In comparing management and financial accounting, which of the following more accurately

describes management accounting information?

In comparing management and financial accounting, which of the following more accurately
describes management accounting information
Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

Accounting and Management Accounting Department

Name: __________________________
Section: _________________ Score: _____________
Quiz 2
ACC 418
Management Services
Answer Sheet

  A B C D   A B C D   A B C D
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DIRECTION: Read each of the items carefully. Choose the letter that corresponds to your answer and shade the box
on the answer sheet provided. Cheating of any form is strictly prohibited.

1. EMY Corporation has a 2 to 1 current ratio. This ratio would increase more than 2 to 1 if
a. The company wrote off an uncollectible receivable.
b. The company purchased inventory on open account.
c. The company sold merchandise on open account that earned a normal gross margin.
d. Previously declared stock dividends were distributed.

2. Determining the appropriate level of working capital for a firm requires

a. Changing the capital structure and dividend policy of the firm
b. Maintaining short-term debt at the lowest possible level because it is generally more expensive than
long-term debt
c. Offsetting the benefit of current assets and current liabilities against the probability of technical
insolvency
d. Maintaining a high proportion of liquid assets to total assets in order to maximize the return on total
investments

3. Claw and Shai obtained a short-term bank loan for P 1 million at an annual interest of 12%. As a condition of
the loan, the company is required to maintain a compensating balance of P 200,000 in its savings account
which earns interest at an annual rate of 6%. The company would otherwise maintain only P 100,000 on the
savings account for transactional purposes. The effective cost of the loan is
a. 13.20% c. 12%
b. 12.67% d. 13.5%

4. A company plans to tighten its credit policy. The new policy will decrease the average number of days in
collection from 75 to 50 and will reduce the ratio of credit sales to total revenue from 70% to 60%. The
company estimates that projected sales will be 5% less if the proposed new credit policy is implemented. If

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 projected sales for the coming year are P 50 million, calculate the peso impact on account receivables of this
proposed change in credit policy. Assume a 360-day year.
a. P 3,817,445 decrease c. P 3,333,334 decreases
b. P 6,500,000 decrease d. P 18,749,778 increase

5. Softdrinks Distributors, which buys in a pre-sell basis, is discussing with the route salesmen on the proper
cases to be ordered and the frequency of call. From the route book and other records, the following are
available: prior year’s purchases, 50,000 cases; carrying cost per case of inventory, P 1.20; distributor’s
discount, 1 case for every 10 cases bought; cost of placing an order, P 3.00; weekly demand is approximately
952 cases. Safety stock required is 140 cases. No change in demand is expected this year. (Use a 365-day, 52-
week year). Determine the economic order quantity (EOQ), and the reorder point assuming a two-day lead-
time.
a. EOQ is 482 cases; reorder point is 500 cases.
b. EOQ is 500 cases; reorder point is 414 cases.
c. EOQ is 962 cases; reorder point is 275 cases.
d. EOQ is 250 cases; reorder point is 280 cases.

6. If a firm purchases raw materials from its supplier on a 2/10, net 40, cash discount basis, the equivalent annual
interest rate (using 360-day year) of foregoing the cash discount and making payment on the 40 th day is
a. 2% c. 24.49%
b. 18.36% d. 36.72%

7. Foster, Inc. is considering implementing a lockbox collection system at a cost of P 80,000 per year. Annual
sales are P 90 million, and the lock-box system will reduce collection time by 3 days. If Foster can invest
funds at 8 percent, should it use the lock-box system? Assume a 360-day year.
a. Yes, producing savings of P 140,000 per year.
b. Yes, producing savings of P 60,000 per year.
c. No, producing a loss of P 20,000 per year.
d. No, producing a loss of P 60,000 per year.

8. The primary goal of the firm is to

a. Maximize profit c. Maximize shareholders’ wealth
b. Maximization d. Minimization

9. Statement I – No single person is tasked for all the responsibilities of a financial manager.
Statement II – The Chief Executive Officer (CEO) oversees the work of both treasurer and controller.
a. Statement I – True; Statement II – True
b. Statement I – True; Statement II – False
c. Statement I – False; Statement II – True
d. Statement I – False; Statement II – False

10. Horizontal, vertical, and common-size analyses are techniques that are used by analysts in understanding the
financial statements of companies. Which of the following is an example of vertical, common-size analysis?
a. Commission expense in 2006 is 10% greater than it was in 2005.
b. A comparison in financial ratio between two or more firms in the same industry.
c. A comparison in financial form between two or more firms in different industries.
d. Commission expense in 2006 is 5% of sales.

11. Last year a company had sales of P 400,000, a turnover of 8.0, and a return on investment of 36%. The
company’s operating income for the year was
a. P 18,000 c. P 138,889
b. P 50,000 d. P 144,000

12. M Company has total debt of P 360,000 and shareholders’ equity of P 500,000. M is seeking capital to fund
an expansion. M is planning to issue an additional P 300,000 in common stock and is negotiating with a bank
to borrow additional funds. The bank requires a debt-to-equity ratio of .75. What is the maximum additional
amount M will be able to borrow?
a. P 240,000 c. P 440,000
b. P 330,000 d. P 600,000

13. The selected data below pertain to a company at December 31, 2022:
Quick assets P 230,400.00
Acid test ratio 3.2 to 1
Current ratio 3.5 to 1
Net sales for 2022 P 1,800,000.00
Cost of Sales for 2022 P 990,000.00
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 Average Total Assets for 2022 P 1,200,000.00
The company’s current liabilities at December 31, 2022 amount to
a. P 768,000.00 c. P 72,000.00
b. P 80,000.00 d. P 65,829.00

14. The marketable securities with the least amount of default risk are
a. Federal government agency securities c. Repurchase agreements
b. Phil. Treasury securities d. Commercial paper

15. Reinna Corp. has a high sales-to working capital ratio. This could indicate
a. The firm is undercapitalized
b. The firm is likely to have liquidity problems
c. Working capital is not profitably utilized
d. The firm is not profitable

16. Everything else is being equal, a <List A> highly leveraged firm will have <List B> earnings per share.
List A List B
a. More Lower
b. More Less volatile
c. Less Less volatile
d. Less Higher

17. A firm’s optimal capital structure

a. Minimizes the firm’s tax liability
b. Minimizes the firm’s risk
c. Maximizes the firm’s degree of financial leverage
d. Maximizes the price of the firm’s stock.

18. D Telecom is considering a project for the coming year that will cost P 50 million. D plans to use the
following combination of debt and equity to finance the investment.
 Issue P 15 million of 20-year bonds at a price of 101, with a coupon rate of 8%, and flotation costs of
2% of par
 Use of 35 million of funds generated from earnings.
 The equity market is expected to earn 12%. Philippine Treasury bills are currently yielding 5%. The
beta coefficient for D is estimated to be .60. D is subject to an effective corporate income tax rate of
40%.
Assume that the after-tax cost of debt is 7% and the cost of equity is 12%. Determine the weighted
average cost of capital.
a. 10.50% c. 9.50%
b. 8.50% d. 6.30%

19. Which of the following statements concerning cash flow determination for capital budgeting purposes is not
correct?
a. Tax depreciation must be considered because it affects cash payments for taxes.
b. Book depreciation is relevant because it affects net income.
c. Net working capital changes should be included in cash flow forecasts.
d. Relevant opportunity costs should be included in cash flow forecasts.

20. At a company’s cost of capital (hurdle rate) of 15%, a prospective investment has a positive net present value.
Based on this information, it can be concluded that
a. The accounting rate of return is greater than 15%.
b. The internal rate of return is less than 15%.
c. The internal rate of return is greater than 15%.
d. The payback period is shorter than the life of the asset.

21. Tracy Corporation is planning to invest P 80,000 in a three-year project. Tracy’s expected rate of return is
10%. The present value of 1 at 10% for one year is .909, for two years is .826, and for three years is .751. The
cash flow, net of income taxes, will be P 30,000 for the first year (present value of P 27,270) and P 36,000 for
the second year (present value of P 29,736). Assuming the rate of return is exactly 10%, what will the cash
flow, net of income taxes, be for the third year?
a. P 17,268 c. P 22,294
b. P 22,000 d. P 30,618

22. The Folk Company is planning to purchase a new machine, which it will depreciate on a straight-line basis
over a ten-year period with no salvage value and a full year’s depreciation in the year of acquisition. The new
machine is expected to produce cash flow from operations, net of income taxes, of P 66,000 a year in each of
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 the next ten years. The accounting (book value) rate of return on the initial investment is expected to be 12%.
How much will the new machine cost?
a. P 300,000 c. P 660,000
b. P 550,000 d. P 792,000

23. What is the effect of changes in cash flows, investment cost and cash outflows on profitability (present value)
index (PI)
a. PI will increase with an increase in cash flows, a decrease in investment costs, or a decrease in cash
outflows.
b. PI will increase with an increase in cash flows, an increase in investment costs, or an increase in cash
outflows.
c. PI will decrease with an increase in cash flows, a decrease in investment costs, or a decrease in cash
outflows.
d. PI will decrease with an increase in cash flows, a increase in investment costs, or a increase in cash
outflows.

24. Which of the following is an example of a capital market instrument?

a. Commercial paper. c. U.S. Treasury bills.
b. Preferred stock. d. Money market mutual funds

25. You recently sold 200 shares of Disney stock to your brother. This is an example of:
a. A money market transaction. c. A secondary market transaction.
b. A primary market transaction. d. A futures market transaction.

26. In a theory of demand, the marginal utility per peso of a product

a. Increases when consumption expands
b. Decreases when consumption expands
c. Explains why short-run supply curves are upward sloping
d. Increases as more units of a variable input are added to the production process

27. Which of the following may provide a leading indicator of a future increase in gross domestic product?
a. A reduction in the money supply
b. A decrease in the issuance of building permits
c. An increase in the timeliness of delivery by vendors
d. An increase in the average hours worked per week of production workers

28. If the government regulates a product or service in a competitive market by setting a maximum price below
the equilibrium price, what is the long-run effect?
a. A surplus c. A decrease in demand
b. A shortage d. No effect on the market

29. In a competitive market for labor in which demand is stable, if workers try to increase their wage
a. Employment must fall
b. Government must set a maximum wage below
c. Firms in the industry must become smaller
d. Product supply must decrease

30. If a government were to use only fiscal policy to stimulate the economy from a recession, it would
a. Raise consumer taxes and increase government spending
b. Lower the money taxes and government spending
c. Increase the money supply and increase government spending
d. Lower consumer taxes and increase government spending

End of Examination

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