126387453 - Lecture notes 1 PDF

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PRELIMS:For 1- ETC Corporation Selected Financial Data December 31, 2018Current Assets P150, Current Liabilities 100, Inventories 50, Accounts receivable 40, Net sales 900, Cost of goods sold 675,1. ETC’s current ratio is: a. 1 to 1 b. 0 to 1 c. 1 to 1 d. 2 to 12. ETC’s quick ratio is: a. 1 to 1 b. ...

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PRELIMS: For 1-4 ETC Corporation Selected Financial Data December 31, 2018 Current Assets Current Liabilities Inventories Accounts receivable Net sales Cost of goods sold

P150,000 100,000 50,000 40,000 900,000 675,000

1. ETC’s current ratio is: a. 1.0 to 1 b. 0.7 to 1 c. 1.5 to 1 d. 2.4 to 1 2. ETC’s quick ratio is: a. 1.0 to 1 b. 0.7 to 1 c. 1.5 to 1 d. 2.4 to 1 3. ETC’s average collection period is: a. 6 days b. 11 days c. 16 days d. 22 days 4. ETC’s inventory turnover is: a. 1.25 times b. 13.5 times c. 3.0 times d. 37.5 times 5-8 SPF Corporation Selected Financial Data December 31, 2018 Net Sales Cost of goods sold Operating Expenses Net operating income

P 1,800,000 1,080,000 315,000 405,000

Net income Total equity Total assets Cash flow from operating Activities

195,000 750,000 1,000,000 25,000

5. SPF’s gross profit margin, operating profit margin, and net profot margin, respectively are: a. 40.00%, 22.50%, 19.50% b. 60.00%, 19.50%, 10.83% c. 60.00%, 22.50%, 19.50% d. 40.00%, 22.59%, 10.83% 6. SPF’s return on equity is: a. 26% b. 54% c. 42% d. 19% 7. SPF’s return on investment is: a. 22.5% b. 26.5% c. 19.5% d. 40.5% 8. SPF’s cash flow margin is: a. 1.4% b. 2.5% c. 10.8% d. 12.8% 9. What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively? a. b. c. d.

Current Ratio – Net working Capital No effect No effect Increase Increase Increase No effect No effect Increase

10. A corporation purchased its own shares of stocks in the open market at a price greater than book value per share. Its book value per share and earnings per share would be affected to the extent that a. Book value and EPS decrease. b. Book value remains the same but EPS increases c. Both book value and EPS increase

d. Book value per share decreased and EPS increased e. Answer not given 11-15 The December 31, 2018 statement of financial position of Trend Inc. is presented below. These are the only accounts in Trend’s statement of financial position. Amounts indicated by question mark (?) can be calculated from the additional information given. Assets: Cash Accounts receivable Inventory Property, plant and equipment Total Liabilities and Equity: Accounts payable Income taxes payable Long term debt Ordinary shares Retained earnings Total

P 25,000 ? ? 294,000 432,000 ? 25,000 ? 300,000 ? ?

Additional Information: Current Ratio 1.5 to 1 Total liabilities divided by total equity 0.8 Inventory turnover based on sales 15 times Inventory turnover based on cost of goods 10.5 times Gross margin for 2018 315,000 11. What was trend’s December 31, 2018 balance in trade accounts payable? a. 67,000 b. 92,000 c. 182,000 d. 207,000 12. What was trend’s December 31, 2018 balance in retained earnings? a. 60,000 deficit b. 60,000 c. 132,000 d. 130,000 13. What was trend’s December 31, 2018 balance in the inventory account? a. 138,000 b. 70,000 c. 70,000

d. 135,000 14. The balance of Accounts receivable as of December 31, 2018 is a. 138,000 b. 70,000 c. 43,000 d. 34,000 15. The balance of long-term debt as of December 31, 2018 is a. 300,000 b. 192,000 c. 100,000 d. 230,000 16. Why is the fixed charge coverage ratio a broader measure of a firm’s coverage capabilities than the times interest earned ratio? c. The fixed charge ratio includes lease payments as well as interest payments. 17. Which profit margin measures the overall operating efficiency of the firm? b. operating profit margin 18. Which ratio(s) measures the overall efficiency of the firm in managing its investment in assets and in generating return to shareholders? e. Return on investment and return on equity 19. What does a financial leverage index greater than “1” indicate about a firm? b. operating returns more than sufficient to cover interest payments on borrowed funds? 20. What does the price to earnings ratio measure? a. The “multiple” which the stock market places on a firm’s earnings. 21. Which of the following usually is least important as a measure of short-term liquidity? b. Debt ratio

22. Which of the following statements are correct? a. The ROE exceeds the ROA b. The current ratio is 0.625 to 1 c. Working capital is 1,200,000 d. None of the above 23. If a company’s current ratio declined in a year during which its quick ratio improved, which of the following is the most likely explanation?

a. Inventory is increasing 24. A firm’s current ratio at the end of any given accounting period. a. Is generally greater than the acid test ratio of that firm for the same period b. Is never smaller than the acid test ratio for the same period c. Is always equal to the working capital ratio for that date. d. All of the above are true e. Only a and b are true 25. A company has a current ratio of 2 to 1 at the end of year 1. Which of the following transactions will increase this ratio? a. Sale of bonds payable at a discount 26. In projecting the future profitability of a merchandising company, investors generally will be least concerned with potential increases in: b. The quick ratio 27. A conversion of a company’s short term note payable into a long-term payable would c. Increase both working capital and the current ratio 28. A company has a current ratio of 2 to 1. This ratio will decrease if the company d. Borrows cash on a six-month note 29. Assuming stable business condition, a decline in the number of day’s sales outstanding in accounts receivable at year-end from one year to next might indicate: a. A stiffening of credit policies. 30. Which of the following statements about inventory turnover is false? d.A low inventory turnover is generally a sign of efficient inventory management. 31. Which of the following is not a reason for a high inventory turnover ratio? a. Stockpiling inventory 32. What do the asset turnover measure? b. Management’s effectiveness in generating sales from investments in assets 33. Which of the following ratios would not be used to measure the extent of a firm’s debt financing? c. Time interest earned 34. Why is the amount of debt in a company’s capital structure important to the financial analyst? a. Debt implies stock

Responsibility Accounting 1. A management decision may be beneficial for a given profit center, but not for the entire company. From the overall company viewpoint, this decision could lead to action referred to as: b. Goal congruence 2. A responsibility center is an organization unit headed by a responsible manager. It is known as a a. Cost center b. Profit center c. Investment center d. None of the above 3. What term identifies an accounting system in which the operations of the business are broken down into cost centers and the control function of a foreman, sales manager or supervisor is emphasized? a. Responsibility accounting 4. Which of the following items of a cost would be least likely to appear in a performance report based on responsibility accounting techniques for the supervisor of an assembly line in a large manufacturing situation? a. Supervisor’s salary 5. If a cost cannot be allocated to a certain segment of an organization, it should be: c.Included in it but not allocated 6. A profit center is any subunit or segment of an organization that is assigned: a. Bothe revenues and expenses 7. Which of the following is not true about a responsibility accounting system? d.It holds management equally responsible for all costs 8. In designing a responsibility accounting system, one should keep in mind a certain characteristic of each cost. This characteristic is a. The degree of cost controllability by the manager 9. A company that has a profit can increase its return on investment by: c.increasing sales revenue and operating assets and sales by the same percentage 10. Given the following data: Return on investment Sales Average operating assets Minimum required rate of return Margin

15% 120,000 60,000 12% 7.5%

The residual income would be: a. 1,800 11. An internal transfer between divisions is in the best economic interest of a company when: e. The variable production costs plus the opportunity cost for the selling decision is less than the external price for the buying division. 12. Which of the following is not an appropriate use of transfer pricing? d.Establishing cost or volume standards for production departments 13. The ideal transfer price for decision making is c.market price 14. Some managers prefer to use cost rather than market price in controlling transfers between divisions. If cost is to be used, then it should be c.Standard cost 15. Transfer prices based on actual costs for the selling divisions as opposed to standard costs b. Often decline to provide the selling division with incentives to control costs 16. In transfer pricing, if the selling division does not meet all bona fide outside prices, then: c. The buying division should be free to purchase outside 17. Division A has a variable manufacturing costs of P25 per unit and fixed costs of P5 per unit. What is the opportunity cost of an internal transfer when the market price is P35? Assume that Division A is operating at capacity. b. 10 18. Josefina corporation has two producing centers, A and B. Department A has a variable cost of P12 per unit for its products, and a total fixed cost of P120,000. Department A also has idle capacity for up to 50,000 units per month. Department B would like to purchase 20,000 units of Department A’s products per month, but is unable to convince Department A to transfer units to B at P16. Department A has consistently argued that the market price of P20 is nonnegotiable. What is A’s opportunity cost of transferring to B as opposed to selling to outsiders? a. P0 19. Jaycee Corporation presented the following information for its three departments for the past month. Departments A and B are manufacturing departments, whereas C is distribution. Determine the minimum transfer price from A to B b. P20 20. With regard to information in no. 19, determine the minimum unit price that C can sell A’s product for. a. P55

21-23 Canada Inc. operates two divisions: a management division that owns and manages cruise ships in the Visayas, and a repair decision that operates a dry dock in Dumaguete City. The repair division works on company ships, as well as other large-hull boats. The repair decision has an estimated variable cost of P28.50 per labor-hour. The repair division has a two-year backlog of work for outside ownerships. They charge P48.00 per hour for labor, which is standard for this type of work. The management decision complained that it could hire its own repair workers for P30.00 per hour 21. What is the minimum transfer price that the repair division should obtain for its services, assuming it is operating at capacity? c.P48.00 per hour 22. What is the maximum price the management division should pay? B. P30.00 23. If the repair division had idle capacity, what is the minimum transfer price that the repair division should obtain? a. P28.50 24. A company has two divisions, A and B, each operated as a profit center. A charges B P35 per unit for each unit transferred to B. Other data follow: A is planning to raise its transfer price to P50 per unit. Division B can purchase units at P40 each from outsiders, but doing so would idle A’s facilities now committed to producing units for B. Division A cannot increase its sales to outsiders. From the perspective of the company as a whole, from whom should Division B acquire the units, assuming B’s market is unaffected? d.Division A, in spite of the increased transfer price.

25. 26. What is the minimum prices that can be charged by the retail stores division to cover the differential costs of Veiss seafood? a. P1.33 27. What is the appropriate transfer price for this division? a. P1.20 28. If the transfer price were set at P2.00 per lb, what effect would this have on the minimum price set by the retail stores division? b. Increase to P2.22

29. Assume that the wholesale packing division was operating at capacity. Would this affect the appropriate transfer price? c. Yes, increase it.

30. 31.

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33. 35. Pongky Manufacturing Corporation uses a responsibility accounting system in its operations. Which one of the following items is least likely to appear in a performance report for a manager of one of Pongky’s assembly lines? d. Depreciation on the manufacturing facility

36. In responsibility accounting, a center’s performance is measured by controllable costs. Controllable costs are best described as including b. Only those costs that the manager can influence in the current time period 37. A segment of an organization is referred to as a service center if it has d.authority to provide specialized support to other units within the organization 38. The basic purpose of a responsibility accounting system is b.motivation 39. The least complex segment or area of responsibility for which costs are allocated is a d.costt center Cost Profit Analysis...