Pamantasan ng Cabuyao

Katapatan Homes Subdivision, Brgy. Banay- Banay, City of Cabuyao, Laguna

Financial Management Part 1

Final Exam- Part 1

Name: Score:
Course & Section: Date:

1. Smith Company presents the following data for 2021:

Inventories, beginning of the year 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

2. Shaffer Company presents the following data for 2021:

Net Sales, 2021 3,007,124

Net Sales, 2020 93,247
Cost of Goods Sold, 2021 2,000,326
Cost of Goods Sold, 2020 1,000,120
Inventory, beginning of 2021 341,169
Inventory, end of 2021 376,526

The merchandise inventory turnover for 2021 is:

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

3. Ingram Dog Kennels had the following financial statistics for 2021:

Long- term debt 400,000

(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 2021?

a. 11.4 times
b. 3.3 times
c. 3.1 times
d. 3.7 times

4. Jordan Manufacturing reports the following capital structure:

Current liabilities 100,000

Long- term debt 400,000
Deferred income taxes 10,000
Preferred 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

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

Market price per share 30

Number of common shares 10,000
Preferred stock, 5%
100 par 10,000
Common equity 140,000

The book value per share is:

a. 30
b. 15
c. 14
d. 13.75
The data presented below show actual figures for selected accounts of McKeon Company for the fiscal
year ended May 31, 2021, and selected budget figures for the 2022 fiscal year. McKeon’s controller is in
the process of reviewing the 2021 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)

5/31/2021 5/31/2020
Current assets 210,000 180,000
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

2021 Operations

Sales (all credit) 350,000

Cost of goods sold 160,000
Interest expense 3,000
Income taxes (40% tax rate) 48,000
Dividends declared and paid in 2015 60,000
Administrative expenses 67,000

Current Assets

5/31/21 5/31/20

Cash 20,000 10,000

Accounts receivable 100,000 70,000
Inventory 70,000 80,000
Other 20,000 20,000

6. McKeon Company’s debt- to- total- asset ratio for 2021 is

a. 0.352
b. 0.315
c. 0.264
d. 0.237

7. The 2021 accounts receivable turnover for McKeon Company is:

 a. 1.882
b. 3.500
c. 5.000
d. 4.118

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

a. 2.133
b. 2.281
c. 1.995
d. 4.615

9. McKeon Company’s total asset turnover for 2021 is

a. 0.805
b. 0.761
c. 0.722
d. 0.348

10. The 2021 return on assets for McKeon Company is

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

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.

11. Payment of a trade account payable of 64,500 would

a. Increase the current ratio 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.

12. The purchase of raw materials for 85,000 on open account would

a. Increase the current ratio

b. Increase net working capital
c. Decrease the current ratio
 d. Decrease net working capital

13. The collection of a current accounts receivable of 29,000 would

a. Increase the current ratio

b. Decrease the current ratio and the quick ratio
c. Increase the quick ratio
d. Not affected the current or quick ratios

14. Obsolete inventory of 125,000 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

15. 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 shareholder’s equity
d. Decreases total shareholder’s equity

16. 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 of all the answers as indicated

17. 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

18. The equity section of Jones Corporation’s statement of financial position is presented below.

Preferred stock, 6%, 100 par 40,000,000

Common stock, 4 par 10,000,000
Additional paid in capital 20,000,000
Retained earnings 10,000,000
 Equity 80,000,000

The preferred stock is cumulative and non- participating. All preferred dividends have ben paid,
and liquidation value is 110 per preferred share. What is the book value per share of Jones Corporation’s
common stock?

a. 100
b. 16
c. 14.40
d. 4

19. 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. 57.7%
c. 47,9%
d. 78%

20. 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

21. Which of the following ratios does not represent some form of comparison between accounts in
current assets and accounts in current liabilities?

a. Working capital
b. Acid- test ratio
c. Current ratio
d. Merchandise inventory turnover

22. 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

23. 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

24. Total asset turnover measures the ability of a firm to:

a. Generate profit on sales

b. Buy new assets
c. Generate sales through the use of assets
d. Move inventory

25. Return on assets cannot fall under which of the following circumstances?

Net Profit Margin Total Asset Turnover

a. Decline rise
b. Rise decline
c. Rise rise
d. Decline decline

26. 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

27. 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

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

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

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

30. In comparing the current ratios of two companies, why is it invalid to assume that the company
with the higher current ratio is better company?

a. The current ratio includes assets other than cash

b. A higher 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.

31. Shepherd Enterprise has a ROE of 15 percent, a debt ratio of 40%, and a profit margin of 5
percent. The company’s total assets equal 800 Million. What are the company’s sales? (Assume
that the company has no preferred stock.)

a. 1,440,000,000
b. 360,000,000
c. 2,400,000,000
d. 120,000,000

32. 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
margin, is required to double the return on equity?

a. 0.75
b. 0.70
c. 0.65
d. 0.55

The Dawson Corporation projects the following for the year 2021.

Earnings before interest and taxes 35 Million

Interest expense 5 Million
Preferred stock dividends 4 Million
Common stock dividend payout ratio 30%
Common shares outstanding 2 Million
Effective corporate income tax rate 40%

33. The expected common stock dividend per share by Dawson Corporation for 2021 is
 a. 2.34
b. 2.70
c. 1.80
d. 2.10

34. 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. 104
b. 56
c. 72
d. 68

35. Beatnik Company has a current ratio of 2.5 and a quick ratio of 2.0. If the firm experienced 2
Million in sales and sustains an inventory turnover of 8.0, what are the firm’s current assets?

a. 1,000,000
b. 500,000
c. 1,500,000
d. 1,250,000

36. JC Goods, Inc. has a total assets turnover of 0.30 and a profit margin of 10%. The president is
unhappy with the current return on assets, and he thinks it could be doubled. This could be
accomplished (1) by increasing the profit margin to 15% and (2) by increasing total assets
turnover. What new asset turnover ratio, along with the 15% profit margin, is required to double
the return on assets?

a. 35%
b. 45%
c. 40%
d. 50%

The condensed balance sheet as of December 31, 2021 of San Matias Company is given below. Figures
shown by a question mark (?) may be computed from the additional information given:

ASSETS LIAB. & STOCKHOLDER’S EQUITY

Cash 60,000 Accounts Payable ?

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 480,000 Total L & SHE 480,000
Additional information:

Current ratio (as of December 31, 2021) 1.9:1

Ratio of total liabilities to total stockholder’s equity 1.4
Inventory turnover based on sales and ending inventory 15 times
Inventory turnover based on cost of goods sold and
ending inventory 10 times
Gross margin for 2021 500,000

37. The balance of accounts payable of San Matias as of December 31, 2021 is

a. 40,000
b. 80,000
c. 95,000
d. 280,000

38. The balance of retained earnings of San Matias as of December 31, 2021 is

a. 60,000
b. 140,000
c. 200,000
d. 360,000

39. The balance of inventory of San Matias as of December 31, 2021 is

a. 68,000
b. 100,000
c. 168,000
d. 228,000

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

Acid- test ratio

Times interest earned
Gross margin ratio
Inventory turnover
Debt to equity ratio
Ratio of operating expenses to sales

Total stockholders’ equity on December 31, 2021 was 900,000. Gross margin for 2021 amounted to
600,000. Beginning balance of merchandise inventory was 200,000. The company’s long- term liabilities
consisted of bonds payable with interest at 15%. You decided to reconstruct the company’s financial
statements based on the limited information given to serve as basis for further analysis.
40. Operating income was computed at

a. 525,000
b. 300,000
c. 375,000
d. Answer cannot be determined

41. Bond payable totaled

a. 312,500
b. 350,000
c. 400,000
d. Answer cannot be determined.

42. The total current liabilities would be

a. 462,500
b. 497,500
c. 504,500
d. Answer cannot be determined

43. The company’s total current assets amounted to

a. 317,000
b. 697,000
c. 597,000
d. Answer cannot be determined

44. A company has just been taken over by new management that believes it can raise earnings
before taxes (EBT) from 600 to 1,000, merely by cutting overtime pay and reducing cost of goods
sol. Prior to the change, the following data applied:

Total assets: 8,000 Debt ratio: 45%

Tax rate: 35% BEP ratio: 13.3125
EBT: 600 Sales: 15,000

These data have been constant for several year, and all income is paid out as dividends. Sales, the
tax rate, and the balance sheet will remain constant. What is the company’s cost of debt?

a. 12.92%
b. 13.23%
c. 13.51%
d. 13.75%