MANAGEMENT ACCOUNTING REVIEW

Financial Statements Analysis

1. Gottlob Corporation's most recent income statement appears below:

Sales (all on account) ₱824,000

Cost of goods sold  477,000
Gross margin ₱347,000
Selling and administrative expenses  208,000
Net operating income ₱139,000
Interest expense    37,000
Net income before taxes ₱102,000
Income taxes    30,000
Net income ₱  72,000

The profit margin percentage is closest to

A. 8.74%.
B. 12.4%.
C. 16.9%.
D. 42.1%.

2. Erica Trading Corp had net income of P3 million in 2015. Using the 2015 financial elements
as the base data, net income decreased to 70% in 2013 and increased by 150% in 2014. The
respective net income reported by the company for 2016 and 2017 are:
A. P900,000 and P2,250,000
B. P900,000 and P7,500,000
C. P2,100,000 and P5,250,000
D. P2,100,000 and P7,500,000

3. During 2017, Dumapias Company purchased P900,000 of inventory. The cost of goods sold
for 2017 was P960,000, and the inventory on December 31, 2016 was P180,000. What was
the inventory turnover for 2017?
A. 5.0 times
B. 5.3 times
C. 6.0 times
D. 6.4 times

4. The following financial data have been taken from the records of Salido Company:

Accounts receivable P 200,000

Accounts payable 80,000
Bonds payable, due in 10 years 500,000
Cash 100,000
Interest payable, due in 3 months 25,000
Inventory 440,000
Land 800,000
Notes payable, due in 6 months 250,000

What will happen to the current and quick ratios, respectively, if Salido Company uses cash to
pay 50% of its accounts payable and collected ¼ of its accounts receivable?
A. Both ratios will increase
B. Both ratios will decrease
C. Only the current ratio will increase
D. Only the quick ratio will increase

5. UrTurn Game Lounge had the following data in its balance sheet on December 31, 2016:

Accounts payable P 145,000

Accounts receivable 110,000
Accrued liabilities 4,000
Cash 90,000
Income tax payable 10,000
Inventory 140,000
Marketable securities 250,000
Notes payable, due in 3 months 85,000
 Prepaid expenses 15,000

The amount of working capital for the company is

A. P211,000
B. P336,000
C. P351,000
D. P361,000

6. The times interest earned ratio of Chikel Company is 5.5 times. The interest expense for the
year was P20,000 and the company’s tax rate is P40%. The company’s net income is:
A. P22,000
B. P42,000
C. P54,000
D. P66,000

7. Selected information for Quarteros Corp as December 31 is as follows:

2016 2017
Preferred stock, 8%, par P100 P250,000 P250,000
nonconvertible and noncumulative
Common stock 700,000 800,000
Retained earnings 150,000 370,000
Net income 120,000 240,000

Quartero’s return on common stockholders’ equity for 2017 is

A. 17%
B. 19%
C. 21%
D. 23%

8. The current assets of Sabkiel Enterprise consist of cash, accounts receivable and inventory.
The gross profit rate is 40%. The following information is available.

Credit sales 75% of total sales

Inventory turnover 5 times
Working capital P1,120,000
Current ratio 2.60 to 1
Quick ratio 1.25 to 1
Average collection period 40 days
Working days 360 days

The estimated average inventory amount is:

A. P700,000
B. P840,000
C. P945,000
D. P980,000

9. Using the information in #38, what is the amount of cash sales?

A. P1,458,333
B. P1,968,750
C. P5,833,333
D. P7,875,000

10. Crandall Company's net income last year was ₱60,000. The company paid preferred dividends
of ₱10,000 and its average common stockholders' equity was ₱480,000. The company's return
on common stockholders' equity for the year was closest to
A. 2.1%.
B. 10.4%.
C. 12.5%.
D. 14.6%.

11. Ardor Company's net income last year was ₱500,000. The company has 143,700 shares of
common stock and 30,000 shares of preferred stock outstanding. There was no change in the
number of common or preferred shares outstanding during the year. The company declared
and paid dividends last year of ₱1 per share on the common stock and ₱0.70 per share on the
preferred stock. The earnings per share of common stock is closest to
A. ₱2.33.
B. ₱3.19.
C. ₱3.33.
 D. ₱3.47.

12. The following information relates to Konbu Corporation for last year:

Price earnings ratio 1.5

Dividend payout ratio 30%
Earnings per share ₱5

What is Konbu's dividend yield ratio for last year?

A. 2.0%
B. 4.5%
C. 9.0%
D. 20%

13. Richmond Company has 100,000 shares of ₱10 par value common stock issued and
outstanding and 10,000 shares of 10%, P100 par value preferred stock. Total stockholders'
equity is P2,800,000 and net income for the year is ₱800,000. During the year Richmond paid
₱2 per share in dividends on its common stock. The market value of Richmond's common
stock is ₱28. What is the price-earnings ratio?
A. 3
B. 4
C. 7
D. 8

14. Using information from #43, determine the return on common equity.
A. 12.5%
B. 14.3%
C. 25.0%
D. 28.6%

15. Using information from #43, determine the dividend payout ratio.
A. 7.14%
B. 12.5%
C. 25.0%
D. 28.6%

16. The following reflected form the records of Salvacion Company:

P1,250,00
Earnings before interest and taxes 0
Interest expense 250,000
Preferred stock dividends 200,000
Dividend pull-out ratio 40%
Share outstanding throughout 2015
Preferred 20,000 shares
Common 25,000 shares
Income tax rate 40%
Price earnings ratio 5 times

The dividend yield ratio is

A. 0.08
B. 0.12
C. 0.40
D. 0.50

17. Cedric Corp has a current ratio of 2.6 to 1. The minimum desired ratio is 5 to 1. At present,
the net working capital is P40,000. How much current liabilities must be paid to achieve the
minimum current ratio?
A. P10,000
B. P15,000
C. P20,000
D. P25,000

18. Consolo Corporation's net income for the most recent year was ₱809,000. A total of 100,000
shares of common stock and 200,000 shares of preferred stock were outstanding throughout
the year. Dividends on common stock were ₱2.05 per share and dividends on preferred stock
were ₱1.50 per share. The earnings per share of common stock is closest to
 A. ₱2.05
B. ₱4.49
C. ₱5.09
D. ₱8.09

19. Bary Corporation's net income last year was ₱2,604,000. The dividend on common stock was
₱2.50 per share and the dividend on preferred stock was ₱2.40 per share. The market price of
common stock at the end of the year was ₱73.50 per share. Throughout the year, 300,000
shares of common stock and 100,000 shares of preferred stock were outstanding. The price-
earnings ratio is closest to
A. 7.88
B. 8.68
C. 8.47
D. 9.33

20. Arntson Corporation's net income last year was ₱7,975,000. The dividend on common stock
was ₱8.20 per share and the dividend on preferred stock was ₱3.50 per share. The market
price of common stock at the end of the year was ₱59.10 per share. Throughout the year,
500,000 shares of common stock and 200,000 shares of preferred stock were outstanding.
The dividend payout ratio is closest to
A. 0.139
B. 0.246
C. 0.514
D. 0.564

21. Smith Company presents the following data for 2018.

Inventories, beginning of year P 310,150
Inventories, end of the year 340,469
Cost of goods sold 2,103,696
Net sales 8,690,150

The number of days’ sales in inventory is:

a. 65.8
b. 60.8
c. 59.1
d. 58.1

22. Shaffer Company presents the following data for 2018.

Net sales, 2018 P3,007,124
Net sales 2017 93,247
Cost of goods sold, 2018 2,000,326
Cost of goods sold, 2017 1,000,120
Inventory, beginning of 2018 341,169
Inventory, end of 2018 376,526

The merchandise inventory turnover for 2018 is:

a. 5.6
b. 15.6
c. 7.5
d. 7.7

23. Ingram Dog Kernels had the following fiancial statistics for 2018:
Long-term debt P400,000
(average rate of interest is 8%)
Interest expense 35,000
Net income 48,000
Income tax 46,000
Operating income 107,000

What is the times interest earned for 2018?

a. 11.4 times
b. 3.3 times
c. 3.1 times
d. 3.7 times
24. Jordan Manufacturing reports the following capital structure:

Current liabilities P100,000

Long-term debt 400,000
Deffered income txes 10,000
Preffered stock 80,000
Common stock 100,000
Premium on common stock 180,000
Retained earnings 170,000

What is the debt ratio?

a. 0.48
b. 0.49
c. 0.93
d. 0.96

25. The following data were gathered from the annual report of Desk Products.

Market price per share P30.00

Number of common shares 10,000
Preffered stock,5%
P100 par P10,000
Common equity P140,000

The book value per share is :

a. P30.00
b. P15.00
c. P14.00
d. P13.75

QUESTION NOS.26 THROUGH 30 ARE BASED ON THE FOLLOWING INFORMATION:

The data presented below show actual figures fo selected accounts of McKeon Company for
the fiscal year ended May 31,2017, and selected budget figures for the 2018 fiscal year. McKeon’s
controller is in the process of reviewing the 2017 budget. McKeon Company monitors yield or return
ratios using the average financial position of the company. (Round all calculations to three decimal
places if necessary)

5/31/18 5/31/17
Current assets P210,000 P180,000
Noncurrent assets 275,000 255,000
Current liabilities 78,000 85,000
Long-term debt 75,000 30,000
Common stock (P30 par value) 300,000 300,000
Retained earnings 32,000 20,000

2018 Operations

Sales (all credit) P350,000

Cost of goods sold 160,000
Interest expense 3,000
Income taxes (40% tax rate) 48,000
Dividends declared and paid 60,000
Administrative expenses 67,000

Current Assets
5/31/18 5/31/17
Cash P 20,000 P 10,000
Accounts receivable 100,000 70,000
Inventory 70,000 80,000
Other 20,000 20,000
26. McKeon Company’s debt-to-total-asset ratio for 2018 is
a. 0.352
b. 0.315
c. 0.264
d. 0.237

27. The 2018 accounts receivable turnover for McKeon Company is:
a. 1.882
b. 3.500
c. 5.000
d. 4.118

28. Using a 365-day year, McKeon’s inventory turnover is

a. 2.133
b. 2.281
c. 1.995
d. 4.651

29. McKeon Company’s total asset turnover for 2018 is

a. 0.805
b. 0.761
c. 0.772
d. 0.348

30. The 2018 return on assets for McKeon Company is

a. 0.261
b. 0.148
c. 0.157
d. 0.166

QUESTION NOS.31 THROUGH 37 ARE BASED ON THE FOLLOWING INFORMATION:

Duval Company is a manufacturer of industrial products and employs a calendar year for
financial reporting purposes. These questions present several of Duval’s transactions during the
year. Assume that total quick assets exceed total current liabilities both before and after each
transaction described. Further assume that Duval has positive profits during the year and a credit
balance throughout the year in its retained earnings account.

31. Payment of a trade accounts payable of P64,500 would

a. Increase the current ratio but the quick ratio would not be affected.
b. Increase the quick ratio but the current ratio would not be affected.
c. Increase both the current and quick ratios.
d. Decrease both the current and quick ratios.

32. The purchase of raw materials for P85,000 on open account would
a. Increase the current ratio
b. Increase net working capital
c. Decrease the current ratio
d. Decrease net working capital

33. The collection of a current accounts receivable of P26,000 would be

a. increase the current ratio
b. decrease the current ratio and the quick ratio
c. increase the quick ratio
d. not affect the current or quick ratios

34. Obsolete inventory of P125,000 was written off during the year. This transaction
a. Decreased the quick ratio
b. Increased the quick ratio
c. Increased the net working capital
d. Decreased the current ratio
35. The issuance of new shares in a five-for-one split of common stock
a. Decreases the book value per share of common stock
b. Increases the book value per share of common stock
c. Increases total shareholders’ equity
d. Decreases total shareholders’ equity

36. The issuance of serial bonds in exchange for an office building with the first installment of the
bonds due late this year
a. Decreases net working capital
b. Decreases the quick ratio
c. Decreases the current ratio
d. Affects all of the answers as indicated

37. The early liquidation of a long-term note with cash affects the
a. Current ratio to a greater degree than the quick ratio
b. Quick ratio to a greater degree than the current ratio
c. Current and quick ratio to the same degree
d. Current ratio but not the quick ratio

38. The equity section of ones Corporation’s statement of financial position is presented below.

Preffered stock,6%, P100 par P40,000,000

Common stock, P4 par 10,000,000
Additional paid-in capital 20,000,000
Retained earnings 10,000,000
Equity 80,000,000

The preffered stock is cumulative and non-participating. All preffered dividends have been paid, and
liquidation value is P110 per preffered share. What is the book value per share of Jones
Corporation’s common stock?
a. P100
b. P16
c. P14.40
d. P4

39. Baylor Company paid out one-half of last year’s earnings in dividends. This year, Baylor’s
earnings increased by 20%, and the amount of its dividends increased by 15%. Baylor’s dividend
payout ratio for the current year is
a. 50%
b. 57.5%
c. 47.9%
d. 78%

40. Typically, which of the following would be considered to be the most indicative of a firm’s short-
term debt paying ability?
a. working capital
b. acid test
c. current ratio
d. cash ratio

41. Which of the following ratios does not represent some form of comparison between accounts in
current assets and accounts in currents liabilities?
a. working capital
b. acid test ratio
c. current ratio
d. cash ratio

42. Which of the following ratios would generally be used to measure a firm’s overall liquidity
position?
a. working capital
b. acid test ratio
c. current ratio
 d. cash ratio

43. Which of the following would best indicate that the firm is carrying excess inventory?
a. a decline in sales
b. a decline in the current ratio
c. a decline in days’ sales in inventory
d. stable current ratio with declining quick ratios

44. Total assest turnover measures the ability of a firm to:

a. generate profits on sales
b. buy new assets
c. generate sales through the use of assets
d. move inventory

45. Return on assets cannot fall under which of the following circumtances?
Net Profit Margin Total Asset Turnover
a. decline rise
b. rise decline
c. rise rise
d. decline decline

46. The price/earnings ratio:

a. measures the past earning ability of the firm
b. is a gauge of future earning power as seen by investors
c. relates price to dividends
d. relates price to total net income

47. Which of the following ratios usually reflects investors opinions of the future prospects for the
firm?
a. dividend yield
b. price/earnings ratio
c. book value per share
d. earnings per share

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

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

49. What financial analysis technique would imply benchmarking with other firms?
a. Horizontal analysis
b. Cross-sectional analysis
c. Vertical analysis
d. Ratio analysis

50. In comparing the current ratios of two companies, why is it invalid to assume that the company
with the higher current ratio is the better company?
a. The current ratio includes assets other than cash
b. A high current ratio may indicate inadequate inventory on hand.
c. A high current ratio may indicate inefficient use of various assets and liabilities
d. The two companies may define working capital in different terms.

51. Shepherd Enterprises has an ROE of 15 percent, a debt ratio of 40 percent, and a profit margin
of 5 percent. The company’s total assets equal P800 million. What are the company’s sales?
(Assume that the company has no preffered stock.)
a. P1,440,000,000
b. P360,000,000
c. P2,400,000,000
d.P120,000,000
52. Deb & Co. has a debt ratio of 0.50, a total assets turnover of 0.25, and a profit margin of 10%.
The president is unhappy with the current return on equity, and he thinks it could be doubled. This
could be accomplished (1) by increasing the profit margin to 14% and (2) increasing debt utilization.
Total assets turnover will not change. What new debt ratio, along with the 14% profit marhin, is
required to double the return on equity?
a. 0.75
b. 0.70
c. 0.65
d. 0.55

QUESTIONS NOS.53 AND 54 ARE BASED ON THE FOLLOWING INFORMATION:

The Dawson Corporation projects the following for the year 2018.
Earnings before interest and taxes P35 million
Interest expense P 5 million
Preffered stock dividends P 4 million
Common stock dividend payout ratio 30%
Common shares outstanding 2 million
Effective corporate income tax rate 40%

53. The expected common stock dividend per share by Dawson Corporation for 2018 is
a. P2.34
b. P2.70
c. P1.80
d. P2.10

54. If Dawson Corporation’s common stock is expected to trade at a price-earnings ratio of eight, the
market price per share (to the nearest peso) should be
a. P104
b. P56
c. P72
d. P68

55. Beatnik Company has a current ratio of 2.5 and a quick ratio of 2.0. If the firm experienced of
P2 million in sales and sustains an inventory turnover of 8.0 , what are the firm’s current assets?
a. P1,000,000
b. P500,0000
c. P1,500,000
d. P1,250,000

QUESTION NOS. 56 THROUGH 58 ARE BASED ON THE FOLLOWING INFORMATION:

The condensed balance sheet as of December 31,2018 of San Matias Company is given below.
Figures shown by a question mark (?) may be computed from the additional information given:

ASSETS LIAB& STOCKHOLDERS’ EQUITY

Cash P60,000 Accounts payable P ?
Trade receivable-net ? Current notes payable 40,000
Inventory ? Long-term payable ?
Fixed assets-net 252,000 Common stock 140,000
Retained earnings ?
Total assets P480,000 Total L& SHE P480,000

Additional information:
Current ratio (as of Dec.31, 2018) 1.9 to 1
Ratio of total liabilities to total stockholders’ equity 1.4
Inventory turnover based on sales and ending 15 times
inventory
Inventory turnover based on cost of goods sold and 10 times
ending inventory
Gross margin for 2018 P500,000
56. The balance of accounts payable of San Matias as of December 31, 2018 is
a. P40,000
b. P80,000
 c. P95,000
d. P280,000

57. The balance of retained earnings of San Matias as of December 31, 2018 is
a. P60,000
b. P140,000
c. P200,000
d. P360,000

58. The balance of inventory of San Matias as of December 31, 2018 is

a. P68,000
b. P100,000
c. P168,000
d. P228,000

QUESTIONS NOS.60 THROUGH 63 ARE BASED ON THE FOLLOWING INFORMATION:

La Bekha Corporation asked you to interpret the following ratios provided by its accountant.

Acid-test ratio 1.2

Times interest earned 8
Gross margin ratio 40%
Inventory turnover 6 times
Debt to equity ratio 0.9:1
Ratio of operating expenses to sales 15%

Total stockholders’ equity on December 31, 2018 was P900,000. Gross margin for 2018
amounted to P600,000. Beginning balance of merchandise inventory was P200,000. The
company’s long-term liabilities consisted of bonds payable with interest at 15%. You decided
to recostruct the company’s financial statements based on the limited information given to
serve as basis for further analysis.

59. Operating income was computed at

a. P525,000
b. P300,000
c. P375,000
d. Answer cannot be determined

60. Bond payable totaled

a. P312,000
b. P350,000
c. P400,000
d. Answer cannot be determined

61. The total current liabilities would be

a. P462,500
b. P497,500
c. P504,500
d. Answer cannot be determined.

62. The company’s total current assets amounted to

a. P317,000
b. P697,000
c. P595,00
d. Answer cannot be determined.

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