdi
re
ctla
borcost
sfr
oman ewuni
oncon
tr
act
.
4
3.Re centl
ytheM&MCo mpa n
yh asbeenh a
vin
gp r
ob l
ems.Asaresul
t
,it
sfi
nanci
als
it
uat
io
nh a
s
T
ota
l a
sse
ttur
nover det er
i
orat
ed.M&Ma ppro
achedtheFirs
tNa t
ionalBankforabadl
yneede
dl o
an,butt
heloa
n
8
1.Afirmwithat o
talass
ettu
rno
verl
owert
hanth
ein
dust
ryst
and
arda
ndac
urr
entr
at
iowh
ich offic
erinsi
st
edt h
a tth
ec ur
rentra
ti
o( n
o w0.5)bei mpro
vedtoatle
ast0.8bef
oreth
eb ank
meet
sindus
tryst
andar
dmighth
aveex
ces
siv
e: wo uldevenconsi
d ergr
anti
ngthecredi
t.Whichofthefol
lowi
ngact
i
onswo ul
ddothemostt
o
A.Ac c
ountsrecei
vab
le C.Debt i
mp ro
vetherati
ointheshor
trun?
B.F i
xedasset
s D.Inv
ent
or
y A.Us i
ngsomec ashtopayoffso
mec urr
entl
iabi
li
ti
es.
B.Co l
l
ecti
ngsomeo fthecur
rentac
cou nt
srecei
vabl
e.
Pr
ofi
t
a b
il
it
yanal
ysi
s C.Pa y
ingoffs
omel ong-
ter
md ebt
.
84
.De nverDynamicsh asne
tinco
meo fP2,
0 0
0,000
.Oa kl
andEn te
rpr
is
esh asne
tinc
omeo f D.Pu r
chasi
ngad di
ti
onali
nve
n t
or
yo ncredi
t(
a c
co u
n t
spayab
le)
.
P2,5
00,000
.Wh ichoft
hef
oll
owi
ngbes
tcomparest
hep r
ofi
t
a bi
l
it
yofDenvera
ndOakl
and?
A.Oa k
lan
dEn terp
ri
sesi
s25%morepro
fi
tabl
ethanDenverDynamic
s. 8
7.Ty
nerComp a
nyh adP250,
000ofc ur
ren
tassetsandP90,
000ofcur
ren
tli
abi
l
iti
esb
efo
re
B.Oa k
lan
dEn terpr
i
sesi
smo r
epr
ofi
tab
lethanDe n
verDy na
mics,bu
tthecompa
ri
soncan
't bo
rro
wingP6 0,
000fro
mt heb an
kwi t
ha3 -mont
hn ot
ep a
yab
le.Whateff
ectdi
dthe
beq u
anti
fi
ed. bo
rro
wingtr
ansac
ti
onhaveonTynerCompan
y'scur
rent
rat
io
?
C.Oa k
lan
dEn terp
ri
sesi
sonl
ymor
ep r
ofi
t
a b
lei
f i
ti
ssmall
e rt
hanDenverDy
nami
cs. A.Th era
ti
oremain
edu n
chang
ed.
D.F urt
heri
nformati
oni
sneede
dfo
rareasonabl
ecompari
s on
. B.Th echan
geinthecur
ren
trat
i
oc ann
otbedeter
mine
d.
C.Th era
ti
odecrea
sed.
De
btr
at
io D.Th era
ti
oincr
eased
.
573

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
8
5.Whi
choft
hefol
lo
wingwil
lnotc
ausetimesi
nte
restea
rnedt
odr
op?As
sumen
oot
herc
han
ges
8
8.Whi
chof
thefo
ll
owin
ga c
ti
onswil
li
ncr
easeafi
r
m'scu
rre
ntra
ti
oifi
ti
sno
wle
sst
han1
.0? t
hant
hosel
ist
ed.
A.Conver
tmarke
tabl
esecur
it
i
estocas
h. A.Aris
einpref
err
edsto
ckdivi
den
ds .
B.Payacco
untspay
ablewi
thcas
h. B.Ad r
opinsal
eswit
hnoc h
angeinint
ere
stexpe
nse.
C.Buyi
nvent
orywit
hshor
tter
mc r
edi
t(
i.e
.acco
unt
spaya
ble)
. C.Anincr
easei
nint
erest
rat
es.
D.Sel
li
nvent
oryatco
st. D.Anincr
easei
nb on
dspayabl
ewithnochangei
no p
erat
i
ngi
nco
me.
Ac
id-
te
str
at
io DuPon
tAnal
ysi
s
38. If a company has an acid-test ratio of 1.2:1, what respective effects will the 71
.Wh ic
ho ft
hefol
lowi
ngcoul
dc au
seret
ur
nona
sse
tstodec
li
newhe
nn etp
rofi
tmargi
nis
borrowing of cash by short-term debt and collection of accounts receivable i
ncr
easi
ng?
have on the ratio? A.s al
eofi
nve
stment
satye
ar-
end C.pur
chas
eofane
wbuil
di
ngatyear
-e
nd
A. B. C. D. B.incr
easedt
urnov
erof
opera
ti
ngas
set
s D.as to
ckspl
i
t
Sh
ort
-t
er
mborr
owi
ng I
ncr
eas e I
ncr
eas
e Dec
rease De
cre
ase
Col
l
ect
i
onof
recei
vab
le Noeff
ect I
ncr
eas
e Noeff
ect De
cre
ase 8
0.Afi
r
mwi t
halowern
etpr
ofi
tmargi
ncani
mpr
ovei
t
sre
tur
nontot
ala
sset
sby
A.i n
cre
asi
ngit
sdebt
rat
i
o C.in
cre
asi
ngit
sto
tal
asse
ttu
rnove
r
B.d ecr
eas
ingi
t
sfi
xedass
e t
stu
rnov
er D.decr
eas
ingi
tst
ot
alas
sett
urn
over
Pr
ofi
tma
rgi
n
70
.Wh i
choft
hef
oll
owi
ngwou
ldmostl
i
kel
yca
usear
i
sei
nnetpr
ofi
tmargi
n?
A.inc
rea
sedsal
es C.decr
eas
edop e
rat
in
gexpe
nse
s
PROBLEMS:
B.decr
ease
dpref
er
redd
ivi
den
ds D.in
cre
asedcosto
fsal
es
Hor
izont
alanal
ysi
s
1
. Kl i
neCorpo
rat
ionhadnet
inc
omeo fP2mil
l
ionin2006.Usi
ngthe2006fi
nanci
alel
ement
sas
Ret
urnonasset
s
t
h ebas
ed at
a,neti
nco
med ecr
eas
edb y70percen
tin2007andin
creas
edb y175perc
enti
n
67
.Re t
urnonasset
scan
nofall under which of the following circumstances?
t
2008.Theres
p e
cti
ven
eti
ncomerepor
tedbyKl
ineCorpo
rat
io
nfor200
7a nd2008are
:
A. B. C. D. A.P 6 0
0,000andP5,
500,
000 C.P1 ,40
0,00
0andP3 ,
500,0
00
Netpr
ofi
tmargi
n De c
li
ne Rise Rise Decl
i
ne B.P5 ,50
0,000andP 600,
000 D.P1 ,40
0,00
0andP5 ,
500,0
00
Tot
alas
se t
tur
nov
er Rise De c
li
ne Rise Decl
i
ne
2
. As
sumetha
tAxleIn
c.r
epor
te
dan e
tlo
ssofP50,
000in200
6a ndne
tin
comeo fP2
50,
000i
n
Debtr
ati
o 20
07.Th
eincr
easei
nneti
nco
meofP300,
000
:
83
.J onesCompanyh aslong
-t
ermd ebtofP1 ,
000,
000,whil
eSmithCo mpany
,Jones
'compe
ti
to
r, A.canbesta
tedas0% C.canno
tbest
ateda
sap e
rce
ntage
hasl
o n
g-t
ermdeb t
o fP20
0,000.Whicho f
thef
o l
l
owingst
a t
ement
sb es
trepr
ese
ntsanan
aly
si
s B.canbesta
tedas10
0%incr
eas
e D.canbest
ate
da s2
00%incr
ease
oft
helong-
te
rmd ebtposi
ti
ono f
thesetwofi
rms?
A.J onesobvi
ousl
yh ast
oomu chd ebtwhencomparedtoit
scompeti
to
r. Liqui
di
tyra
ti
os
B.Smi thCompa n
y'sti
mesinte
res
t ear
n e
ds hou
ldbelowerth
anJ o
n e
s. 3
. Thefo
ll
owingfi
nanci
alda
tah
avebee
nta
kenf
ro
mth
ere
cor
dso
fRa
ti
oCo
mpa
ny:
C.Smi thhasfi
veti
me sbet
terl
ong-t
ermb or
rowi
nga bi
l
it
ythanJones. Accoun
tsrecei
vabl
e P2
00,
000
D.No tenoughinf
ormati
ontodete
rmineifanyofth
ea nswer
sa r
ecorr
ect. Accoun
tspa y
abl
e 80,
000
Bondspayabl
e,duei
n10yea
rs 5
00,
000
Ti
mesi
nt
er
est
ear
ned Cash 1
00,
000
574

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
7
Inter
e s
tpay abl
e,du eint
hreemo nt
hs 25,000 . Pi
neHa rd
wareSt or
eh adnetcred
itsa
lesofP6 ,
500
,000andcostofgoo
dssol
dof
Inventor
y 440,000 P5,
000,
000forth
ey e
ar.Th
eAc c
ount
sRecei
vab
lebal
ancesatt
hebe
gin
nin
ganden
doft
he
La nd 800,000 ye
arwereP600,00
0a ndP700
,000
,res
pec
ti
vel
y.Th
erecei
vab
lest
ur
nove
rwas
No t
e spayab l
e,dueins i
xmo nths 250,000 A.7 .
7ti
me s
. C.9 .
3ti
mes.
What will happen to the ratios below if Ratio Company uses cash to pay 50 percent B.1 0
.8ti
mes . D.1 0.
0ti
mes.
of its accounts payable?
8
A. B. C. D. . Mi
lwar
dCorpor
at
ion’
sbooksdis
cl
osedt
hefol
l
owi
ngi
nf
or
ma t
i
onf
ort
hey
eare
n d
edDecemb
er
Cu rre ntrat
io Increas
e De cre
a se I
ncrease Decrease 31
, 2
007:
Ac id-testrat
i
o Increas
e De cre
a se De cr
e ase Incr
e ase Netc
redi
tsa
les P1,
500
,00
0
Netc
ashsal
es 240
,00
0
Que
s t
i
onNo s.4t h
roug
h6 a rebas
edo
nth
eda
tat
ake
nfr
omt
heb
ala
nces
hee
tofNo ma
d Acc
ount
srecei
vab
leatbegi
nni
ngofye
ar 200
,00
0
Co
mp anyatt
heendo f
thecur
re
nty
ear
: Acc
ount
srecei
vab
leate n
do f
year 400
,00
0
Accou
n t
spayab
le P145
,00
0 Mi
lwar
d’
saccoun
tsrec
eiv
abletu
rnov
eri
s
Accou
n t
srec
eiv
abl
e 110
,00
0 A.3 .
75ti
mes C.5.
00ti
mes
Accr
uedli
abi
li
t
ies 4
,00
0 B.4 .
35ti
mes D.5.
80ti
mes
Cash 80
,00
0
I
ncometaxpayabl
e 10
,00
0 Day
srecei
vabl
e
9
I
nvent
ory 140
,00
0 . Ba t
i
kClothi
ngSt
orehadab al
anc
eintheAccou
ntsRece
iva
b l
eacc
ounto
fP390,
000atthe
Marke
tabl
esecur
it
i
es 250
,00
0 be
ginni
ngoft
heyearandabal
anceofP41
0,0
00atth
ee n
do ft
heyear
.Thenetcr
edi
tsa
les
Not
esp ay
abl
e,shor
t-
te
rm 85
,00
0 du
ri
ngtheyeara
mo un
tedtoP4,
000,
000.Usi
ng360-
dayyea
r,wha
tist
heave
ragecol
l
ect
ion
Pr
epaidexpe
nses 15
,00
0 pe
ri
odo f
ther
ecei
vabl
es?
A.3 0days C.7 3days
4
. Th
eamoun
tofwo
rki
ngc
api
t
alf
ort
hec
omp
anyi
s: B.6 5days D.3 6days
A.P35
1,00
0 C.P2
11,
000
B.P36
1,00
0 D.P3
36,
000 Cas
hcoll
ect
i
on
1
0
. Dei
tyCompanyhadsal
esofP30,
000,i
ncr
eas
einacco
u n
tspay
abl
eofP5,
000,d
ecr
eas
ein
5
. Th
eco
mpany
’sc
urr
ent
rat
i
oaso
fth
eba
lan
ces
hee
tdat
eis: ac
count
srec
eiva
b l
eof
P1,00
0,i
ncrea
seini
nve
nto
ri
esofP4,
000
,andde
pre
cia
ti
onexp
ens
eof
A.2.
67:
1 C.2 .
02:
1 P4,
000.
Wh a
twa st
hecas
hcoll
ect
edfr
omcust
omer
s?
B.2.
44:
1 D.1 .
95:
1 A.P3 1,
000 C.P3 4,
000
B.P3 5,
000 D.P2 5,
000
6
. Th
eco
mpany
’sa
cid
-t
est
rat
i
oaso
fth
eba
lan
cesh
eet
dat
eis
:
A.1.
80:
1 C.2.
02:
1 I
n v
ent
or
yturn
over
1
1
B.2.
40:
1 D.1.
76:
1 .Du ri
ng2007
,Tarl
acComp a
n yp
urcha
sedP960,
000ofi
nve
n t
or
y.Theco
stof
goodss
oldf
or
2007wasP900,
000,an
dt heendi
nginv
ent
or
yatDecember31,2
007wasP18
0,0
00.What
Ac
ti
vi
tyrat
ios wasthei
nve
ntor
ytur
noverf
or2007?
Re
cei
vab
lestu
rno
ver A.6 .
4 C.5 .
3
B.6 .
0 D.5 .
0
575

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
Wha
tist
hen
umb
ero
fda
ys’
sal
esi
nav
era
gei
nve
nto
ri
esfo
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eye
ar?
1
2
. Se
lec
tedi
nfor
ma t
i
onfro
mtheaccou
nti
ngr
eco
rdso
fPet
al
sCompanyisa
sfo
ll
ows
: A.102.
2 C.8 7.
6
Netsal
esfor2007 P900
,000 B.94.9 D.6 8.
1
Costofgoo
d ssol
dfo
r2007 6
00,00
0
Inv
ento
ryatDecember31,
2006 1
80,00
0 Tur
noverr
ati
os
Inv
ento
ryatDecember31,
2007 1
56,00
0 Ass
ett
u r
nov
er
Pe
tal
s’i
nve
ntoryt
urn
overf
or200
7is Ass
et
1
6
A.5.77ti
mes C.3 .
67t
ime
s .Ne tsal
esareP6,
000
,00
0,beg
inn
ingtot
alas
set
sar
eP2 ,
800,
000
,an
dth
eas
sett
ur
nov
eri
s
B.3.85ti
mes D.3 .
57t
ime
s 3.
0.Wh at
isth
eendi
ngt
ota
las
setbal
ance
?
A.P2 ,
000,
000. C.P2,80
0,000
.
1
3
. Th
eMo ssCompanypr
esent
sthefo
ll
owin
gdat
afor2
007. B.P1 ,
200,
000. D.P1,60
0,000
.
NetSal
es,2
007 P3
,00
7,1
24
NetSal
es,2
006 P9 3
0,2
47 Sol
vencyra
ti
os
Cos
t of
GoodsSol
d,2007 P2
,00
0,3
26 Deb
t r
at
io
1
7
Cos
t of
GoodsSol
d,2007 P1
,00
0,1
20 .J or
danManufac
tur
ingre
p o
rt
sth
efo
ll
owi
ngc
api
t
als
tr
uct
ure
:
I
nvent
ory
,begi
nni
ngof20
07 P3 4
1,1
69 Curr
entl
ia
bil
i
ti
es P1
00,
000
I
nvent
ory
,endof20
07 P3 7
6,5
26 Long-
te
rmd ebt 4
00,
000
Th
eme r
c h
andi
sein
vent
oryt
urn
o v
erfo
r2007i
s: Def
err
edincometaxes 10,
000
A.5 .
6 C.7 .
5 Pre
fer
redst
ock 80,
000
B.1 5
.6 D.7 .
7 Commo nst
ock 1
00,
000
Pre
miumo ncommo nst
ock 1
80,
000
1
4
. Ba
sedonthefo
ll
owingdatafo
rthecurr
enty
ear
,wh
ati
sth
ein
ven
tor
ytu
rno
ver
? Ret
aine
de ar
nin
g s 1
70,
000
Nets
ale
sona cc
o u
n t
d u
ri
ngye ar P5
00,
000 Whati
sthedebtr
ati
o?
Cos
tofmerc
h a
ndisesol
dd u
ringyea
r 3
30,
000 A.0 .
48 C.0.93
Ac
count
srecei
vabl
e,begi
nni
n gofye
ar 45,
000 B.0 .
49 D.0.96
Ac
count
srecei
vabl
e,endofyear 35,
000
I
nven
tor
y,begi
nni
ngo fye
ar 90,
000 Time
sin
ter
estear
ned
18
I
nven
tor
y,endofyear 1
10,
000 . Hous
eo f
F a
shi
onCo mpan
yh a
dthef
ol
lo
wingfi
nan
cia
lst
at
is
ti
csf
or2
006
:
A.3 .
3 C.3 .
7 Lon
g-t
ermd e
bt(av
era
gerat
eofi
nt
eres
tis8%) P4
00,
000
B.8 .
3 D.3 .
0 I
nte
restex
pense 35,
000
Neti
ncome 48,
000
Da
ysinv
ent
ory I
ncometax 46,
000
1
5
. Se
lec
tedi
nfo
rmat
io
nfromthea
cco
unt
i
ngr
eco
rdso
fEt
er
ni
tyMa
nuf
act
ur
in
gCo
mpanyfo
ll
ows
: Oper
ati
nginc
ome 1
07,
000
Netsal
es P3
,60
0,0
00 Whati
stheti
mesint
ere
stear
nedf
or2
006?
Costofgo
odssol
d 2
,40
0,0
00 A.1 1.
4ti
me s C.3 .
1ti
mes
Inv
ento
ri
esatJa
nuary1 67
2,0
00 B.3 .
3ti
me s D.3 .
7ti
mes
Inv
ento
ri
esatDece
mb e
r31 57
6,0
00
576

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
1
9
. Br
avaCompanyrepor
te
dthef
ol
lo
win
go ni
tsi
nco
mes t
atement
: Pr
ofit
abi
li
tyRa
ti
os
I
ncomebe f
or
etaxe
s P400
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turnonCommonEq
uit
y
I
ncometaxexpe
nse 100
,00
0 2
3
. Selected information for Ivano Company as of December 31 is as follows:
Neti
nco
me P300
,00
0 2006 200
7
Ananal
ysi
so fth
eincomest
at
ementr
e v
eal
edtha
tinte
res
texpe
nsewa
sP1
00,
000.Bra
va Pr
efer
redst
ock
,8 %,par
P1 0
0,non
conv
ert
i
ble
, P250
,000 P250
,00
0
Company
’st
imesint
er
este
arn
ed(TI
E)was noncu
mu l
at
ive
A.5times C.3 .5ti
mes Commons t
ock 600
,000 800
,00
0
B.4times D.3t imes Ret
ain
ede a
rni
ngs 1
5 0
,00
0 370
,00
0
Di
vid
endspai
do npre
fer
redst
ockf
ort
heyear 20
,000 20
,00
0
2
0
. Thebal
ancesheeta
ndincomes t
at
emen t
dataforCan
dleFac
tor
yin
dic
atet
hef
oll
owi
ng: Neti
ncomefort
heyear 120
,000 240
,00
0
Bondspayabl
e,10%(iss
ued1998d u
e2 022) P1,00
0,0
0 0 I
vano’
sret
urnoncommo nsto
ckhol
der
s’e
qui
ty
,roun
dedt
oth
en ear
estpe
rce
nta
gepoi
nt,f
or
Pref
er
red5%s t
ock,P100par(nochangeduri
ngyear
) 30
0,0
0 0 20
07is
Commo nsto
ck,P50p a
r(nochangedur
ingyear
) 2,00
0,0
0 0 A.1 7% C.2 1%
In
comeb ef
orei
ncometaxforyear 35
0,0
0 0 B.1 9% D.2 3%
In
comet a
xforyear 8
0,0
0 0
Commo ndiv
ide
ndsp ai
d 5
0,0
0 0 Div
ide
ndyi
el
d
Pref
er
reddiv
idend
sp ai
d 1
5,0
0 0 2
4
. Thef
ol
lo
win
gin
for
mat
i
oni
sav
ail
abl
efo
rDu
nca
nCo
.:
Base
do nthedat
ap r
esente
da bov
e,wh a
tisthenumberoft
imesbon
dint
er
estcha
rgeswer
e 2
006
ea
rned(r
oundtoonedecimalpoi
nt
)? Divi
dend
sp er
sha r
eo f
commons t
ock P1.
40
A.3 .
7 C.4 .
5 Marketp
ri
ceper sh
a r
eofcommonsto
ck 17.
50
B.4 .
4 D.3 .
5 Whi
choft
hefol
l
owingstat
ement
siscor
rec
t?
2
1
A.Thediv
iden
dy i
eldis8.
0%,whic
hiso fi
nt
er
estt
oinves
tor
sseeki
nganin
cre
a s
einmarket
. Th
efol
lowingdat
awerea
bst
r
act
edfr
omth
ere
cor
dso
fJoh
nso
nCo
rpo
rat
i
onf
ort
heyea
r: pri
ceoft
hei
rsto
c ks
.
Sal
es P1,
800
,000 B.Thediv
iden
dy i
el
dis8 .
0%,whic
hisofspec
ial
int
er
estt
oinves
tor
sseek
ingcur
ren
tret
ur
ns
Bon
di nt
eres
tex
pens
e 60
,000 onthei
ri
nvest
men t
s.
I
ncomet a
xes 300
,000 C.Thediv
ide
ndy i
el
dis1 2.
5%,whi
chisofi
nt
ere
sttobo
ndhold
ers
.
Neti
n c
ome 400
,000 D.Thediv
ide
ndy i
el
dis8 .
0ti
mesthemarke
tpr
ice
,whic
hisimpor
tan
tins
olv
encyanal
ys
is.
Howman yti
meswasbon
din
ter
est
ear
ned
?
A.7 .
67 C.12.
67 MarketTestRat
ios
B.1 1
.67 D.13.
67 Marke
t/Bookval
uerat
io
Pri
ceper s
hare
Net
inc
ome 2
5
. Wh ati
sthema r
ketpr
i
ceofash
areo
fst
ockf
orafi
r
mwi t
h100,
000s
har
eso
uts
tan
din
g,ab
ook
2
2
.Theti
mesint
er
este
arn
edrat
ioofMi
kot
oCompanyi
s4.5t
imes
.Thei
nte
res
texpe
nsefo
r valueofequi
tyo
fP3,000
,00
0,a
ndamar
ket/
boo
krati
oof3.
5?
t
heye
arwasP20
,00
0,andt
heco
mp a
ny’
sta
xrat
eis4
0%.Th ec
omp
any
’snet
inc
omeis
: A.P8 .
57 C.P8 5.
70
A.P22,
000 C.P54,
000 B.P3 0.
00 D.P1 05
.00
B.P42,
000 D.P66,
000
577

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
P/
Er at
i
o B.6
6.7p
erc
ent D.7
1.4p
erc
ent
2
6
. Orcha
rdCo mpany’
sc api
t
alst
ockatDecember31cons
ist
edo f
thefo
ll
owing:
 Commo ns toc
k,P2 p arv al
ue; 1 0
0 ,
000s haresa ut
hor
iz
ed,issu
ed,and P/
Er a
ti
o&Pa yo
utr
ati
o
outst
andin
g. Usethef
ol
lowi
ngin
for
ma t
i
onforqu
es t
i
onNo s
.3 3and34:
 10%n oncumul
ati
ve,
nonconve
rt
ibl
epre
ferr
eds t
ock
,P100p arval
ue;
1,00
0shar
es Te
rryCorp
orat
ionhadneti
ncomeo fP200,
000a n
dp ai
ddi
vid
end
stocommonsto
ckhol
der
sof
authori
zed
,iss
u e
d,andouts
tandi
ng. P40,
000in2 0
07. Theweight
ed-
avera
gen umberofshar
esout
st
and
ingin20
07wa s50,
000
Orcha
rd’scommo nstock
,wh i
chisl
ist
edonama jorst
ocke xc
hange,wasquot
edatP4per sh
ares.T e
rryCorpor
at
ion’
scommo ns t
ockissell
i
ngforP60pershar
einthelo
calst
ock
shar
eo nDe c
emb er31.Orcha
rd’
snetinc
omefort
hey earendedDecember31wasP50
,00
0. ex
change.
Theyearlypre
fer
redd i
vi
dendwasd ec
lar
ed.Noc apit
alsto
cktran
s a
cti
onsocc
urr
ed.What
2
9
wasthepric
ee ar
ni
n g
srati
oonOrchar
d’scommonst
o c
ka tDecember31? .Te
rryCor
por
at
io
n’sp
ri
ce-
ear
ni
ngsr
at
ioi
s
A.6t o1 C.1 0to1 A.3 .
8ti
mes C.18
.8t
i
mes
B.8t o1 D.1 6to1 B.1 5t
imes D.6t
ime
s
2
7 3
0
. OnDe c
e mber31,2 0
06a nd2007,Re nega
d eCor
por
a t
i
onhad1 0
0,0
00sh
aresofc
ommon .Te
rryCor
por
at
io
n’sp
ayo
utr
at
iof
or2
007i
s
st
ockand5 0,0
00s haresofnoncumu l
at
iv
ea ndnonconv
ert
i
blepr
efe
rr
edst
ocki
ssue
da n
d A.P4p ers
har
e C.2
0.0p
erc
ent
out
st
andi
n g
. B.1 2.
5per
cent D.2
5.0p
erc
ent
Addi
t
ion
a li
nf
ormat
ion:
St
ockhol
d e
rs’e
q ui
tyat1
2/31/
07 P4,
500,
000 DuPontModel
Neti
n c
omey earended12/
31/
07 1,
200,
000 Debtr
at
io
3
1
Di
videndsonpref
erre
dstoc
kye arende
d1 2/
31/
07 300,
000 . TheBoardofDi
rec
tor
sisdis
sat
isfi
edwit
hlas
tyea
r'
sROEo f15%.I
fth
eprofi
tmarg
ina
nd
Marketpr
ic
ep e
rs har
eofcommo nstoc
ka t12/
31/
07 144 ass
ettur
nov
erremai
nunchange
da t8%a nd1.
25res
pec
ti
vel
y,b
yh o
wmu c
hmu s
tth
eto
tal
Thepr
ic
e -
earni
ngsrat
iooncommo ns t
ockatDec
ember31,20
07,was debt
rat
ioi
ncr
easet
oachi
eve20%ROE?
A.1 0to1 C.1 4to1 A.T ot
alde
btra
ti
omusti
ncre
aseb y.5
B.1 2to1 D.1 6to1 B.T ot
alde
btra
ti
omusti
ncre
aseb y5
C.T ot
alde
btra
ti
omusti
ncre
aseb y5%
Pa y
outr
ati
o D.T ot
alde
btra
ti
omusti
ncre
aseb y50%
28
. Se l
ect
edfi
nanc i
aldat
ao fAl
exand
erCorp
ora
ti
onfort
heyeare
nde
dDe
cemb
er31,200
7,i
s
3
2
pr
esen
tedbelow: .As
sumey ouar
egiventh
efol
l
owi
ngrel
at
io
nsh
ipsf
ort
heOr
ang
eCo
mpa
ny:
Oper
ati
ngincome P900,
000 Sal
es/
tot
alas
sets 1
.5X
I
nte
restexpense (1
00,0
00) Ret
urnonasset
s(ROA) 3
%
I
ncomeb ef
oreinc
omet a
xes 800,
000 Ret
urnonequi
ty(ROE) 5
%
I
ncometax (3
20,0
00) Th
eOr a
ngeCo mpany’
sdeb
trat
i
ois
Neti
ncome 480,
000 A.4 0
% C.3 5
%
Pr
efer
redstockdi
vi
d e
nd (2
00,0
00) B.6 0
% D.6 5
%
Neti
ncomea vai
l
abletocommonst
ock
hol
der
s 280,
000
Commonstockdivi
dendswer
eP1 20
,00
0.Thepay
outr
ati
ois
: Le
verageRa t
i
o
A.4 2.
9percent C.2 5.
0perc
ent Degr
eeoffi
nanci
all
eve
rag
e
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lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
3
3
. Asummari
zedincomesta
tement
forL
eve
rag
edIn
c.i
spr
esent
edb
elo
w. I
ntegra
tedrat
ios
Sal
es P1
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it
y&a ct
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tyrat
i
os
Cos
t o
fSa l
es 60
0,0
00 I
n v
ent
ory
3
6
Gr
ossPr o
fi
t P4 0
0,0
00 .Th ec ur
renta s
setso fMayonEnt
er
pri
secons
ist
s ofcas
h,a
cco
unt
srecei
vab
le,an
d
Oper
ati
ngEx pens
es 25
0,0
00 inv
ento
ry.Thefol
lowi
ngin
for
mati
oni
sava
il
abl
e:
Oper
ati
ngIncome P1 5
0,0
00 Credi
t s
a l
es 75%oft
ot
alsal
es
I
nt
erestExpense 3
0,0
00 Inve
ntorytur
nover 5t
imes
Ear
nin
gsBe for
eTax P1 2
0,0
00 Wo r
kingcapi
tal P1,
120,
000
I
ncomeT ax 4
0,0
00 Cu r
rentr
ati
o 2.
00to1
NetI
ncome P80,0
00 Qu i
ckrati
o 1.
25to1
Th
ed e
greeo f
fin
anci
all
ever
agei
s: AverageCo l
l
ecti
onper
io
d 42days
A.P 1 50,
0 00÷P3 0,0
00 C.P1,0
00,
000÷P400,
000 Wo r
kingdays 360
B.P 1 50,
0 00÷P1 2
0,0
00 D.P1 50,
000÷P8 0,
000 Theesti
ma t
edinvent
or
yamo u
nti
s:
A.8 40,000 C.7 20,
000
OtherRat
ios B.6 00,000 D.5 50,
000
Bookval
uep ershar
e
3
4 3
7
.MCo rporat
ion
’sst
ockhol
d e
rs’eq
uit
ya tDec
ember31,2007cons
ist
sof
thef
ol
lo
wing
: .Th
efoll
owi
ngd a
tawereob
tai
nedf
romtherec
ord
so fSal
acot
Company:
6%c umul
ati
vep r
ef
erredst
ock,P100par
,l
iqui
dat
i
n gval
ue Cur
rentr
ati
o(aty
earend) 1.5to1
wasP110p ershar
e;is
sueda n
do ut
st
andi
ng50,00
0s ha
res P5,
000
,00
0 I
nvent
oryt
urnov
erbas
edo ns
alesan
de n
din
gi n
vent
ory 1
5times
Co mmo nstoc
k,par,P5pershare
;iss
uedand I
nvent
oryt
urnov
erbas
edo nc
ostofgo
odssoldandend
ingi
nve
nto
ry 1 0.
5times
out
stan
ding,400,
000shares 2,
000
,00
0 Gro
ssma r
ginf
or2007 P360,
000
Re tai
nedearni
ngs 1,
000
,00
0 WhatwasSala
cotCompany
’sDece
mb e
r31,2007bal
ancei
ntheI
nvent
orya
ccount
?
Total P8,
000
,00
0 A.P1 20,
000 C.P 8 0,
000
Divi
dendso npre
fer
redstockhav
eb eenpai
dthr
ough2006. B.P 5 4,
000 D.P 9 5,
000
AtDece mber31,2007,MCo r
porat
i
o n’
sbookva
luepershar
ewa s
A.P5 .50 C.P6 .75 Net
s a
les
3
8
B.P6 .25 D.P7 .50 .Se l
ect
edd atafr
o mMi l
dr
edCo mpany
’syear
-en
dfin
anci
alst
at
ement
sar
epr
ese
ntedbelo
w.
Thedi
ff
erencebe t
weena v
era
gea n
de nd
ingi
nvent
or
yisimmat
er
ia
l.
3
5
. Th
efol
lowi
ngd a
taweregat
here
dfr
omt
hea
nnu
alr
epo
rtofDe
skPr
odu
cts
. Cur
re n
trati
o 2.
0
Marke
tpri
cepershar
e P3
0.0
0 Qui
c krat
io 1.
5
Numberofcommonshares 10
,00
0 Cur
re n
tli
abili
t
ies P120
,000
Pr
efer
redst
ock,5% P100par P10
,00
0 I
nventor
yt u
rnover(ba
sedoncostofs
ale
s) 8times
Commo nequi
ty P140
,00
0 Gro
s sprofi
tmargi
n 4 0
%
Th
eb o
okv al
uepershar
eis: Mil
dr
e d’
sn etsal
esfort
heyearwer
e
A.P3 0.
00 C.P14.0
0 A.P 8 00,
000 C.P 4 80,0
00
B.P1 5.
00 D.P13.7
5 B.P 6 72,
000 D.P1 ,2
00,0
00
579

lOMoARcPSD|31016586
Fi
nanc
ialSt
atementAnal
ysi
s
Gro
ssmargi
n 2
007 2
006
3
9
. Se
lect
edinf
or
ma t
i
onfromth
ea c
coun
ti
ngr
eco
rdso
fth
eBlack
woo
dCo
.isa
sfo
ll
ows: Tot
alcu
rrent
asset
s P600,
000 P5 60,
000
NetA/RatDecember31,
2006 P9 00,
000 Tot
ali
nvest
ments 60,
000 40,
000
NetA/RatDecember31,
2007 P1,0
00,
000 Tot
alpr
opert
y,pl
ant,andequi
pment 900,
000 700,
000
Account
srec
eiv
ablet
urno
ver 5to1 Tot
alcu
rrent
li
abil
i
ti
es 150,
000 80,
000
In
vent
ori
esatDecember31,
2006 P1,1
00,
000 Tot
all
ong-t
er
ml i
abil
i
ti
es 350,
000 250,
000
In
vent
ori
esatDecember31,
2007 P1,2
00,
000 Pr
efer
red9%s t
ock,P100par 100,
000 100,
000
In
vent
orytur
nover 4to1 Commons t
ock,P10par 600,
000 600,
000
Wh a
twasthegros
sma r
gi
nfor20
07? Pai
d-i
ncapi
tali
nexcessofpa
r-
commons t
ock 60,
000 60,
000
A.P1 50,
000 C.P3 00
,00
0 Ret
ain
ede ar
nin
g s 300,
000 210,
000
B.P2 00,
000 D.P4 00
,00
0 Ne
tin
comeisP1 15
,000andint
er
estex
penseisP30,
000f
or200
7.
What
isth
er a
teear
n edontot
ala
sset
sfor
2007(ro
undper
centt
oonedec
ima
lpoi
nt
)?
Marke
tTes
tRati
o A. 9.3perc
ent C. 8 .
9perc
ent
Div
ide
ndyi
eld B.10.1perc
ent D. 7 .
4perc
ent
4
0
.Re ct
oCo .
h a
sap r
i
cee
arni
ngsr
at
ioo
f10
,ea
rni
ngspers
har
eof
P2.
20,
andap
ayo
utr
at
io
of75
%. Thedi
vi
den
dyi
el
dis 4
3
. Wha
tisth
erat
eear
nedo
nst
ock
hol
der
s'e
qui
t
yfo
r20
07(r
oundp
erc
ent
too
ned
eci
mal
poi
nt
)?
A.2 5.
0% C.7 .
5% A.10.6per
cen
t C.12.4p
erc
ent
B.2 2.
0% D.1 0.
0% B.11.2per
cen
t D.15.6p
erc
ent
4
1
.Th
ef o
ll
owingwererefl
ect
edfro
mtherec
ord
sofSa
lva
cio
nCo
mpa
ny: 4
4
. Wha
tisth
eea
rni
ngsp
ers
har
eonc
ommo
nst
ockf
or2
007,
(r
oun
dtot
wod
eci
mal
pla
ces
)?
Earn
ingsbef
oreint
e r
estandt
axe
s P1,
250
,000 A.P1 .
92 C.P1 .
77
I
nter
estexpens
e 250
,000 B.P1 .
89 D.P1 .
42
Pref
er
reddivi
dends 200
,000
Payout
rati
o 4
0perc
ent 4
5
.I
ft
hemark
etpr
ic
eisP3
0,wh
ati
sth
epr
i
ce-
ear
ni
ngsr
at
ioo
nco
mmo
nst
ockf
or2
007(
ro
undt
o
Shar
eso ut
st
andi
n gthro
ughou
t2006 on
edec
imalp
oin
t)
?
Pre
fer
red 20,
000 A.17.
0 C.1 2
.4
Commo n 25,
000 B.12.
1 D.1 5
.9
I
ncomet a
xrate 4
0p e
rcen
t
Pri
ceearni
ngsrati
o 5ti
mes
Th
ed i
vid
endy i
el
drati
oi s
A.0 .
50 C.0.4
0
B.0 .
12 D.0.0
8
Compr
ehe
nsi
ve
4
2
. The balance sheets of Magdangal Company at the end of each of the first two
years of operations indicate the following:
580

lOMoARcPSD|31016586
1
. An s
wer
:A
20
07:P2,
000
,00
0(1–0.7
)=P600,
000
20
08:P2,
000
,00
0(1+1.7
5)=P5,
500,
000
No
te:For2
007&2008,
200
6wa su
sedasabasey
ear
.
2
. An
swe
r:C
3
. Answer:C
Cur
rentAssets
:
Cash P1
00,
000
Acc
o unt
srecei
vabl
e 2
00,
000
T
o ta
lli
qui
dasset
s 3
00,
000
I
nventor
y 4
40,
000
To
talcurr
entas
sets P7
40,
000
Cur
rentLia
bil
i
ti
es:
Acc
o unt
sp a
yabl
e P80,
000
Not
e spayabl
e,d
uein6mon
ths 2
50,
000
I
nte
re s
tpayabl
e 25,
000
T
o ta
lcurr
entl
i
abi
li
ti
es P3
55,
000
Cur
ren
tRat
i
o( 7
40,
000÷3
55,
000) 2
.08
:1.
00
Ac
id-
tes
tRa
ti
o(300
,00
0÷355
,00
0) 0.
85:
1.
00
Bef
oreanypayment,t
hecur
rentrati
oisabo
ve1 :
1andaci
dtes
tra
ti
oisbel
ow1:1.Ther
ef
ore,t
hecurr
entrat
i
os ha
ll
ri
sebutaci
dtestr
at
ioshal
lgodo wn.I
fanyofth
esetwor
ati
osi
sbelow1:
1,t
heeq u
alchang
einc u
rre
ntasset
sand
cur
rentl
i
abi
li
t
iesbr
ingsdi
r
ecteff
ec t
ontherat
i
o,tha
tis
,eq
uali
ncr
easeinc
urr
ent
assetsan
dc ur
ren
tli
abi
li
t
iescaus
es
t
herati
otori
se.
4
. Answer:A
Wo
rki
ngcapit
ale
qualsth
ed i
ff
ere
nceb
etwe
ent
het
ot
alc
urr
ent
ass
etsa
ndt
ot
alc
urr
ent
li
abi
l
it
i
es.
Curr
entAsset
s:
Cash P8 0,
000
Market
abl
es e
curi
ti
es 250,
000
Account
srecei
vabl
e 110,
000
Tota
l l
i
qui
da sse
ts 440,
000
In
vent
ory 140,
000
Prepa
idexpens
e 15,
000
Tot
alCurr
entAsset
s P595,
000
Cur
re
n t
Liabi
l
it
i
es:
Ac
countspay
abl
e P1
45,
000
I
ncometaxpaya
ble 10,
000
Not
espayabl
e,sh
ort
-t
er
m 8
5,0
00
Ac
cruedli
abi
l
it
i
es 4
,00
0 2
44,
000
Wo
rki
ngCa
pit
al P3
51,
000
5
. Answer:B
Curr
entRat
i
o:Cur
re
ntAss
ets÷Curr
ent
Lia
bil
i
ti
es
(P595
,000÷P2
44,00
0)=2.4
4:1
.00

lOMoARcPSD|31016586
6
. Answer
:A
Aci
d-
TestRat
i
o:Li
qui
dAss
ets÷Cur
ren
tLi
abi
l
it
i
es
(P440,
000÷P24
4,0
00)=1.
80:
1.
00
7
. Ans
wer:D
ART
urn
over
:Credi
tsal
es÷Ave
rag
eAR
6,
500,
000
/65
0,00
0=1 0.
0ti
mes
8
. Answer:C
Ac
count
sRecei
vab
leT
urn
over
:Ne
tCr
edi
tSa
les÷Ave
rag
eAc
cou
ntsRe
cei
vab
le
P1
,500
,00
0÷[(P2
00,
000+P4
00,
000
)÷2]=5.
0ti
mes
9
. An swe
r:D
Av
erageDai
lySa
les
:Annu
alc
redi
tsal
es÷Da
ys’
Yea
r
P4mil
li
on÷360da
ys=P11
,111
Av
e r
ageCol
le
cti
onPer
io
d:Av
era
geAccou
ntsRece
iva
ble÷Av
era
geDa
il
ySa
les
[
(P390
,00
0+P4 10
,00
0)÷2]
÷P1 1
,11
1=3 6da
ys
10
. An
swer:A
Sa
les P3
0,0
00
Ad
dd e
creas
einAcc
ount
sRe
cei
vab
le 1,0
00
Cas
hcoll
ect
edfr
omsal
es P3
1,0
00
11
. Answer:B
Inv
ento
ryTurnov
er:CostofGood
sSold÷Avera
geIn
ven
tor
y
Costofgoodssol
d P9 00
,000
AddEn di
nginv
entor
y 180
,000
Tot
alcostav
a i
l
abl
eforsal
es 1,
080
,000
Deductcos
to f
purchas
es 960
,000
Begi
nningi
nvento
ry P1 20
,000
Avera
geInvent
ory:(P120,
000+P180,0
00)÷2 P150
,000
Inv
entor
yTurnove
r:(P900,
000÷P1 5
0,000) 6t
imes
Ana
lt
ern
ati
vecomputat
io
no ft
hein
vent
or
yturno
veri
stou
seNetSa
lesi
nst
eado
fCosto
fGoo
dsSo
ld.
12
. An
swer:D
Av
erag
einv
ent
or
y:(P18
0,0
00+P156,
000
)÷2 P168
,00
0
I
nve
ntor
yTur
nov
er:(
P600,
000÷P1
68,
000) 3
.57t
imes
13
. An
swer:A
Av
erageIn
vent
or
y:(P341
,169+P376
,52
6)÷2 P3
58,
847.
50
I
nven
toryTur
nov
er:(P2
,000
,326÷P358
,84
7.5
0) 5.
6ti
mes
14
. Ans
wer:A
Av
erageIn
vent
ory
:(P90
,000+P11
0,00
0)÷2 P1
00,
000
I
nven
toryTur
nov
er:(
P330,
000÷P100
,000
) 3.
3ti
mes
15
. An
swer:B
Av
era
geInv
ent
or
y:(
P67
2,0
00+P5
76,
000
)÷2 P6
24,
000

lOMoARcPSD|31016586
I
nve
nto
ryT
urn
ove
r:(P2
,400,
000÷P624
,000) 3
.84
6ti
mes
I
nve
nto
ryT
urn
ove
rinDays
:3 65d
ays÷3.8
46 94
.9d
ays
Al
t
ernat
i
veComput
at
io
n:
Av
erag
edai
lyc
ostof
goodsso
ld:
=(P2,
400
,00
0÷3
65) P6
,575
.34
Tu
rnov
eri
nDays:P624
,000÷P6,5
75.
34 94.
9days
16
. An
swer:A
Av
era
geAccou
ntsRe
cei
vab
le:(
P900,
000÷P1
,00
0,0
00)÷2 P9 5
0,0
00
Av
era
geinv
ent
ory;(
P1.
1M+P1 .
2M)÷2 P1
,15
0,0
00
Ne
tsal
es:(P95
0,0
00x5) P4
,750
,000
Co
stofg
oodssol
d(P1
,15
0,0
00x4
) 4,
600,
000
Gr
ossmarg
in P1 50,
000
17
. Ans
wer:B
Cur
ren
tli
abi
li
t
ies P1
00,
000
Lo
ng-t
ermdebt 4
00,
000
Def
er
redinc
ometax 10,
000
Tota
lLia
bil
i
ti
es 5
10,
000
St
ockh
older
s’Equi
t
y
Pref
err
edstoc
k P80,0
00
Commo nstoc
k 10
0,0
00
Premiu
mo ncommo ns
toc
k 18
0,0
00
Retai
nedearni
ngs 1
70,
000 53
0,0
00
T
otal
Asset
s P1
,04
0,0
00
De
btRa
ti
o:P5
10,
000÷P1
,04
0,0
00=0
.49
18
. Answe
r:D
Ti
mesin
ter
estea
rned
:Ea r
ning
sb e
for
eint
er
est
÷In
ter
est
I
ncomebef
oreta
x( P48,
000+P46,00
0) P94,
000
AddIn
ter
estex
pense 35,
000
I
ncomebefo
reInt
er
e s
texpens
e P1
29,
000
TI
E:P1
29,
000÷P3
5,0
00 3
.7t
i
mes
19
. Answer:A
T
IE:In
comeb e
for
eint
ere
stexp
ense÷I
nt
er
est
exp
ens
e
I
ncomebef
orei
ncometax P4
00,
000
Ad
db ac
kInt
ere
stexpen
se 1
00,
000
I
ncomebef
orei
nte
reste
xpens
e P5
00,
000
T
IE:P5
00,
000÷P1
00,
000 5t
i
mes
20
. An
swer:C
I
nt
eres
tExpen
se:P1Mx0.
1 P1
00,
000
I
ncomebef
or
eint
er
este
xpe
nse:P3
50,
000+P1
00,
000 P4
50,
000
Ti
mesint
er
este
arn
ed:(
P45
0,0
00÷P100
,00
0) 4.
5ti
mes

lOMoARcPSD|31016586
21
. An
swer:C
Net
inc
ome P4
00,
000
Ad
d:Inco
metaxe
s P3
00,
000
I
nte
res
t 60,
000 3
60,
000
I
ncomebef
or
ein
ter
est P7
60,
000
T
IE:P7
60,
000÷P6
0,0
00 1
2.6
7ti
mes
22
. Ans
we r
:B
Ear
nin
gsb ef
or
eint
e r
estex
pen
se(P20
,00
0x4
.5) P9
0,0
00
Deduc
tint
eres
texpense 2
0,0
00
I
ncomeb e
for
eincometax P7
0,0
00
Deduc
tinco
met a
x( P70,
000x0.
4) 2
8,0
00
Neti
ncome P4
2,0
00
23
. An
swe r
:D
I
ncometoCommon;(
P240,
000–P20,
000) P220
,00
0
Av
erageCommonEqu
it
y:(P75
0,00
0+P1,170
,00
0)÷2 P96
0,00
0
Ret
urnonCommonEqui
t
y:(P220÷P96
0) 2
3per
cent
24
. An swer
:B
Thedi
vid
endyi
el
dis8per
cen
t(P1.
40÷P17.
50)
Thedivi
den
dyiel
dmeasur
estheret
ur
nofinve
stme
ntint
ermsofd
ivi
den
dsr
ece
ive
d.Th
eto
tale
xpe
cte
dre
tur
ns
co
n s
ist
sofDi
vi
dendYi
el
dandtheAppr
eci
at
io
ninmarke
tpr
i
ceanddi
vi
dend
25
. An
swer
:D
Mar
ket
Val
ueofEq
uit
y(P3Mx3.
5) P1
0,5
00 ,
000
Mar
ket
pri
cep
ershar
e:(
P10.
5M÷100
,00
0) P105
26
. Answe
r:B
EPS:P50,
000÷100
,00
0sha
res P0
.50
P/ERat
io
:P4 .
00÷P0.
50 8t
o1
27
. Answe
r:D
EPS:(P1,
200,
000–P3
00,
000
)÷1
00,
000 P9
.00
P/ERati
o:14
4÷9 16
28
. Ans we
r:A
Pa
youtRat
io:Co
mmo nDiv
ide
nds÷In
comeAv
ail
abl
etoCo
mmo
n
P1
2 0,
000÷P28
0,000=4 2.
9%
29
. Answer
:B
Pri
ce-
ear
nin
gsrat
i
o:Mark
etpr
ic
e÷EPS
EPS:Netin
come÷/Wei
ght
ed-a
ver
agecommons
har
es
EPS:P200,
000÷50,
000sha
res P4.
00
P/ERat
io:P60÷P4 15
.0X
30
. Answer
:C
Pay
outRat
io
:Divi
den
ds÷Inc
omet
oCo
mmo
n
P40,
000÷P200
,00
0=2 0
.0%

lOMoARcPSD|31016586
31
. Ans
wer:D
ROE:(8%x1 .
25) 1
0.0
0%
Las
tye
a r
’sDebtRat
i
o1–( 10
%÷1 5%) 3
3.3
3%
Pr
opos
e dDebtRat
io1–(10%÷20%) 5
0.0
0%
I
ncr
easeinde
bt r
at
io:(
50.
00%-3
3.33%)÷3
3.3
3% 5
0.0
0%
32
. An
swer:A
1–(
0.0
3÷0 .0
5)=4
0%
33
. Answe
r:B
Deg
reeofF
ina
nci
alL
eve
rag
e:Op
era
ti
ngI
nco
me÷I
nt
er
est
Exp
ens
e
34
. Answer:A
Tot
alst
ockh
olde
rs’
equi
t
y P8
,00
0,0
00
Deduct
:
Li
qui
dat
ionval
ueof
Pre
fer
redSt
ock(
50,
000sP1
10) P5
,50
0,0
00
Unpai
dPref
err
edDi
vi
dend
s( P5
Mx6%) 300,
000 5
,80
0,0
00
Co
mmo nEqui
ty P2
,20
0,0
00
Bo
okVa
luep
erSh
are
:P2
.2M÷4
00,
000s
har
es P5
.50
35
. Answer:C
Bo
okValu
ep e
rSh
are:
CommonEq
uit
y÷Ou
tst
and
ingSh
are
s
P1
40,0
00÷10,
000sh
are
s=P14.
00
36
. An s
wer:A
Th
einven
tor
yamoun
tcanbecal
cul
at
edasfol
lo
ws:
Cur
ren
tli
abi
l
it
ie
s:Work
ingCap
it
al=curr
entl
ia
bil
i
ti
esbas
edo
n2:
1cu
rre
ntr
at
io
.At2
:1c
urr
entr
at
io
,th
eamo
unto
f
wor
ki
ngcapi
tal
andc
urr
entl
i
abi
l
it
iesar
ebothP1,
120,
000
.
I
nve
n t
or
y:Curr
ent
li
abi
li
t
iesx(Cu
rre
ntr
at
io–Ac
idt
est
rat
i
o)
P1,
120
,00
0x(2.0–1.25
) P8
40,
000
Ad
e t
ai
le
dc omput
ati
oncanbemadeasf
ol
lo
ws:
Cur
renta
s s
ets
:P1 ,
120,
000x2 P2
,24
0,0
00
Li
qui
dassets
:P1 ,
120,
000x1.
25 1
,40
0,0
00
I
nvent
or
y P8 4
0,0
00
37
. An s
wer:C
I
nve
ntor
ybala
nce
:Grosspr
ofi
t÷(Di
ff
ere
nceb
etwe
en2i
nve
nto
ryt
ur
nov
ers
)
36
0,00
0/(
15–10
.5)=P80,
0 0
0
38
. Ans
wer:A
I
nven
tor
ybal
ance(P12
0,00
0x(2
.0–1
.5) P60,
000
Cos
tofgoo
dssol
d6 0
,000x8 P4
80,
000
Sal
es(P48
0,0
00÷0 .
60) P8
00,
000
39
. An
swer:A
Av
era
geAcco
unt
sRe
cei
vab
le:(
P90
0,0
00÷P1
,00
0,0
00)÷2 P9
50,
000

lOMoARcPSD|31016586
Av
era
gei
nve
nto
ry;(
P1.
1M+P1
.2M)÷2 P1
,15
0,0
00
Ne
tsal
es:(P95
0,0
00x5) P4
,750
,000
Co
stofg
oodssol
d(P1
,15
0,0
00x4
) 4,
600,
000
Gr
ossmarg
in P1 50,
000
40
. An
swer
:C
Di
vi
den
dpershar
e:0.
75xP2.
20 P1
.65
Mar
ket
pri
ce:10x2.
20 22
.00
Di
vi
den
dyiel
d:P1.
65÷P22.
00=7.
5%
41
. Answer:D
EBI
T 1
,25
0,0
00
Les
sinter
estexpe
nse 25
0,0
00
Ear
n i
ngsbefo
retax 1
,00
0,0
00
Les
sIncomet a
x4 0% 40
0,0
00
Netin
come 60
0,0
00
Les
sPr ef
er
reddiv
iden
ds 20
0,0
00
Ear
n i
ngst
oCo mmo nSt
ock 40
0,0
00
Ear
n i
ngspershar
e 4 00
,00
0/2
5,00
0 16.
00
Di
vi
d endpershar
e:400,
000x0.4
0÷25
,00
0 6.
40
Di
vi
den
dyi
el
d6.
4÷(
16x5
) 8
.0%
42
. Answer
:B
ROA:Ope
rat
in
gin
come÷Ave
rageTot
alAs
set
s
P1
45,
000÷P1,
430
,00
0=1 0
.1%
43
. Answer
:B
Re
tur
nonstoc
kho
lde
rs’
equi
t
y:Neti
nco
me÷Av
era
ges
toc
kho
lde
rs’
equ
it
y
P115,
000÷P1,0
27,
500=11.
2%
44
. An
swer:C
Net
income P1
15,
000
Ded
u c
tPref
err
edDiv
ide
nds 9,
000
I
ncomea v
ail
abl
etoc
ommonsh
are
s P1
06,
000
EPS:(
P10
6,0
00÷6
0,0
00) P1
.77
45
. Ans
wer:A
P/
ERati
o:P30÷1
.76
6=1
7.0t
i
mes

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lOMoARcPSD|31016586

14 x11 Financial Management B

Accountancy (STI College)

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B. WORKING CAPITAL MANAGEMENT

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Cash conversion cycle Cash management

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B. P8,889.00 D. P6,667.00 Relevant insurance, materials handling, breakage, etc., per

Inventory management Order quantity

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Period Cycles guarantee this delivery schedule. In order to ensure availability of

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DSO = (.4 x 10) + (.60 x 45) 31 days

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Order size 7,000 x 2 14,000

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k = 10 ÷ (100 – 10) = 11.11%

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Exam, questions and answers

Financial Accounting (Technological Institute of the Philippines)

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