Financial leverage or trading on equity is advantageous when: 

*
0/1
A. All of the corporation's authorized capital stocks have already been issued
 
B. A firm has an available credit line with its depository bank
C. Earnings from borrowed funds exceed borrowing costs.
D. A firm is in financial distress
Correct answer
C. Earnings from borrowed funds exceed borrowing costs.

In a financial statement analysis, expressing all financial statement items as a percentage of base year
amounts is called: *
1/1
A. Trend analysis
B. Variance analysis
C. Horizontal common-size analysis
 
D. Vertical common-size analysis
Which of the following is not a limitation of ratio analysis affecting comparability among firms?  *
1/1
A. Provision of useful information regarding the efficiency of operations and the stability of financial
conditions
 
B. Different sources of information
C. Different accounting periods
D. Different accounting policies

Through financial statement analysis, interested parties-- such as managers, investors, and creditors,
can identify the company's financial strengths and weaknesses and know all about the following,
except: *
1/1
A. Profitability of the business firm
B. The firm's ability to meet its obligations
C. Safety of the investment in the business
D. Composition of management running the firm
 
 
Which of the following statements is correct? *
0/1
A. Liquidity refers to firm's ability to pay all its obligations and to continue operations.
B. Solvency refers to firm's ability to survive in the long-term by paying it's short-term obligations.
C. Trading on the equity refers to a firm's scale of its own stocks in the stocks exchange.
 
D. Ratio analysis addresses such issues as the firm's liquidity, use of leverage, management of assets,
cost control, growth, and valuation.
Correct answer
D. Ratio analysis addresses such issues as the firm's liquidity, use of leverage, management of assets,
cost control, growth, and valuation.
 
In assessing the financial health of a firm, financial analysts use different techniques. One technique is
the vertical, common-size analysis *an example of which is: *
1/1
A. Total current assets is 20% of total assets as of the certain date
 
B. Total current assets as of a certain date is 20% greater compared with the previous year
C. The finished goods inventory turnover is twelve times during the year
D. Cash provided by operations is P100,000.
 
Unlimited liability is one of the advantages of sole proprietorship and partnership. *
1/1
True
False
 
 
Financial statements is not without problems and limitations. Among such limitations is as follows,
except: *
1/1
A. A ratio that is acceptable to one company may not be acceptable to another when some factors are
considered
B. There may be some differences in the accounting methods and estimates used by companies so that
comparisons of their ratios may not be advisable.
C. Financial statements are based on current market value of the firm's assets, therefore they do not
reflect historical costs.
 
D. The timing of transactions and use of averages in applying the various techniques of financial
statement analysis affect the results to be obtained.
 
In a financial statement analysis, expressing figures for a single year as a percentage of a base amount
on the financial statement (for example total assets in a balance sheet or sales in an income statement)
is called: *
1/1
A. Trend analysis
B. Variance analysis
C. Horizontal common-size analysis
D. Vertical common-size analysis
 
 
Mr. T was just hired as the financial manager of a company. His secondary objective should be to
maximize the firm’s value of common stock. *
1/1
True
False
 
 
Firms, at times, conduct their own or potential customer surveys to accumulate information regarding
future purchasing plans. Surveys can help not only in preparing a forecast but also in improving
product design, planning for new products, and determining consumer behaviour. *
1/1
A. Delphi Method
B. Sales Force Polling
C. Consumer Market Surveys
 
D. PERT-derived Forecasts
 
In computing a ratio, when a balance sheet amount is related to an income statement amount, *
0/1
A. The income statement amount should be converted to an average for the year
 
B. The balance sheet amount should be converted to an average for the year
C. Both amounts should be converted to an average for the year
D. The amounts may be used as is to develop a meaningful ratio
Correct answer
B. The balance sheet amount should be converted to an average for the year
 
The company’s attitude and conduct toward its employees, customers, community, and stockholders. *
1/1
A. Corporate Governance
B. Business Ethics
 
C. Business Governance
D. None of the above.
 
Which of the following statements is not correct? A limitation of ratio analysis affecting comparability
from one interim period to the next within a firm is that: *
0/1
A. In a seasonal business, inventory and receivables may vary widely with year-end balances not
reflecting the averages for the period
B. Management has less incentive to window dress financial statements to improve results
C. Comparability is impaired if different firms use different accounting policies
D. Misleading conclusions may result if improper comparisons are selected
 
Correct answer
C. Comparability is impaired if different firms use different accounting policies
 
Forecasting is *
1/1
A. A projection of future sales, revenues, earnings, costs and other possible variables that are helpful
in the firm's operations
B. Primary objective is to reduce the risk or uncertainty that the firm will face in making decisions
C. The starting point of business planning
D. All of the above.
 
 
One of the tasks for financial managers when identifying projects that increase the firm value is to
identify those projects where benefits are at least equal to the project’s cost. *
1/1
True
 
False
 
Which of the following statements is incorrect? *
1/1
A. The ratio of sales to working capital is a measure of liquidity and activity
B. The number of days' sales in receivables is a measure of liquidity, as well as activity
C. A high sales-to-working capital ratio would indicate that the firm is not susceptible to liquidity
problems
 
D. The earnings per share is a profitability ratio
 
Utilizes the forecasts to determine the amount of raw materials that will be needed in production, the
budget, schedule of production activities, inventory levels to maintain so as not to disrupt the
production, labour hours, and the schedule of shipments. *
0/1
A. Top Management
B. Production Manager
C. Purchasing Manager
D. All of the above.
 
Correct answer
B. Production Manager
 
Threat of hostile takeovers encourages managers to act in the shareholders’ interest. *
1/1
True
 
False
 
Owned by people who contribute, money or property to a common fund with the intention of profit
division among themselves. *
1/1
A. Sole Proprietorship
B. Partnership
 
C. Corporation
D. Medium-sized Entities

Earnings per share amounts to P10 and the price earnings ratio is 5. If the dividend
yield is 8%, *
2/2
A. The market price of the stock must be P40
B. The market price of the stock cannot be determined
C. The amount of dividend cannot be determined
D. The dividend is P4 per share
 
 
The following information pertains to Spencer Hastings for 2020. The company's net
sales for 2020 was *
2/2

A.47,200
 
B.88,000
C.51,200
D.48,000

 
If a company has current assets of P200,000 including inventory of P80,000 and a
quick ratio of 2:1, what is the value of the company’s liabilities? *
2/2
A. P100, 000
B. P140, 000
C. P240, 000
D. 60, 000
 
 
The following information pertains to Chandler Bing Company for 2020. The
company's merchandise Inventory turnover for 2020 was: *
2/2

A.4.0 months
B.10.0 times
C.4.0 times
 
D.3.60 months

 
The average age of accounts receivable for 200B (use 360 days): *
0/2
A.19.57 days
B.19.57 months
C.0.05 day
D.18.40 days
 
Correct answer
A.19.57 days

 
What is the value of the company’s inventory at the end of the year? *
2/2
A. P75, 000
 
B. P125, 000
C. P150, 000
D. 525, 000

 
Current Ratio as of 2020 *
2/2

A.0.5:1
B.2.0:1
 
C.2.6:1
D.1:2.6

 
Last year, a business had no long-term investments; this year, long-term investments
amount to P500, 000. In a horizontal analysis, the change in long-term investments
should be expressed as *
0/2
A. An absolute value of P500, 000 and an increase of 100%
B. An absolute value of P500, 000 and an increase of 1,000 percent
C. An absolute value of P500, 000 and no value for a percentage change
D. No change in any terms because there was no investment in the previous year
 
Correct answer
C. An absolute value of P500, 000 and no value for a percentage change

 
Accounts Receivable turnover for 2020: *
2/2

A.13.33 times
B.11.10 times
 
C.10.0 times
D.8.33 times

 
Quick (acid test) ratio as of December 31, 2020: *
2/2

A.2.0 to 1
B.0.5 to 1
C.1 to 1
 
D.0.7 to 1

 
How much is the company’s cost of goods sold during the year? *
0/2
A. P400, 000
B. P600, 000
 
C. P1, 600, 000
D. 800, 000

Correct answer
D. 800, 000

 
The following figures are taken from Phoebe Buffay's Company’s financial statements
for the calendar years 2020 and 2021. What is the return on average total assets? *
2/2

A. 9.8%
 
B. 10.5%
C. 12.95%
D. 14.9%

 
Merchandise Inventory Turnover for 2020: *
0/2
A.13.33 times
B.11.10 times
 
C.10.0 times
D.8.33 times

Correct answer
D.8.33 times

 
The following are taken from the balance sheet of John Mayer Company as of
December 31, 2020. What are the company's current ratio and quick (acid test) ratio
respectively? *
4/4
A. 0.80, 0.51
 
B. 0.51, 0.80
C. 0.21, 1.93
D. 3.03, 0.32

A weakness of the current ratio is *

1/1
a. the difficulty of the calculation
b. that it does not take into account the composition of the current assets
 
c. that it is rarely used by sophisticated analysis
d. that it can be expressed as a percentage, as a rate or as a proportion

 
A pattern of data that occurs every several years; usually associated with the business
cycle and is very important in short-term business analysis and planning. *
1/1
a. Trend
b. Seasonality
c. Cycle
 
d. Random variations

 
Toledo, Inc. has recently calculated the inventory turnover for the current year to be
30. In prior years, the same was always lower. Which of the following statements
would be the best interpretation for the reason for the ratio’s change? *
1/1
a. The company had less sales in current year than in prior years.
b. The company purchased less inventory in the current year than in prior years.
c. The company took fewer days to sell its inventory in the current year than in prior years.
 
d. The company took more days to sell its inventory in current year than in prior years.

 
Which of the following would best indicate that the firm is carrying excess inventory? *
1/1
a. A decline in the current ratio
b. Stable current ratio with declining quick ratios
 
c. A decline in days’ sales in inventory
d. A rise in total asset turnover

 
A firm has a current of 1:1. In order to improve its liquidity ratios, this firm should *
1/1
a. improve its collection practices, thereby increasing cash and increasing its current and quick
ratios
b. improve its collection practices and pay accounts payable, there decreasing current liabilities
and increasing the current and quick ratios
c. decrease current liabilities by utilizing more long-term debt, thereby increasing the current and
quick ratios
 
d. increase inventory, thereby increasing current assets and the current and quick ratios

 
The two categories of ratios that should be utilized to assess a firm’s true liquidity are
the *
1/1
a. current and quick ratios
b. liquidity and debt ratios
c. liquidity and profitability ratios
d. liquidity and activity ratios
 
 
Which of the following would be most detrimental to a firm’s current ratio if the ratio is
currently 2.0? *
1/1
a. Buy raw materials on credit
b. Sell marketable securities at cost
c. Pay off accounts payable with cash
d. Pay off a portion of long-term debt with cash
 
 
Which of the following ratios would not be the best measure of solvency? *
1/1
a. Return on assets ratio
 
b. Debt-to-equity ratio
c. Debt service coverage ratio
d. Times-interest-earned ratio

 
Assumes that the future is a function of the past. Thus, historical data are used to
predict the future using sequences with equal periods. *
1/1
a. Associative or causal models
b. Quantitative Forecasts
c. Random variations
d. Time series forecasting
 
 
Which of the following statements is CORRECT? *
1/1
a. One advantage of forming a corporation is that equity investors are usually exposed to less
liability than they would be in a partnership.
 
b. Corporations face fewer regulations than proprietorships.
c. One disadvantage of operating a business as a proprietor is that the firm is subject to double
taxation, because taxes are levied at both the firm level and the owner level.
d. It is generally less expensive to form a corporation than a proprietorship because, with a
proprietorship, extensive legal documents are required.
e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount

 
Primera, Inc. has recently calculated the accounts receivable turnover for the current
year to be 15. In prior year, the same ratio was always higher. Which of the following
statements would be the best interpretation for the reason for the ratio’s change? *
1/1
a. The company had less sales in the current year than in prior years.
b. The company had more sales in the current year than in prior years.
c. The company had fewer accounts receivables in the current year than in prior years.
d. The company took longer to collect on their account s receivables in the current year than in
prior years.
 
 
Solvency measures a company’s ability: *
1/1
a. to meet long-term obligations as they become due
 
b. to meet short-term obligations as they become due
c. to make a profit in the short-run
d. to make a profit in the long-run

 
The primary operating goal of a publicly-owned firm interested in serving its
stockholders should be to *
1/1
a. Maximize its expected total corporate income.
b. Maximize its expected EPS.
c. Minimize the chances of losses.
d. Maximize the stock price per share over the long run, which is the stock's intrinsic value.
 
e. Maximize the stock price on a specific target date.

 
As a company’s inventory turnover ratio decreases fro, one year to the next, they will
find that the number of days inventory is held before sale: *
1/1
a. decreases
b. increases
 
c. stays the same
d. can not be determined

 
Which one of the following ratios would not likely be used by a short-term creditor in
evaluating whether to sell on credit to a company? *
1/1
a. Current ratio
b. Acid-test ratio
c. Asset turnover
 
d. Receivable turnover

 
Which of the following statements is CORRECT? *
1/1
a. One of the advantages of the corporate form of organization is that it avoids double taxation.
b. It is easier to transfer one's ownership interest in a partnership than in a corporation.
c. One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited
liability.
 
d. One of the advantages of a corporation from a social standpoint is that every stockholder has
equal voting rights, i.e., "one person, one vote."
e. Corporations of all types are subject to the corporate income tax.

 
Which of the following actions would be most likely to reduce potential conflicts of
interest between stockholders and managers? *
1/1
a. Pay managers large cash salaries and give them no stock options.
b. Change the corporation's formal documents to make it easier for outside investors to acquire a
controlling interest in the firm through a hostile takeover.
 
c. Beef up the restrictive covenants in the firm's debt agreements.
d. Eliminate a requirement that members of the board of directors must hold a high percentage of
their personal wealth in the firm's stock.
e. For a firm that compensates managers with stock options, reduce the time before options are
vested, i.e., the time before options can be exercised and the shares that are received can be
sold.

 
Which of the following could explain why a business might choose to operate as a
corporation rather than as a proprietorship or a partnership? *
1/1
a. Corporations generally face fewer regulations.
b. Less of a corporation's income is generally subject to federal taxes.
c. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax
advantages of incorporation.
d. Corporate investors are exposed to unlimited liability.
e. Corporations generally find it easier to raise large amounts of capital.
 
 
The set of ratios that is most useful in evaluating solvency is *
1/1
a. debt ratio, current ratio, and times interest earned
b. debt ratio, times interest earned, and return on assets
c. debt ratio, times interest earned, and quick ratio
d. debt ratio, times interest earned, and cash flow to debt
 
 
Uses the forecast to anticipate the funding needed by the firm *
1/1
a. Human Resource Manager
b. Finance Manager
 
c. Production Manager
d. Top Management

 
Which of the following statements is CORRECT? *
1/1
a. Corporations generally face fewer regulations than proprietorships.
b. Corporate shareholders are exposed to unlimited liability.
c. It is usually easier to transfer ownership in a corporation than in a partnership.
 
d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax
advantages of incorporation.
e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape
this disadvantage, even if it is very small.

 
Similar to the expert opinion except that members of a group of experts are asked
individually through a questionnaire about their forecast of future events. Useful for
long-range forecasting and the results are not by the group or by strong leadership *
1/1
a. Delphi Method
 
b. Consumer Market Surveys
c. PERT-derived Forecasts
d. Expert Opinions

 
Shows the relationship between two variables: the dependent and independent. *
1/1
a. Regression analysis
 
b. Trend projections
c. Weighted moving average
d. Moving average
 
The return on assets ratio is affected by the *
1/1
a. asset turnover ratio
b. debt to total assets ratio
c. profit margin ratio
d. asset turnover and profit margin ratios
 
 
Which of the following actions would be likely to encourage a firm's managers to make
decisions that are in the best interests of shareholders? *
1/1
a. The percentage of executive compensation that comes in the form of cash is increased and the
percentage coming from long-term stock options is reduced.
b. The state legislature passes a law that makes it more difficult to successfully complete a
hostile takeover.
c. The percentage of the firm's stock that is held by institutional investors such as mutual funds,
pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%.
 
d. The firm's founder, who is also president and chairman of the board, sells 90% of her shares.
e. The firm's board of directors gives the firm's managers greater freedom to take whatever
actions they think best without obtaining board approval.

 
Which of the following statements is CORRECT? *
1/1
a. In most corporations, the CFO ranks above the CEO.
b. By law in most states, the chairman of the board must also be the CEO.
c. The board of directors is the highest ranking body in a corporation, and the chairman of the
board is the highest ranking individual. The CEO generally works under the board and its
chairman, and the board generally has the authority to remove the CEO under certain conditions.
The CEO, however, cannot remove the board, but he or she can endeavor to have the board
voted out and a new board voted in should a conflict arise. It is possible for a person to
simultaneously serve as CEO and chairman of the board, though many corporate control experts
believe it is bad to vest both offices in the same person.
 
d. The CFO generally reports to the firm's chief accounting officer, who is normally the controller.
e. The CFO is responsible for raising capital and for making sure that capital expenditures are
desirable, but he or she is not responsible for the validity of the financial statements, as the
controller and the auditors have that responsibility.

 
Relaxant Inc. operates as a partnership. Now the partners have decided to convert the
business into a corporation. Which of the following statements is CORRECT? *
1/1
a. Relaxant's shareholders (the ex-partners) will now be exposed to less liability.
 
b. The company will probably be subject to fewer regulations and required disclosures.
c. Assuming the firm is profitable, none of its income will be subject to federal income taxes.
d. The firm's investors will be exposed to less liability, but they will find it more difficult to transfer
their ownership.
e. The firm will find it more difficult to raise additional capital to support its growth.

 
Which of the following statements is CORRECT? *
1/1
a. One of the disadvantages of incorporating your business is that you could become subject to
the firm's liabilities in the event of bankruptcy.
b. Proprietorships are subject to more regulations than corporations.
c. In any partnership, every partner has the same rights, privileges, and liability exposure as
every other partner.
d. Corporations of all types are subject to the corporate income tax.
e. Proprietorships and partnerships generally have a tax advantage over corporations.
 
 
An acceleration in the collection of receivables will tend to cause the accounts
receivable turnover to: *
1/1
a. decrease
b. remain the same
c. either increase or decrease
d. increase
 
 
If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing
of cash in short-term debt and collection of accounts receivable have on the ratio,
respectively? *
1/1
A. Increase, No effect
B. Increase, Increase
C. Decrease, No effect
 
D. Decrease, Decrease

 
*
2/2

A. Current Ratio: Increase, Acid Test Ratio: Increase

B. Current Ratio: Decrease, Acid Test Ratio: Decrease
C. Current Ratio: Increase, Acid Test Ratio: Decrease
 
D. Current Ratio: Decrease, Acid Test Ratio: Increase

 
*
2/2

1.80
 
 
*
2/2

2.44
 
 
*
2/2

5.57
 
 
*
2/2

5.00
 
 
*
2/2

0.08
 
 
Oh My Sunshine Hardware Store had net credit sales of P 6,500,000 and cost of
goods sold of P 5,000,000 for the year. The Accounts Receivable balances at the
beginning and end of the year P 600,000 and P 700,00, respectively. The receivable
turnover was: *
2/2

10.00
 
 
*
2/2

800,000.00
 
 
*
2/2
840,000.00
 
 
During 2020, State of Grace Company purchased P 960,000 of inventory. The cost of
goods sold for 2020 was P 900,000 and the ending inventory at December 31, 2020
was P 180,000. What was the inventory turnover for 2020? *
···/2

1.58
 
Correct answers

6.00
6

Budgeting is *
1/1
a. The process of creating a formal plan and translating goals into a quantitative format.
 
b. A technique for comparing actual costs with standard costs.
c. A technique for determining the cost of manufactured products.
d. A means of product costing that emphasizes activities as basic cost objects.

 
Which of the following statements is correct? *
1/1
a. Budgets ensure goal congruence between superiors and subordinates.
b. Budgets define responsibility centers and promote communication and coordination among
organization segments.
c. Budgets foster the planning of operations and facilitate the fixing of blame for missed budget
predictions.
d. Budgets foster the planning of operations, provide a framework for performance evaluation,
and promote communication and coordination among organization segments.
 
 
The budget element(s) included in the financial budget process are the following,
except the *
1/1
a. Budgeted balance sheet
b. Capital budget
c. Cash budget and budgeted statement of cash flows
d. Budget variance
 
 
Which of the following statements regarding budgeting is incorrect? *
1/1
a. Planning and control are the essential features of the budgeting process.
b. Capital expenditures budget shows the availability of idle cash for investment.
 
c. Budgeting provides a measuring device to which subsequent performances are compared and
evaluated.
d. Budget preparation is not the sole responsibility of any one organizational segment and is
prepared by combining the efforts of many individuals.

 
Which of the following is not considered to be a benefit of participative budgeting? *
1/1
a. Participative budgeting results in greater support of the organization because individuals at all
levels of the organization are recognized as being part of the team.
b. Participative budgeting involves those most directly affected.
c. Top management need not be concerned with the overall profitability of the current operations
because lower level managers set the final target for the budget.
 
d. Participative budgeting improves accountability because managers are held responsible for
reaching their goals, such that they cannot shift their responsibility by blaming the unrealistic
goals demanded by the budget.

 
A budget is a control technique that, among other things, establishes a performance
standard. However, a natural reaction of a manager whose efforts are to be evaluated
is incorporate slack into the budget. Which of the following about budgetary slack is
incorrect? *
1/1
a. Budgetary slack can best be described as the planned overestimation of budgeted expenses.
b. The use of budgetary slack prohibits the use of the budget to control subordinate performance.
c. From the perspective of corporate management, the use of budgetary slack increases the
likelihood of inefficient resource allocation.
d. Budgetary slack eliminates the likelihood that a manager will receive the personal rewards that
follow from meeting the expectations of superiors.
 
 
It involves the forecasting of realizable results over a definite period or periods, the
planning and coordination of the various operations and functions of the business to
attain realizable results, and control of variations from approved plan. *
1/1
a. Cost control
b. Budgeting
 
c. Internal control
d. Vouching

 
Which of the following is not a primary purpose of preparing a budget? *
1/1
a. To communicate the company’s plans throughout the entire business organization.
b. To provide a basis for comparison of actual performance.
c. To control revenues and expenses during a given period.
d. To make sure that the company expands its operations.
 
 
Budgets are related to the following management functions, except *
1/1
a. Planning
b. Control
c. Performance evaluation
d. None of the above
 
 
The master budget *
1/1
a. Shows a comparison of forecasted and actual results.
b. Is composed of operating and financial budgets.
 
c. Reflects only those costs controllable by the individual manager.
d. Is the budget of the master of the firm.

 
*
2/2
A. 600,000
 
B. 567,000
C. 468,000
D. 552,500

 
If the required direct materials purchases are 8,000 pounds and the direct materials
required for production is three times the direct materials purchases, and the
beginning direct materials are three and a half times the direct materials purchases,
what are the desired ending direct material in pounds? *
2/2
A. 20,000
B. 4,000
C. 12,000
 
D. 32,000

 
Robbers Trading Co. budgeted merchandise purchases of 40,000 units next month.
The expected beginning inventory is 12,000 units and the desired inventory at the end
of next month is 15,000 units. Budgeted sales in units for next month is *
0/2
A. 37,000
B. 43,000
 
C. 55,000
D. 52,000

Correct answer
A. 37,000

 
Good 4 U Company plans to sell 400,000 units of finished product in July and
anticipates a growth rate in sales of 5% per month. The desired monthly ending
inventory in units of finished product is 80% of the next month’s estimated sales.
There are 300,000 finished units in the inventory on June 30. Each unit of finished
product requires four pounds of direct materials at a cost of P2.50 per pound. There
are 800,000 pounds of direct materials in the inventory on June 30.How many units
should be produced for the three-month period ending September 30? *
2/2
A. 1,260,000
B. 1,328,000
C. 1,331,440
 
D. 1,424,050

 
*
0/2

A. P19,200,000
 
B. P20,700,000.
C. P21,000,000.
D. P 2,100,000.

Correct answer
C. P21,000,000.

 
Wildest Dreams Company has a collection schedule of 60% during the month of
males, 15% the following month, and 15% subsequently. The total credit sales in the
current month of September were P80,000 and total collections in September were
P57,000. What were the credit sales in July? *
2/2
A. P90,000
B. P30,000
 
C.P45,000
D. P32,000

 
Elyu Company has budgeted sales of 90,000 units in January 120,000 units in
February; and 180,000 units in March. The company has 20,000 units on hand on
January 1. If Elyu Company requires an ending inventory of finished goods equal to
20% of the following month’s sales, the budgeted production during February should
be *
2/2
A. 96,000.
B. 108,000.
C. 120,000.
D. 132,000.
 
 
Happier Than Ever Company has P299,000 in accounts receivable on January 1,
2006 Budgeted sales for January are P860,000. Happier Than Ever Company expects
to sell 20% of its merchandise for cash. Of the remaining sales, 75% are expected to
be collected in the month of sale and the remainder the following month. The January
cash collections from sales are: *
0/2
A. P815,000
 
B. P691,000
C. P471,000
D. P987,000

Correct answer
D. P987,000

 
The payment schedule of purchases made on account is 60% during the month of
purchase, 30% in the following month, and 10% in the subsequent month. Total credit
purchases were P200,000 in May, and-P100,000 in June. Total payments on credit
purchases were P140,000 in June. What were the credit purchases in the month of
April? *
2/2
A. P200,000
 
B. P100,000
C. P145,000
D. P215,000

 
Honne Producers, Inc. will start its commercial operations on January 1, 200A. The
sales forecast per the sales manager’s estimates for its first year of operations is
50,000 units. However, the production manager estimated that only 80% of the sales
forecast can be produced with the available workforce and equipment. The product
will be sold for P20 per unit. The budgeted peso sales for Honne Producers, Inc.’s
initial year of operations is *
2/2
A. P800,000.
 
B. P1,000,000.
C. P50,000.
D. P40,000.

The transaction motive for holding cash is the *

1/1
A. A safety cushion
B. Daily operating requirements
 
C. Compensating balance requirements
D. None of the given choices

 
All of the following statements about working capital are correct except: *
0/1
A. Current liabilities are an important source of financing for many small firms.
 
B. Profitability varies inversely with liquidity.
C. The hedging approach to financing involves matching maturities of debt with specific financing
needs.
D. Financing permanent inventory buildup with long-term debt is an example of an aggressive
working capital policy.

Correct answer
D. Financing permanent inventory buildup with long-term debt is an example of an aggressive
working capital policy.

 
As a company becomes more conservative with respect to working capital policy, it
would tend to have a(n) *
1/1
A. Increase in the ratio of current liabilities to non-current liabilities
B. Increase in the operating cycle
C. Decrease in the operating cycle
D. Increase in the ratio of current assets to current liabilities
 
 
Working capital management involves investment and financing decisions related to: *
1/1
A. Plant and equipment and current liabilities
B. Current assets and capital structure
C. Current assets and current liabilities
 
D. Sales and credit

 
When a firm finances long-term asset with short-term sources of funding, it: *
1/1
A. Reduces the risk of cash shortage
B. Will have higher interest expense
C. Improves the leverage ratio
D. Is ignoring the principle of matched maturities.

An advantage of the use of long-term debt as opposed to short-term debt to finance

current assets is *
1/1
A. It decreases the risk of the firm
 
B. It generally is less costly than the short-term debt
C. It generally places fewer restrictions on the firm
D. It is easy to repay

 
All but which of the following is considered in determining credit policy? *
1/1
A. Credit standards
B. Credit limits
C. Accounts payable deferral period
 
D. Collection efforts

 
A compensating balance *
1/1
A. Compensates a financial institution for services rendered by providing it with deposit of funds
 
B. Is used to compensate for possible losses on a marketable securities portfolio
C. Is a level of inventory held to compensate for variations in usage rate and lead time
D. Is an amount paid by financial institutions to compensate large depositors

 
Which of the following is true about a firm’s float? *
1/1
A. A firm strives to minimize the float for both the cash receipts and cash disbursements
B. A firm strives to maximize the float for both the cash receipts and cash disbursements
C. A firm strives to maximize the float for cash receipts and minimize the float for cash
disbursements
D. A firm strives to maximize the float for cash disbursements and minimize the float for cash
receipts

What is the expected annual savings from a lock-box system that collects 20 checks
per day averaging P10,000 each and reduces mailing ang processing time by 2.5 and
1.5 days, respectively, if the annual interest is 5%? (Sample Answer: P30,000) *
3/3

P40,000
 
 
An invoice of a P100,000 purchase has credit terms of 1/10, n/40. A bank loan for 8%
can be arranged at any time. When should the customer pay the invoice? *
3/3
A. Pay on the 1st
B. Pay on the 10th
 
C. Pay on the 40th
D. Pay on the 60th

 
Salary payment of ABC Company is made every 15th and 30th of the month through
issuances of checks. It pays P6,750,000 per payroll. However, based on the historical
clearing of checks issued on salary; 40% will be presented on the day itself; 30% four
days from the salary date, 10% 7 days from the salary date and the remaining balance
on the tenth day after the salary date. If the interest rate on market is 12% per annum,
how much is the incremental income of ABC Company if the entire amount is not
deposited? (Sample Answer: P125,000) *
···/3

P5,175
 
Correct answer

P8,775

 
If a firm is given a trade credit terms of 2/10, net 30, then the cost to the firm failing to
take the discount is: (Sample Answer: 3.00%) *
3/3

36.70%
 
 
What is the expected annual savings from a lock-box system that collects 150 checks
per day averaging P500 each and reduces mailing ang processing time by 2.5 and 1.5
days, respectively, if the annual interest is 7%? (Sample Answer: P30,000) *
3/3

P21,000
 
 
The cost of discount missed on credit terms of 2/10, n/60 is(Sample Answer: 3.00%) *
···/3

14.89%
 
Correct answers

14.69%
14.90%

 
ABC Supplies, Inc. has P5million in inventory and P2 million in accounts receivable.
Its average daily sales are P100,000. The company has P1.5 million in accounts
payable. Its average daily purchases are P50,000. What is the length of the
company’s inventory conversion period? (Sample Answer: 20 days) *
···/3

40 days
 
Correct answer

50 days

 
ABC Company’s budgeted sales for the coming year are P40,500,000 of which 80%
are expected to be credit sales at terms of n/30. ABC estimates that a proposed
relaxation of credit standards will increase credit sales by 20% an increase the
average collection period from 30 days to 40 days. Based on a 360-day year, the
proposed relaxation of credit standards will result in an expected increase in the
average accounts receivable balance of (Sample Answer: P800,000) *
3/3

P1,620,000
 
 
ABC Company has P5 million of average inventory and sales of P30 million. Using a
365-day year, calculate the firm’s inventory conversion period. (Sample Answer: 20.00
days) *
3/3

60.83 days

ABC Company plans to sell 400,000 units of finished product in July and anticipates a
growth rate in sales of 5% per month. The desired monthly ending inventory in units of
finished product is 80% of the next month’s estimated sales. There are 300,000
finished units in the inventory on June 30. Each unit of finished product requires four
pounds of direct materials at a cost of P2.50 per pound. There are 800,000 pounds of
direct materials in the inventory on June 30. How many units should be produced for
the three-month period ending September 30? (Sample answer: 1,500,000 units) *
3/3

1,331,440 units
 
 
ABC Company desires an ending inventory of P140,000. It expects sales of P800,000
and has a beginning inventory of P130,000. Cost of sales is 65% of sales. Budgeted
purchases are (Sample Answer: P125,000) *
3/3

P530,000
 
 
(Sample Answer: P123,456) *
3/3
P230,000
 
 
(Sample Answer: P1,234,567) *
3/3
P6,192,000
 
 
ABC Company began its operations on January 1 of the current year. Budgeted sales
for the first quarter are P240,000, P300,000, and P420,000, respectively, for January,
February and March. Barat Company expects 20% of its sales on cash and the
remainder on account. Of the sales un account, 70% are expected to be collected in
the month of sale, 25% in the month following the sale, and the remainder in the
following month. How much should Barat receive from sales in March? (Sample
answer: P1,500,000) *
3/3

P388,800
 
 
ABC Company expects its June sales to be P300,000, which is 25% higher than its
May sales. Purchases were P200,000 in May and are expected to be P240,000 in
June. All sales are on credit and are collected as follows: 80% in the month of the sale
and 20% in the following month. All payments in the month of sales are given 2%
discount. Sixty percent of purchases are paid in. the month of purchase to take
advantage of purchase term of 1/10, n/40. The remaining amount is paid in the
following month. The beginning cash balance on June 1 is P20,000. The ending cash
balance on June 30 would be: (Sample answer: P1,500,000) *
3/3

P80,640

CIRCLE Company budgeted 200,000 units for June, 210,000 for July and 300,000 for
August. Each unit requires 0.25 direct labor hours. How many direct labor hours are
budgeted for August? *
1/1

75000
 
 
Which of the following appears on the budgeted balance sheet? *
1/1
estimated sales
estimated cost of goods sold
estimated ending accounts receivable
 
estimated fixed selling expense

 
Which of the following is/are the limitations of the profit maximization goal? I. It lacks
time dimension II. It fails to consider risk III. The definition of profit is ambiguous *
1/1
a. I only
b. I and II only
c. II and III only
d. I, II and III
 
 
Your sister, Seo Hyeon, is thinking about starting a new business. The company would
require P375,000 of assets, and it would be financed entirely with common stock. She
will go forward only if she thinks the firm can provide a 13.5% return on the invested
capital, which means that the firm must have an ROE of 13.5%. How much net income
must be expected to warrant starting the business? (ROUND OFF ANSWER TO
NEAREST PESO) *
1/1

50625
 
 
Last year GREEN LIGHT Industries had P450 million of sales and P225 million of
fixed assets, so its Fixed Assets/Sales ratio was 50%. However, its fixed assets were
used at only 65% of capacity. If the company had been able to sell off enough of its
fixed assets at book value so that it was operating at full capacity, with sales held
constant at P450 million, how much cash (in millions) would it have generated? *
1/1
P74.81
P78.75
 
P82.69
P86.82

 
Which of the following is NOT a key element in strategic planning as it is described in
the text? *
1/1
The mission statement.
The statement of the corporation's scope.
The statement of cash flows.
 
The statement of corporate objectives.

 
One of the following statements is not an essential feature of s partnership. *
1/1
a. There is mutual agency for the partnership
b. It is dissolved easily
c. A minor may become a partner
 
d. There is more capital than sole

 
A company expects the following sales for the coming year: (refer to the PHOTO)
Budgeted sales revenue for the year is *
1/1
1130000
 
 
The basic guide for financial decision making. *
1/1
a. Making decisions where the benefits exceed the costs.
 
b. Make decisions where the total benefits exceed the total costs.
c. Make decisions where the average benefits exceed the fixed costs.
d. Make decisions where the average benefits exceed the average costs.

 
Statement I - A firm that follows an aggressive working capital financing approach
uses primarily short-term credit and thus is more exposed to an unexpected increase
in interest rates than is a firm that uses long-term capital and thus follows a
conservative financing policy. Statement II - The relative profitability of a firm that
employs an aggressive working capital financing policy will improve if the yield curve
changes from upward sloping to downward sloping. *
1/1
a. Both statements are true
b. Only Statement I is true
 
c. Only Statement II is true
d. Both Statements are false

 
The GLASS Company budgeted the following sales in units: January 30,000; February
20,000; March 40,000; Rodriquez's policy is to have 20% of the following month's
sales in inventory. On January 1, inventory equaled 7,500 units. February production
in units is: *
1/1

24000
 
 
The budget for one of Simpson Company’s products is as follows. (Refer to the photo)
The budgeted contribution margin for this product is *
1/1

5500000
 
 
Statement I - Net operating working capital, defined as current assets minus the
difference between current liabilities and notes payable, is equal to the current ratio
minus the quick ratio. Statement II - Net working capital is defined as current assets
divided by current liabilities. *
1/1
a. Both statements are true
b. Only Statement I is true
c. Only Statement II is true
d. Both Statements are false
 
 
RED LIGHT Corporation's CFO uses this equation, which was developed by
regressing inventories on sales over the past 5 years, to forecast inventory
requirements: Inventories = P22.0 + 0.125(Sales). The company expects sales of
P400 million during the current year, and it expects sales to grow by 30% next year.
What is the inventory forecast for next year? All dollars are in millions. *
1/1
P74.6
P78.5
c. P82.7
d. P87.0
 
 
Which of the following is a use of budgets for control? *
1/1
plans can be made for the future.
if conditions change between the formation of the budget and the current time, budgets can be
quickly adapted.
budgets set a standard against which results can be compared.
 
communication is improved.

 
Which of the following is NOT one of the steps taken in the financial planning
process? *
1/1
Assumptions are made about future levels of sales, costs, and interest rates for use in the
forecast.
The entire financial plan is reexamined, assumptions are reviewed, and the management team
considers how additional changes in operations might improve results.
Projected ratios are calculated and analyzed.
Consult with key competitors about the optimal set of prices to charge, i.e., the prices that will
maximize profits for our firm and its competitors.
 
 
Statement I - The first, and most critical, step in constructing a set of forecasted
financial statements is the sales forecast. Statement II - A typical sales forecast,
though concerned with future events, will usually be based on recent historical trends
and events as well as on forecasts of economic prospects. *
1/1
a. Both Statements are true
 
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

 
A company provided the following information on sales for the coming year: (Refer to
the PHOTO) Assuming that the beginning inventory is 3,000 units, and that the
company policy is to have 25% of the next quarter's sales in ending inventory, which
quarter will have the lowest production? *
0/1

Quarter 4
Quarter 3
 
Quarter 2
Quarter 1

 
Statement I - If a firm sold some inventory on credit as opposed to cash, there is no
reason to think that either its current or quick ratio would change. Statement II - The
times-interest-earned ratio measures the extent to which operating income can decline
before the firm is unable to meet its annual interest costs. *
1/1
a. Both Statements are true
b. Only Statement I is true
c. Only Statement II is true
 
d. Both statements are false

 
Which of the following statements is CORRECT? *
1/1
a. A reduction in inventories would have no effect on the current ratio
b. An increase in inventories would have no effect on the current ratio
c. If a firm increases its sales while holding its inventories constant, then, other things held
constant, its inventory turnover ratio will increase.
 
d. A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.

 
BLOODY Garden Supply expects P600 million of sales this year, and it forecasts a
15% increase for next year. The CFO uses this equation to forecast inventory
requirements at different levels of sales: Inventories = P30.2 + 0.25(Sales). All dollars
are in millions. What is the projected inventory turnover ratio for the coming year? *
1/1
3.40
 
3.57
3.75
3.94

 
MARBLE company anticipates selling P200,000 of goods, of which P15,000 will
probably be uncollectible. Which of the following statements is true? *
0/1
P15,000 does not appear on the cash budget
P215,000 is added to the cash budget
P15,000 is subtracted from the cash budget
 
P185,000 appears as a disbursement on the cash budget

 
Sangmeondong City Computers has developed a forecasting model to estimate its
AFN for the upcoming year. All else being equal, which of the following factors is most
likely to lead to an increase of the additional funds needed (AFN)? *
1/1
Option 1
A sharp increase in its forecasted sales.
 
A sharp reduction in its forecasted sales.
The company reduces its dividend payout ratio.
The company switches its materials purchases to a supplier that sells on terms of 1/5, net 90,
from a supplier whose terms are 3/15, net 35.

 
In budgeting direct labor hours for the coming year, it is important to: *
1/1
multiply production in units by the direct labor hours per unit.
 
divide production in units by the direct labor hours per unit.
subtract production in units from the direct labor hours per unit.
subtract direct labor hours per unit from production in units.

 
HONEYCOMB company has had stable sales and production for several years. Next
year, sales are expected to increase by at least 50%. Assuming that the company
maintains its policy for desired ending inventories of finished product and direct
materials purchases, what will be the likely effect on the desired ending inventory of
finished product? *
1/1
it will increase
 
it will decrease
it will stay the same
none of these

 
One of the following statements is true. *
1/1
a. Stockholders are personally liable for the liabilities of the corporation if the company is unable
to pay.
b. Normally, stockholders can only dell their ownership interests when the corporation is
terminated.
c. Partners are personally liable for the liabilities of the partnership if the partnership is unable to
pay.
 
d. Partners can normally transfer their partnership interests with ease.

 
The Squid Game Corp has P720,000 of assets (which equal total invested capital),
and it uses no debt—it is financed only with common equity. The new CFO wants to
employ enough debt to raise the total debt to total capital ratio to 40%, using the
proceeds from borrowing to buy back common stock at its book value. How much
must the firm borrow to achieve the target debt ratio? *
1/1

288000
 
 
Which among the functions of finance is the most important? *
0/1
a. dividend policy decision
b. investment decision
c. financing decision
d. none of the above
 
 
CHUCKY company prepares a budget each month for manufacturing costs. Formulas
have been developed for all costs within a relevant range of 5,000 to 15,000 units per
month. The budget for electricity (a semi variable cost) is P19,800 at 9,000 units per
month, and P21,000 at 10,000 units per month. How much should be budgeted for
electricity for the coming month if 12,000 units are to be produced? *
1/1

23400
 
 
Budgeted operating income includes: *
1/1
budgeted interest expense.
budgeted income taxes.
budgeted cost of goods sold.
 
budgeted net income.

 
Statement I- The master budget is composed of operating budgets and financial
budgets. Statement II - The first budget to be prepared is the production budget. *
1/1
a. Both statements are true
b. Only Statement I is true
 
c. Only Statement II is true
d. Both statements are false

 
You observe that a firm's ROE is above the industry average, but both its profit margin
and equity multiplier are below the industry average. Which of the following
statements is CORRECT? *
1/1
a. Its total assets turnover must be above the industry average
 
b. Its return on assets must equal the industry average.
c. Its TIE ratio must be below the industry average.
d. Its total assets turnover must be below the industry average.

 
STAR Company purchased P40,000 of goods in July and expects to purchase
P60,000 of goods in August. STAR typically pays for 25% of purchases in the month
of purchase and 75% in the following month. What are STAR Company's total
expected cash disbursements for purchases in the month of August? *
1/1

45000
 
 
A company has the following accounts receivable payment history: (Refer to the
photo) Which of the following actions might increase the cash receipts over the
coming year? *
0/1

Allow customers longer to pay their accounts receivable balances.

Turn uncollectible accounts over to a collection agency with a proven history of success.
Give a cash discount to customers who already pay in the month of sale.
All of these.
 
 
DOLLY company has the following budget formula for annual electricity expense in its
shop: Expense = P7,200 + (Units produced × P0.60) If management expects to
produce 20,000 units during February, for the purpose of performance evaluation,
what amount of expenses should the company expect to incur in February? *
···/1

19200

UMBRELLA Inc. has the following data. What is the firm's cash conversion cycle?
Inventory conversion period =41 days Receivables collection period =31 days
Payables deferral period =38 days *
1/1

34
 
 
Statement I - The average accounts receivables balance is a function of both the
volume of credit sales and the days sales outstanding. Statement II - The four primary
elements in a firm's credit policy are (1) credit standards, (2) discounts offered, (3)
credit period, and (4) collection policy. *
1/1
a. Both statements are true
 
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

 
When factoring accounts receivables, the factor is the: *
1/1
a. negotiated accounts receivable account
b. the percent deduction in payment to the firm
c. the financial institution that buys the accounts receivable
 
d. the method of determining how much money is lent to the firm.

 
Statement I - For a zero-growth firm, it is possible to increase the percentage of sales
that are made on credit and still keep accounts receivable at their current level,
provided the firm can shorten the length of its collection period sufficiently. Statement
II - A firm's collection policy, i.e., the procedures it follows to collect accounts
receivable, plays an important role in keeping its average collection period short,
although too strict a collection policy can reduce profits due to lost sales. *
1/1
a. Both statements are true
 
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

 
A lockbox plan is *
1/1
used to protect cash, i.e., to keep it from being stolen.
used to identify inventory safety stocks.
used to slow down the collection of checks our firm writes.
used to speed up the collection of checks received.
 
 
SATISFY-ME buys on terms of 2/10, net 30. It does not take discounts, and it typically
pays 60 days after the invoice date. Net purchases amount to P500,000 per year.
What is the nominal annual percentage cost of its non-free trade credit, based on a
360-day year? *
1/1

36.73%
 
 
SUGAR Inc. carries an average inventory of P750,000. Its annual sales are P10
million, its cost of goods sold is 75% of annual sales, and its receivables collection
period is twice as long as its inventory conversion period. The firm buys on terms of
net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion
cycle by 10 days, based on a 365-day year. He believes he can reduce the average
inventory to P647,260 with no effect on sales. By how much must the firm also reduce
its accounts receivable to meet its goal in the reduction of its cash conversion cycle?
ROUND OFF ANSWER TO THE NEAREST PESO. *
1/1

136986
 
 
Which of the following statements is NOT CORRECT? *
1/1
A company may hold a relatively large amount of cash and marketable securities if it is uncertain
about its volume of sales, profits, and cash flows during the coming year.
Credit policy has an impact on working capital because it influences both sales and the time
before receivables are collected.
The cash budget is useful to help estimate future financing needs, especially the need for short-
term working capital loans.
If a firm wants to generate more cash flow from operations in the next month or two, it could
change its credit policy from 2/10, net 30 to net 60.
 
 
Statement I - Since receivables and payables both result from sales transactions, a
firm with a high receivables-to-sales ratio must also have a high payables-to-sales
ratio. Statement II - Dimon Products' sales are expected to be P5 million this year,
with 90% on credit and 10% for cash. Sales are expected to grow at a stable, steady
rate of 10% annually in the future. Dimon's accounts receivable balance will remain
constant at the current level, because the 10% cash sales can be used to support the
10% growth rate, other things held constant. *
0/1
a. Both statements are true
b. Only Statement I is true
c. Only Statement II is true
 
d. Both statements are false

 
(ROUND OFF ANSWER TO NEAREST PESO) *
1/1

9973
 
 
Statement I - The cash conversion cycle (CCC) combines three factors: The inventory
conversion period, the receivables collection period, and the payables deferral period,
and its purpose is to show how long a firm must finance its working capital. Other
things held constant, the shorter the CCC, the more effective the firm's working capital
management Statement II - If a profitable firm finds that it simply must "stretch" its
accounts payable, then this suggests that it is undercapitalized, i.e., that it needs more
working capital to support its operations. *
1/1
a. Both statements are true
 
b. Only Statement I is true
c. Only Statement II is true
d. Both Statements are false

 
For Mr. SATISFY-YOU, the average age of accounts receivable is 30 days, the
average age of accounts payable is 50 days, and the average age of inventory is 40
days. Assume a 360-day year. If Mr SATISFY YOU’s annual sales are P900,000, what
is the firm’s average accounts receivable balance? *
···/1

125000
 
 
Sales amount to P1,200,000. Sales terms are being revised from n/60 to n/45 and
sales are expected to decrease by 15%. How much would be the increase (decrease)
in receivables as a result of this change? *
0/1
a. (P72,500)
 
b. (P52,500)
c. P50,000
d. answer not given

 
The following information is available from BROTHER’s Corp. financial records for
2019. Sales P750,000; Accounts Receivable Balance, Jan 1, 2019 P75,000; Net credit
sales 66.67%; Net cash sales 33.33%; Accounts Receivable Balance, Dec 31, 2019
50,000. What was accounts receivable turnover in 2019? *
0/1
a. 15x
b. 10x
 
c. 12x
d. answer not given

 
BROKEN GLASS Furnishings wants to reduce its cash conversion cycle. Which of the
following actions should it take? *
1/1
Increases average inventory without increasing sales.
Take steps to reduce the DSO.
 
Start paying its bills sooner, which would reduce the average accounts payable but not affect
sales.
Sell common stock to retire long-term bonds.

 
This is the effect of an increased accounts receivable on the current ratio and net
working capital respectively, ITEM 1: Current ratio----------------------ITEM 2: Net
working capital *
1/1
a. No effect No effect
b. increase increase
 
c. increase no effect
d. no effect increase

 
LICKERER Corp's budgeted monthly sales are P5,000, and they are constant from
month to month. 40% of its customers pay in the first month and take the 2% discount,
while the remaining 60% pay in the month following the sale and do not receive a
discount. The firm has no bad debts. Purchases for next month's sales are constant at
50% of projected sales for the next month. "Other payments," which include wages,
rent, and taxes, are 25% of sales for the current month. Construct a cash budget for a
typical month and calculate the average cash gain or loss during the month. *
1/1

1210
 
 
This is likely to happen when the company decides to increase their discount rate.
ITEM 1: Collection ----ITEM 2: Receivable Turnover----------ITEM 3:Collection Period *
1/1
a. Faster Higher Shorter
 
b. Faster Higher Longer
c. Slower Higher Shorter
d. Slower Higher Longer

 
The firm’s receivable conversion period (measured in days)is equal to its accounts
receivable divided by it ___. *
1/1
a. annual credit sales/360
 
b. annual credit sales
c. annual sales/360
d. none of the above

 
It is measure of the rate of cash inflow from the collection of receivables. *
0/1
a. aging of receivables
b. accounts receivable turnover
 
c. average collection period
d. average accounts receivable

 
TRIANGLE Company has the following data. What is the firm's cash conversion cycle?
Inventory conversion period =50 days Receivables collection period =17 days
Payables deferral period =25 days *
1/1

42
 
 
Statement I - If a firm takes actions that reduce its days sales outstanding (DSO),
then, other things held constant, this will lengthen its cash conversion cycle (CCC) and
cause a deterioration in its cash position. Statement II - Other things held constant, if a
firm "stretches" (i.e., delays paying) its accounts payable, this will lengthen its cash
conversion cycle (CCC). *
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a. Both statements are true
 
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

 
it is a deduction in the purchased price to serve as an incentive for prompt payment *
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a. trade discount
b. credit term
c. cash discount
 
d. answer not given

 
Which of the following items is not included in determining the desired level of
accounts receivable? *
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a. net sales
b. desired number of accounts receivable
c. number of days in a year
d. answer not given
 
 
Which of the following statements is CORRECT? *
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Net working capital is defined as current assets minus the difference between current liabilities
and notes payable, and any increase in the current ratio automatically indicates that net working
capital has increased.
Although short-term interest rates have historically averaged less than long-term rates, the heavy
use of short-term debt is considered to be an aggressive strategy because of the inherent risks
associated with using short-term financing.
 
If a company follows a policy of "matching maturities," this means that it matches its use of
common stock with its use of long-term debt as opposed to short-term debt.
Net working capital is defined as current assets minus the difference between current liabilities
and notes payable, and any decrease in the current ratio automatically indicates that net working
capital has decreased.

 
Which of the following statements is CORRECT? *
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A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of
10% annually. Such a firm will be able to keep its accounts receivable at the current level, since
the 10% cash sales can be used to finance the 10% growth rate.
In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still
keep accounts receivable fairly steady, provided the firm can shorten the length of its collection
period (its DSO) sufficiently.
 
Because of the costs of granting credit, it is not possible for credit sales to be more profitable
than cash sales.
Since receivables and payables both result from sales transactions, a firm with a high
receivables-to-sales ratio must also have a high payables-to-sales ratio.

 
Which of the following statements is NOT CORRECT? *
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Commercial paper can be issued by virtually any firm so long as it is willing to pay the going
interest rate.
 
Accruals are "free" in the sense that no explicit interest is paid on these funds.
A conservative approach to working capital management will result in most if not all permanent
assets being financed with long-term capital.
The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using
long-term debt. This added risk stems from the greater variability of interest costs on short-term
debt and possible difficulties with rolling over short-term debt.

 
Statement I - Setting up a lockbox arrangement is one way for a firm to speed up the
collection of payments from its customers. Statement II - Inventory management is
largely self-contained in the sense that very little coordination among the sales,
purchasing, and production personnel is required for successful inventory
management. *
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a. Both statements are true
b. Only Statement I is true
 
c. Only Statement II is true
d. Both statements are false

 
Other things held constant, which of the following will cause an increase in net working
capital? *
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Cash is used to buy marketable securities.
A cash dividend is declared and paid.
Merchandise is sold at a profit, but the sale is on credit.
 
Long-term bonds are retired with the proceeds of a preferred stock issue.
 
LICKER Inc. is preparing its cash budget. It expects to have sales of P30,000 in
January, P35,000 in February, and P35,000 in March. If 20% of sales are for cash,
40% are credit sales paid in the month after the sale, and another 40% are credit
sales paid 2 months after the sale, what are the expected cash receipts for March? *
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33000
 
 
EOMMA CO. has an average period of 30 days, an average age of inventory of 20
days and a cash conversion cycle of 30 days. What is EOMMA’s average collection
period? *
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40
 
 
Other things held constant, which of the following would tend to reduce the cash
conversion cycle? *
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Carry a constant amount of receivables as sales decline.
Place larger orders for raw materials to take advantage of price breaks.
Take all discounts that are offered.
Continue to take all discounts that are offered and pay on the net date.
 
 
A receivable classified as current on the statement of financial position is expected to
be collected within *
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a. The current operating cycle.
b. 1 year.
c. The current operating cycle or 1 year, whichever is longer.
 
d. The current operating cycle or 1 year, whichever is shorter.

 
Round off answer to the nearest peso. *
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1901
 
 
STEAK Inc. had credit sales of P3,500,000 last year and its days sales outstanding
was DSO = 35 days. What was its average receivables balance, based on a 365-day
year? (ROUND OFF ANSWER TO NEAREST PESO) *
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