1. Managerial Accounting provides economic and financial information for external users.
2. Financial accounting reports are general-purpose and intended for internal users.
3. Managerial accounting reports are special-purpose and issued as frequently as needed to Officers and Managers.
4. A partnership is always owned by two individuals.
5. A separate legal entity organized in accordance with codes and laws and in which ownership is divided into shares of stock is referred to as a corporation.
6. Asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
7. Equity is the residual interest in the assets of the enterprise after deducting all its liabilities.
8. A formal statement of future plans, usually expressed in monetary terms is a budget.
9. The purchase budget is prepared by multiplying the expected unit sales volume for each product by its anticipated unit selling price.
10. The formula to prepare purchase budget is expected cost of sales plus expected beginning inventory less ending inventory.
11. Budget fails to facilitate the coordination of activities within the business.
12. The effectiveness of a budget program is directly related to its acceptance by top management only.
13. If budgeted beginning inventory is P8,300 budgeted ending inventory is P9,400 and cost of goods sold is expected to be P10,260, then budgeted purchases should be P11,360.
14. The planning period for the master budget is always one year.
15. All of the business units need to participate in the formulation of a budget.
16. A budget not only assists management in planning operations but also serves as an important tool in the control of operations. TRUE
17. Once prepared and approved, a budget should not be revised.
18. Projected Statement of Financial Position shows the expected assets, liabilities and equity as of the projected period.
19. Depreciation expense is included in the preparation of Cash flows Budget.
20. The formula for annual depreciation expense is (cost + scrap value)/estimated useful life.
I. Multiple Choice
1. The management of an organization performs several broad functions. They are:
a. planning, directing, and selling. c. planning, manufacturing, and controlling.
b. planning, directing, and controlling. d. directing, manufacturing, and controlling.
2. The following statements refer to Managerial accounting except:
a. Provides information to parties within the organization
b. Special-Purpose reports
c. More detailed
d. Provides information to parties outside the organization
3. Which users need financial information because they have interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise
a. Investors c. Customers
b. Employees d. Lenders
4. These users are interested on the return on their investment and determine whether they should invest further, or sell their investment
a. Investors c. Customers
b. Employees d. Lenders
5. These users are interested in information about the ability of the enterprise to provide salaries, retirement benefits and job security.
a. Investors c. Customers
b. Employees d. Lenders
6. The business activity that companies buy raw materials, convert them into products and then sell the products to other companies or to final consumers.
a. service c. merchandising
b. manufacturing d. trading
7. The components of the balance sheet (statement of financial position) are
a. assets, income and owner's equity c. investments, withdrawals and net income
b. income, expense and net income d. assets, liabilities and owner's equity
8. All of the following are assets except
a. cash c. inventory
b. equipment d. accounts payable
9. All of the following are expenses except
a. salaries expense c. tax and license expense
b. gasoline expense d. prepaid expense
10. This financial statement shows the income and expenses of the company
a. Statement of Financial Position c. Statement of Cash Flows
b. Income Statement d. Statement of Changes in Equity
II. Identification
A. Fixed Cost
F. Income Statement
B. Philippine Financial Reporting Standards
G. Mixed Cost
C. Partnership
H. Cash Flow statement
D. Statement of Changes in Equity
I. Merchandising
E. Variable Cost
J. Certificate of Incorporation
1. Combination of cost that is constant and cost that varies based on the activity. G
2. Costs that remain the same in total regardless of changes in the activity level. A
3. Costs that vary in total directly and proportionately with changes in the activity level. E
4. This is a type of business organization wherein two or more persons bind themselves to contribute money, property, industry to a common fund with the intention of dividing the profits among themselves. C
5. This is a type of business activity that companies purchase goods that are ready for sale and then sell these to customers. I
6. Financial accounting is the preparation of financial statements in accordance with what accounting standard (Philippine setting)? B
7. This is a financial statement which shows income and expense of the company. F
8. This is a financial statement which shows the cash receipts and cash disbursements of the business. H
9. This is issued by Securities and Exchange Commission upon approval of the application for setting up the Corporation. J
10. This is a financial statement which shows the movement of the equity account. D
III.
PART II
Quiz
True or False
1. In the vertical analysis of the income statement, each item is generally stated as a percentage of net income.
2. From a creditor's point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.
3. A current ratio of 1.2 to 1 indicates that a company's current assets exceed its current liabilities.
4. The three basic tools of analysis are horizontal analysis, vertical analysis, and ratio analysis.
5. Profitability ratios measure the ability of the enterprise to survive over a long period of time.
6. In vertical analysis, the base amount in an income statement is usually total assets.
7. If volume increases, all costs will increase.
8. If the activity decreases, total variable costs will decrease proportionately.
9. Contribution margin is the amount of revenue remaining after deducting cost of goods sold.
10. Both variable and fixed costs are included in calculating the contribution margin.
11. The break-even point is equal to the fixed costs plus net income.
12. A contribution format income statement classifies costs by function, but a traditional income statement classifies costs by cost behavior (variable or fixed).
13. Fixed costs are costs that remain the same in total regardless of changes in the activity level.
14. Variable costs are costs that vary in total directly and proportionately with changes in the activity level.
15. At the breakeven point, the contribution margin equals fixed costs.
16. Capital budgeting decisions usually involve large investments and can have a significant impact on a company's future profitability.
17. The annual rate of return technique requires dividing a project's annual cash inflows by the economic life of the project.
18. A major advantage of the annual rate of return technique is that it considers the time value of money.
19. The cash payback capital budgeting technique is a quick way to calculate a project's net present value.
20 .Using the net present value method, a net present value of zero indicates that the project would be acceptable.
21. The annual rate of return is computed by dividing expected annual net income by average investment.
22. A basic objective underlying capital budgeting is to earn a satisfactory return on invested funds.
23. The payback period method does not consider the time value of money in evaluating various capital expenditure decisions.
24. A capital expenditure is an investment that has a useful life of more than one year.
25. Planning plant asset investment in a process that involves preparing cost and revenue estimates for all proposed projects, examining the merits of each and choosing those worthy of investment, is known as capital budgeting.
Exam
I. Multiple Choice
1. The formula for horizontal analysis of changes since the base period is the current year amount
a. divided by the base year amount.
b. minus the base year amount divided by the base year amount.
c. minus the base year amount divided by the current year amount.
d. plus the base year amount divided by the base year amount.
2. Net Profit ratio is calculated by dividing
a. sales by cost of goods sold.
b. gross profit by net sales.
c. net income by stockholders' equity.
d. net income by net sales.
3. Assume the following sales data for a company:
2013 $945,000
2012 877,500
2011 650,000
If 2011 is the base year, what is the percentage increase in sales from 2011 to 2012?
a. 24% c. 76%
b. 35% d. 135%
4. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2012
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136
Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 30% c. 100%
b. 40% d. None of the above
5. The acid-test (quick) ratio
a. is used to quickly determine a company's solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the balance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.
6. Harvey Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was
a. 30 days. c. 274 days.
b. 365 days. d. 48.7 days.
7. Parker Paint reported sales of $600,000, total assets of $300,000, total owners' equity of $160,000, current assets of $100,000, current liabilities of $40,000, and cash of $24,000. In a common size balance sheet, cash would be shown as
a. 60%. c. 24%.
b. 8%. d. 4%.
8. As an indicator of financial health, a low ratio is desirable for the
a. asset turnover ratio. c. acid-test ratio.
b. return on assets ratio. d. debt to total assets ratio.
9. A liquidity ratio measures the
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
d. number of times interest is earned.
10. Which of the following is not a cost classification?
a. Mixed c. Variable
b. Multiple d. Fixed
11. A mixed cost contains
a. a variable element and a fixed element.
b. both selling and administrative costs.
c. both retailing and manufacturing costs.
d. both operating and nonoperating costs.
12. Contribution margin
a. is always the same as gross profit margin.
b. excludes variable selling costs from its calculation.
c. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit.
d. equals sales revenue minus variable costs.
13. If a company had a contribution margin of $750,000 and a contribution margin ratio of 40%, total variable costs must have been
a. $1,125,000. c. $1,875,000.
b. $450,000 d. $300,000.
.
14. A company has contribution margin per unit of $60 and a contribution margin ratio of 40%. What is the unit selling price?
a. $100.00 c. $24.00
b. $150.00 d. Cannot be determined.
15. Sales are $500,000 and variable costs are $300,000. What is the contribution margin ratio?
a. 67% c. 60%
b. 40% d. Cannot be determined because amounts are not expressed per unit.
16. Hess, Inc. sells a product with a contribution margin of $12 per unit, fixed costs of $148,800, and sales for the current year of $200,000. How much is Hess's break-even point?
a. 9,200 units c. 12,400 units
b. $51,200 d. 4,267 units
17. At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?
a. $43.50 c. $16.00
b. $11.50 d. $27.50
18. The break-even point is where
a. total sales equal total variable costs.
b. contribution margin equals total fixed costs.
c. total variable costs equal total fixed costs.
d. total sales equal total fixed costs.
19. Blanton Company is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Blanton will break even at this level of sales, what are the fixed costs?
a. $240,000 c. $800,000.
b. $560,000. d. $960,000.
20. The equation which reflects a CVP income statement is
a. Sales = Cost of goods sold + Operating expenses + Net income.
b. Sales + Fixed costs = Variable costs + Net income.
c. Sales - Variable costs + Fixed costs = Net income.
d. Sales - Variable costs - Fixed costs = Net income.
21. Norman Company sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. What sales are needed by Norman to break even?
a. $120,000. c. $270,000.
b. $225,000. d. $360,000.
22. Norman Company sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. How many MP3 players must Norman sell to earn net income of $210,000?
a. 15,000 c. 3,750.
b. 5,250 d. 4,500.
.
23. Hilyer Company desires net income of $900,000 when it has $2,500,000 of fixed costs and variable costs of 60% of sales. Required sales equals
a. $4,000,000. c. $6,250,000.
b. $8,500,000. d. $5,666,667.
24. Given the following costs for Harvey Company, classify each cost as either variable, fixed, or mixed.
Total Cost at
4,000 Units 6,000 Units
Cost A $17,200 $25,800
Cost B 12,300 16,650
Cost C 13,000 13,000
a. Cost A and Cost B are variable; Cost C is fixed.
b. Cost A is variable; Cost B is mixed; Cost C is fixed.
c. Cost A and Cost B are mixed; Cost C is fixed.
d. Cost A is mixed; Cost B is variable; Cost C is fixed.
25. Hilyer Company desires net income of $900,000 when it has $2,500,000 of fixed costs and variable costs of 60% of sales. Required sales equals
a. $4,000,000. c. $6,250,000
b. $8,500,000. d. $5,666,667.
.
26. Capital budgeting is the process
a. used in sell or process further decisions. c. of making capital expenditure decisions.
b. of determining how much capital stock to issue. d. of eliminating unprofitable product lines.
27. Which of the following is not a common method of capital budgeting?
a. Gross profit method c. Net Present value method
b. Payback method d. Annual rate of return method
28. The higher the rate of return for a given risk, the
a. more attractive the investment. c. higher the cost of capital.
b. less attractive the investment. d. higher the hurdle rate.
29. A company projects an increase in net income of $225,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?
a. 25.0% c. 50.0%
b. 37.5% d. 57.5%
30. When using the payback method, payback is expressed in terms of
a. a percent. c. time.
b. dollars. d. a discount factor.
31. Cora Company is considering buying a machine for $54,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $9,000 each year. The cash payback on this investment is
a. 15.5 years. c. 6.5 years.
b. 10.75 years. d. 3.75 years.
32. A capital budgeting technique which takes into consideration the time value of money is the
a. annual rate of return approach. c. payback approach.
b. return on stockholders' equity approach. d. net present value method.
33. Which one of the following is correct?
a. Cash flows are used to calculate the net present value.
b. Accrual income is used to calculate the payback period.
c. Cash flows are used to calculate the annual rate of return.
d. Accrual income is used to calculate the net present value.
34. Compute the net present value of a P260,000 investment with a 10-year life, annual net cash flows of P50,000 and a discount rate of 12%. Present Value Factor is 5.6502
P(9,062).
P22,510.
P9,062.
P(22,510).
35. The payback capital budgeting technique considers
Income over entire life of project Time value of money
No No
No Yes
Yes Yes
Yes No
III. Financial Statement Analysis:
Compute for the Following for 2014.
Horizontal Analysis
1. Cash - Horizontal Analysis
2. Accounts Payable - Horizontal Analysis
3. Sales- Horizontal Analysis
Vertical Analysis
4. Operating Expense - Vertical Analysis
5. Property and Equipment - Vertical Analysis
6. Accounts Payable - Vertical Analysis
Ratio Analysis
7. Current Ratio
8. Quick Ratio
9. Gross Profit Ratio
10. Net Profit Ratio
11. Average Collection Period
12. Average Payment Period (Purchase amount is P21,680,636)
13. Debt Ratio
14. Equity Ratio
15. Return on Equity