Mas.m-1404. Financial Statements Analysis

STRAIGHT PROBLEMS

1. FINANCING RATIOS. Yolanda Corporation and Pablo Company disclose the following data on their balance sheet (in thousands):

Yolanda Corp.Pablo Corp.Debt, 10%

P 250,000P 500,000Shareholders equity

500,000

250,000Total equity

P 750,000P 750,000Earnings before interest and taxesP 375,000P 375,000

Interest expense

25,000

50,000

Required:

a. For each company, compute the following

RatiosFormulaYolanda Corp.Pablo Corp.

a. Debt rateTotal Debt/Total Assets33%67%

b. Debt-equity ratioDebt/SHE0.50:12:1

c. Equity multiplierTotal Equity/SHE1.50x3x

d. Times interest earnedEBIT/Interest expense15.007.50

b. Comment on the data you have computed.

2. INVESTING RATIOS. Char Corp. and Maine Co. revealed the following information on their published financial statements for the 2013 business operations (in thousands):

Char

Maine

Current assets

P640,000 P225,000

Investments

56,000

500,000

Property, plant, and equipment

56,000

50,000

Intangibles

32,000

15,000

Other assets

16,000

10,000Total assets

P800,000 P800,000

Required : For each company, determine the ratio component of each asset over the total assets. Comment on the data you computed

CharMaine

Current Assets80%28%

Investments763

Property, Plant and Equipment76

Intangibles42

Other Assets21

Total Assets100%

100%

3. HORIZONTAL AND VERTICAL ANALYSIS. The financial position of Primus Company at the end of 2012 and 2013 is as follows (pesos in thousands):

2013

2012

AssetsCash and cash equivalents

P3,000

P5,000

Trade and other receivables

40,000

25,000Inventory

27,000

30,000Investment property

15,000

0Property plant, and equipment (net)

100,000

75,000Intangible assets

10,000

10,000Other noncurrent assets

5,000

20,000Total assets

P200,000 P165,000

LiabilitiesCurrent liabilities

P30,000

P47,000Long-term liabilities

88,000

74,000Total liabilities

118,000

121,000

Shareholders Equity8% Preference equity

10,000

9,000Ordinary equity

54,000

42,000Share premium

5,000

5,000Retained earnings

13,000

(12,000)Total shareholders equity

82,000

44,000Total liabilities and shareholders equity P200,000 P165,000

Sales and cost of goods sold insignificantly change in 2013 in relation with 2012.

Required:

1. Prepare a comparative balance sheet showing peso and percentage changes for 2013 as compared with 2012.2. Prepare a common-size balance sheet as of December 31, 2013 and 2012.3. Based on your data derived in requirements 1 and 2, comment on the financial position of WCompany as of December 31, 2013.

4. COMPARATIVE AND COMMON-SIZE ANALYSIS. The operating activities of Franco Company for the year ended December 31, 2013 and 2012 are summarized below:

(in thousands)

2012

2013

Sales

P440,000

P480,000Cost of Goods Sold

(242,000)

(360,000)Selling and General Expenses(118,800)

(96,000)Interest expense

(30,800)

(33,600)Profit (loss) before income tax48,400

(9,600)Income tax (refund)

19,360

(3,840)Profit (loss)

P29,040

P(3,760)Required:

a. Prepare a horizontally analyzed Statement of Profit or Loss for 2013 and 2012.

b. Prepare a common-size Statement of Profit or Loss in 2013 and 2012.

c. Based on the above percentages, comment on the Ma. Co.s results of operations for 2013.

5. TREND RATIOS. G Corporations sales, current assets, and current liabilities have been reported as follows over the last five years (amount in thousands):

2013

2012

2011

2010 2009Sales

P10,800

P 9,600

P 9,200

P 8,640 P 8,000

Current assets 2,626

2,181

2,220

2,267 2,225Current liabilities 475

450

350

325 250

Required: Express all the sales, current assets, and current liabilities on trend index. Round your decimals up to 2 places.a. Use 2009 as the base year.b. Use 2013 as the base year.

6. PROFITABILITY RATIOS. The following data were taken from the records of F Company and T company (amounts in thousands and balance sheet data are on average)

F Co.

T Co.Sales

P 80,000

P 10,000Profit (loss)

3,050

640Interest expense

50

40Total assets

12,000

2,000Ordinary shareholders equity

6,000

500Preference dividends, cumulative

200

200No. of ordinary shares outstanding

600

50Tax rate

40%

40%

Required: Determine the following for F Company and T Company.7. BASIC PROFITABILITY RATIOS. Find the missing data (amount in millions).

abc

Net incomeP50??

Net salesP1,0004,000?

Total AssetsP400?P3,000

Shareholders equityP150??

Ordinary shares outstanding1,000,0001,000,0001,000,000

Profit margin?20%?

Asset turnover?0.2?

ROA??12%

ROE?10%10%

EPS???

8. BASIC PROFITABILITY RATIOS. Find the missing data.abc

Profit margin10%12%10%

Asset turnover45?

Equity multiplier1.25??

ROE??20%

Debt ratio?40%25%

Hint: EM = 1/ER9. BASIC GROWTH RATIOS. Consider the following data for the year ended December 31, 2012:

R Co.

J Co.Earnings per share

P 50

P 200Market price per ordinary share

150

500Dividend per ordinary share

40

120Dividend per preference share

10

20Total shareholders equity

Pl0 million P60 millionOrdinary shares outstanding

1 million

4 millionPreference shares outstanding

500,000 2 million, cumulativePeference shares liquidation value

P1.30 per share P1.30 per share

10. BASIC GROWTH RATIOS.2. Find the missing data.

abc

P/O rate96%?40%75% ?

P/E rate850% ?40%

Yield rate12%80%187.5% ?

Retention rate4% ?60% ?25%

Hint: P/O rate = P/E Rate x yield Rate

11. BASIC LIQUIDITY RATIOS. You are asked by the Chief Financial Officer of D Corporation to analyze its liquidity position in 2012. You have gathered the following data from the records of the company and industry published reports (in thousands):

D Corp

Industry AverageAverage cash

P3,500

P2,000

Average trade receivables

8,000

10,000Average inventory.

6,500

7,000Average trade payables

14,000

12,000Net credit sales

200,000

150,000Net sales

250,000

210,000Cost of sales

130,000

112,000Net credit purchases

140,000

96,000Net purchases

180,000

120,000

Daily cash operating expenses

30,000

42,000

The company uses a 360-day a year base. The credit terms offered to customers are 2/10, n/40. Suppliers give credit terms of 3/20, n/40.Required:

a. For D Corporation and the industry, compute the following (days are rounded):

FormulasD Corp.Industry Average

1. Receivables turnoverNCS/AR2515

2. Collection period360/RT1524

3. Inventory TurnoverCGS/Invty2016

4. Days to sell inventory360/IT

5. Payables turnoverNCP/AP

6. Payment period360/PT

7. Operating cycleCP+ID

8. Net cash cycleOC-PP

9. Net working capitalCA-CL

10. Working capital turnoverNS/NWC

11. Current ratioCA/CL

12. Quick-assets ratioQA/CL

13. Defensive interval ratioQuick Assets/Daily cash operating expenses

b. Comment on the ratios computed

12. EFFECTS OF LEVERAGE ON RETURN ON ORDINARY EQUITY. You are in the process of organizing a new company to produce and sell a lady beauty product. You feel that P5 million would be enough to finance the new companys operations. You are considering following financing mix in raising the needed money for investment.

Straight ordinary equity : All the PS million would be raised by issuance of ordinary shares.Shareholders equity mix: P3.5 million would be raised from ordinary shares issuances and P1.5 million from the sale of P100 pr, 10%, preference stock.

Leverage and equity mix: P3.0 million would be obtained from ordinary shares issuances and P2.0 million from issuance of a 12% bonds payable.

You estimated that the operations would generate an earning of P2 million each year before interest and taxes. The tax rate is 40%.

Required: Determine the best financing mix that would maximize return on ordinary equity.

MULTIPLE CHOICE QUESTIONS

BASIC CONCEPTS

1. Which of the following does not belong to the list?A. Common-size financial statements.B. Peso and percentage changes on financial statements.C. Financial ratios.D. Long-form report

2. When a balance sheet amount is related to an income statement amount in computing a ratio.A. The income statement amount should be converted to an average for the year.B. Comparison with industry ratios are not meaningfulC. The balance sheet amount should be converted to an average for the year.D. The ratio loses its historical perspective because a beginning of the year amount is combined with an end of the year amount.

3. A major problem in comparing profitability measures among companies is theA. Lack of general agreement over which profitabilityB. Differences in the size of the companiesC. Differences in the accounting methods used by the companiesD. Differences in the dividend policies of the companies

HORIZONTAL AND TREND ANALYSIS

4. In financial statement analysis, expressing all financial statement items as a percentage of base year amounts is called

A. Horizontal common-size analysisB. Vertical common-size analysisC. Trend analysisD. Ratio analysis

5. In 2011, MPX Corporations net income was P800,000 and in 2012 it was P200,000. What percentage increase in net income must MPX achieve in 2013 to offset the 2012 decline in net income?A. 60%

B. 600% C. 400%

D. 300%

6. The following ordinary size income statement is available for S Corporation for the two years ended December 31, 2013, and 2012

2013

2012Sales

100%

100%Cost of sales

55

70Gross profit on sales

45

30Operating expenses (including income tax expense) 20

18Net income

25%

12%

The trend percentages for sales are as follows:

2012

130%

2011

100%

What should be the trend percentage for gross profit on sales for 2013?A. 58.5

B. 130% C. 150%

D. 195%

Questions 7 and 8 are based on the following information:7. K Co. is preparing its ordinary-size financial statements and revealed the following information:

(in thousands of pesos)Accounts receivable

10,000Inventory

20,000Total current assets

35,000Total assets

84,000Bonds payable


7,000Sales revenue

75,000Cost of goods sold

62,000Income taxes expense

22,000

7. How would Ks inventory appear on a ordinary-size balance sheet?A. 11.9 % B. 23.8% C. 57.15% D. 65.3 %

8. How would Ks retained earnings appear on a ordinary-size balance sheet?A. 8.3%

B. 9.4%

C. 20.0%

D. 33.3%

9. Index numbers would probably be most interested in which ratio?A. Trend analysis.

C. Vertical analysis.B. Ratio analysis.

D. Ordinary-size statements.

VERTICAL ANALYSIS10. An income statement showing only component percentages is known asA. Common pesos statementB. Condensed income statementC. Common-size income statementD. Comparative income statement

11. In assessing the financial prospects for a firm, financial analysts use various techniques. Which of the following is an example of vertical ordinary-size analysis?A. an assessment of the relative stability of a firms level of vertical integration.B. a comparison in financial ratio from between two or more firms in the same industry.C. a statement that current advertising expense is 2% greater than in the prior year.

D. a statement that current advertising expense is 2% of sales.

12. Horizontal, vertical, and ordinary-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, ordinary-size analysis?A. Commission expense in 2013 is 10% greater than it was in 2012B. A comparison in financial ratio from between two or more firms in the same industryC. A comparison in financial form between two or more firms in different industriesD. Commission expense in 2013 is 5% of sales.

LEVERAGE RATIOS (FINANCING RATIOS)

questions 13 and 14 are based on the following data:

Gold Corporation

Selected Financial Data

For the Year ended December 31, 2013

Operating Income

P900,000Interest expense

100,000Income before income tax

800,000Income tax expense

320,000Profit

480,000Preference share dividends

200,000Profit available to ordinary shareholders280,000Ordinary shares dividends

120,000Increase in retained earnings

160,000

13. The times interest earned ratio isA.2.8 to 1 B.4.8 to 1C.8.0 to 1D. 9.0 to 1

14. The times preference dividend earned ratio isA. 1.4 to 1B. 1.7 to

C. 2.4 to 1D. 4.0 to 1

QuestiOns 15 nd 16 are based on the following information. Selected data from financial statements for the Years indicated ar prepared in thousands:

Year 2 OperationsNet Sales

P4,175Cost of goods sold

2,880Interest expense

50Income tax

120Gain on disposal of a segment (net of tax) 950

Administrative expense

385

December 31

Year 2

Year 1Cash

P32

P 28Trading securities

169

172Accounts receivable (net)

210

204Merchandise inventory

440

420Tangible fixed assets

480

420Current liabilities

370

268Total liabilities

790

225Ordinary shares outstanding

225

210Retained earnings

361

38015. The firms interest-earned ratio for M Corp. for year 2 is:A. 0.57 times

C. 3.50 timesB. 7.70 times

D. 6.90 times

16. The total debt-to-equity ratio for M Corp in year 2 isA. 3.49

B. 0.77

C. 2.07

D. 1.30

17. The following information pertains to AL Corporation as of and for the year ended Dec. 31, 2013?

Liabilities

P 60,000

Shareholders equity

P 500,000

Ordinary shares issued and outstanding10,000 shares

Net income

P 30,000

During 2013, AL officers exercised share options for 1,000 shares of share at an option price of P8 per share. What was the effect of exercising the share option?A. No ratios were affectedB. Assets turnover increased to 5.4%C. Debt to equity ratio decreased to 12%D. Earnings per share increased by P0.33

18. It refers to the practice of financing assets with borrowed capital. Its extensive use may impact on return on ordinary shareholders equity to be above or below the rate or return on total assets.A. Discounting.

C. Leverage.B. Mortgage.

D. Arbitrage.

19. When compared to a debt-to-asset ratio, a debt-to-equity ratio wouldA. Be lower than the debt-to-asset ratioB. Be higher than the debt-to-asset ratioC. Be about the same a the debt-to-asset ratioD. Have no relationship at all to the debt-to-asset ratio

20. If the ratio of total liabilities to shareholders equity increases, a ratio that must also increase isA. Time interest ratioB. The current ratioC. Total liabilities to total assetsD. Return on shareholders equity

21. A measure of the companys long-term debt paying ability isA. Return on assets

C. Dividend payoutB. Times interest earned

D. Length of the operating cycle

22. The relationship of the total Debt to the total equity of a corporation is a measure ofA. Liquidity

C. Creditor riskB. Profitability

Solvency

23. In the process of investing of surplus cash, the term riding the yield curve refers toA. Diversifying securities portfolio so that the firm has an equal balance of long-term versus short-term securities.B. Swapping different maturities of similar quality Debt securities in order to obtain higher yield.C. purchasing only the longest maturities for given rates of return.D. Adherence to the liquidity preference theory of securities investment

24. The company issued new ordinary shares in a three-for-one share split. Identify the statements that indicate the correct effect(s) of this transaction.

1. It reduces equity per share of ordinary share.2. Share of each ordinary shareholder is reduced3. The peso amount of capital share is increased.4 Working capital and current ratio are increased.

A. Statements 1 and 4 only are correctB. Statement 1 only is correctC. All four statements are correctD. Statements 3 and 4 only are correct

PROFITABILITY RATIOS25. Which of these ratios are measures of a companys profitability:1.Earnings per shares

5. Return on assets2. Current ratio

6. Inventory turnover3. Return on sales

7. Receivable turn-over4. Debt-equity ratio

8. price earnings ratio

A. All eight ratiosB. 1, 3, 5 and 8 onlyC. 1,3,5,6,7 and 8 onlyD. 1, 3 and S only

26. F Corporations books disclosed the following information as of & for the year ended Dec. 31, 2013:

Net Credit Sales

P2,000,000Net Cash Sales

500,000Merchandise Purchases

1,000,000Inventory At Beginning

600,000Accounts Receivable At Beginning

200,000Accounts Receivable At End

700,000Profit

100,000

Fs percent of net income on sales isA.4%

C. 44%

B. 9%

D. 56% Questions 27 to 29 are based on the following information: Northern Division reported the following results for 2013:

Annual sales P500,000Net earnings 80,000Investment 250,000

27. What is Northern Divisions return on sales?A. 16%

B. 20%

C. 25%

D. 32%

28. What is Northern Divisions asset turnover?A.0.5 to 1B. l to l

C.2 to l

D.3.125 to 1

29. What is Northern Divisions return on investment?A. 10%

B. 16%

C. 24%

D. 32%

30. J Goods, Inc. has a total asset turnover of 0.30 and a profit margin of 10 percent. The president is unhappy with the current return on assets; and he thinks it could be doubled. This could be accomplished (1) by increasing the profit margin to 15 percent and (2) by increasing the total assets turnover. What new asset turnover ratio, along with the is percent profit margin, is required to double the return on assets?A. 35%

B. 45%

C. 40%

D. 50%

31. JE & Co. has a Debt ratio of OSO, a total assets turnover of 0.25, and a profit margin of 10%. The president is unhappy with the current return on equity, and he thinks it could be doubled. This could be accomplished (1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will not change. What new debt ratio, along with the 14% profit margin, is required to double the return on equity?A. 0.75

B. 0.70

C. 0.65

D. 0.55

32. A fire has destroyed many of the financial records of R. Son & Co. You are assigned to put a financial report. You have found the return on equity to be 12% and the debt ratio was 0.40. What was the return on assets?A.5.35%

B.8.4%

C. 6.60%

D. 7.20%

33. Selected information for M Corp is as follows:

December 31

2012

2013Preference shares

P180,000 P180,000Ordinary shares

648,000


192,000

360,000Profit for year ended

144,000

240,000

What is Ms rate of return on average shareholders equity for 2013?A. 16.0% B. 20.0% C. 23.5% D. 26.0%

34. Selected information for V Company is as follows:

December 31

2012

2013Preference shares, 8%, par P100

nonconverte, non-cumulative

P125,000

P125,000Ordinary shares

300,000

400,000Retained earningS

75,000

185,000Dividends paid on Preference share for the year ended 10,000

10,000Profit for the year then ended

50,000

120,000

Y Co.s return on ordinary shareholders equity, rounded to the nearest percentage point, for2013 isA. 8.3%

B. 19%

C. 23%

D. 25%

Questions 35 to 38 are based on the following information:

The management of Q Corporation is preparing its plans for the year 2013. The average assets tobe employed for the year are estimated at P2,600,000 with 20% of this amount borrowed at nointerest cost. Materials and labor cost for the year is budgeted at p4,000,OO while operatingcosts is estimated at p1,500,000 All sales are to be billed at 162.5% of materials and labor cost.Income taxes is an average of 35% of income before income tax.

35. The estimated rate of return on sales for 2013 isA. 10.00%B. 12.50%C. 14.29% D. 27.86%

36. The estimated rate of return on average total assets for 2013 isA. 20.00% B. 25.00%C. 31.25% D. 40.50%

37. The expected asset turnover for 2013 isA. 20.00% B. 25.00%C. 31.25% D. 40.50%

38. The rate of return on shareholders equity for 2013 is A. 1.5 times


D. 3.75 times

39. If the return on total assets is 10% and if the return on ordinary shareholders equity is 12% thenA. The after-tax cost of long-term debt is probably greater than 10%.B. The after-tax cost of long-term debt is 12%.C. Leverage is negative.D. The after-tax cost of long-term debt is probably less than 10%.

40. Which of the following is an appropriate computation for return on investment?A. Income divided by total assetsB. Income divided by salesC. Sales divided by total assetsD. Sales divided by shareholders equity

41. Financial ratio, which assess the profitability of a company, include all of the following except theA. Dividend yield ratio

C. Earnings per share ratioB. Gross profit percentage

D. Return on sales ratio

42. Which of the following statements is incorrect?A. Profitability evaluation ratios have a higher power than solvency determination ratios predicting for performance for both income and solvency.B. Gross profit percentages do not vary a great deal among industries.C. It is appropriate to compare a companys current financial ratio with same financial ratio for(1) that company in prior years and/or (2) the ratio for the industry in which the company is affiliated.D. Companies which product costs present a high percentage of total costs could be expected to have a low gross profit percentage.

43. This ratio of analytical measurement measures the productivity of assets regardless of capital structuresA. Return on total assets.

B. Current ratioB. Quick ratio.

D. Debt ratio

GROWTH RATIOS44. At December 31, 2012, LM, Inc., had 100,000 shareS of PlO par value ordinary share issued and outstanding. There was no change in the number of shares outstanding during 2013. Total shareholders equity at December 31, 2013, P2,800,000. The net income for the year ended December 31, 2013, was P800,000. During 2013 LM paid P3 per share in dividends on its ordinary share. The quoted market value of LMs ordinary share was P48 per share on December 31, 2013. What was the price-earnings ratio on ordinary share for 2013?A. 9.6 to 1 B. 8.0 to 1 C. 6.0 to 1 D. 3.5 to 1

45. Data pertaining to CA Corp.s ordinary share are presented for the fiscal year ending May 31,2013:

Ordinary share outstanding

P750,000Stated value per share

15.00Market price per share

45.00 2007 dividends paid per share

4.502008 dividends paid per share

7.50Basic earnings per share

11.25Diluted earnings per share

9.00

The price earnings ratio of ordinary share of CA Corp is:A. 3.0 times.

C. 6.0 times.B. 7.0 times.

D. 5.0 times.

46. Associated Co. paid out one-half of its 2012 earnings by dividends. Its earnings increased by 20% and the amounts of its dividends increased by 15% in 2013. Associated dividend payout ratio for 2013 wasA. 51.5% B. 52.3% C. 75.00% D. 47.90%

47. Given a years end net income of P1.5 million and 50,000 ordinary shares outstanding throughout the year with market price per share at years being P120, the price-earnings ratio is:A. 2 times. B. 3 times. C. 4 times. D. 5 times.

48. The following data pertain to A Corporation for the calendar year 2013:Net income

240000Dividends paid on ordinary share

120,000Ordinary share 0utstanding (unchanged during the year)

300,000 shares

The market price per share of As ordinary share at December 31, 2013 was P12.

The price- earnings ratio at December 31, 2013 wasA. 9.6 to 1 B. 10.0 to 1 C. 15.0 to 1 D. 30.0 to 1

Items 49 and 50 are based on the following data:

P Company was organized on January 2, 2013, with the following capital structure:10% cumulative preference share, pare value P100 and liquidation value, P105;authorized, issued and outstanding 1,000 shares P 100,000Ordinary share, par value P25, authorized100,000 sharea; issued and outstanding 10,000 shares P 250,000

Ps net income for the year ended December 31, 2013, was p450,000, but no dividends weredeclared.

49. How much was Ps book value per preference share at December 31, 2013?A. P100

B. P105

C. P110

D. P115

50. How much was Ps book value per ordinary share at December 31, 2013?A. P45.00 B. P68.50 C. P69.50 D. P70.00

51. H Corporations shareholders equity at December 31, 2013, consisted of the followingPreference share, P50 par value,10% noncumulative 10,000 shares issued and 0utstanding

P500,000Ordinary share, Pl0 par value; 80,000 shares issued and outstanding 800,000Retained earnings

300,000The preference share has a liquidating value of P55 per share. At December 31, 2013, the book value per share of ordinary share isA. P14.38 B. P13.75 C. P 13.13 D. P10.00

52. R Corporations current balance sheet reports the following shareholders equity balances:5% cumulative preference share, P100 par value, 2,500 sharesissued and outstanding

P 250,000Ordinary share, P3.50 par value, 100,000 shares issued and outstanding 350,000Share premium


300,000

Dividends in arrears on the preference share amount to P25,000. If R were to be liquidated, the preference shareholders would receive par value plus a premium of P50,000. The book value per share of ordinary share isA. P7.75

B. P7.50

C. P7.25

D. P7.00

53. V Corporation was authorized to issued 1,000 shares of p100 par, 8% cumulative preference share and 100,000 shares of P100 par ordinary shari. The equity account balances at December 31, 2013 are as follows:Cumulative preference share

P50,000Ordinary share

90,000Share premium


13,000Treasury share, ordinary 100 shares at cost (2,000)

Dividends On preference share are in arrears for the year 2009. The book value of a share of ordinary share at December 31, 2013 should beA. P117.80 B. P119.10 C. P122.50 D. P123.60

54. For a company that has only ordinary share outstanding, total shareholders equity divided by the number of shares outstanding represents theA. Return on equity.

C. Book value per share.B. Stated value per share.

D. Price-earnings ratio.

55. How are the dividends per share for ordinary share used in the calculation of the following?

Payout ratio

Earnings per shareA.

Denominator

DenominatorB.

Denominator

Not usedC.

Numerator

Not usedD.

Numerator

Numerator

56. How are the following used in the calculation of the dividend payout ratio for a company with only ordinary share outstanding?

Dividends per

Earnings

Book value

share

per share

per shareA. Denominator

NumeratorNot usedB.Denominator

Not used

NumeratorC. Numerator

DenominatorNot usedD. Numerator

Not used

Denominator

LIQUIDITY RATIOS57. Information from M Corporations balance sheet is as follows:Current assets:Cash

P 2,400,000Held for trading

7,500,000Accounts receivable

66,300,000Inventories

57,600,000Prepaid expenses

1,200,000Total current assets

P135,000,000

Current liabilities:Notes payable

P 1,500,000Accounts payable

19,500,000Accrued expenses

12,500,000Income taxes payable

500,000Payments due within one year on long-term-debt

3,500,000Total current liabilities

P 37,500,000

What is the quick (acid) test ratio?A. 2.03 to 1

C. 1.99 to 1B. 1.80 to 1

D. 3.60 to 158. A Corporations books disclosed the following information as of and for the year ended December 31, 2013:

Net credit sales

P3,000,000Net cash sales

480,000Accounts receivable at beginning

400,000Accounts receivable at end

800,000

As accounts receivable turnover isA. 3.75 times


D. 5.80 times

59. Selected information from the operating records of Kay Company is as follows:Net sales

P1,800,000Cost of goods sold for 2013

1,200,000Inventory at 12/31/12

360,000Inventory at 12/31/13

312,000

Kays inventory turnover for 2013 isA. 3.57 times


D. 5.77 times60. Given an acid test ratio of 2.0, current assets of P5,000, and inventory of P2,000, the value of current liabilities isA. P1,500

C. P3,500B. P2,500

D. P6,000 (cia)

61. Based on the data presented below, what is Beta Corporations cost of sales for the year?Current ratio 3.5Acid test ratio 3.0Year-end current liabilities P600,000Beginning Inventory P500,000Inventory turnover 8.0

A. P1,600,000

C. P3,200,000B. P2,400,000

D. P6,400,000 (cma)

62. During 2013, L Company purchased P960,000 of inventory. The cost of goods sold for 2013 was P900,000, and the ending inventory at December 31, 2013 was P180,000. What was the inventory turnover for 2013?A. 6.4

B. 6.0

C. 5.3

D. 5.0

63. Selected information from the accounting records of J Company is as follows:Net sales for 2013

P 1,800,000Cost of goods sold for 2013

1,200,000Inventories at December 31, 2012 336,000Inventories at December 31, 2013 288,000

Assuming there are 300 working days per year, what is the number of days sales in average inventories for 2013.A. 78

B. 72

C. 52

D. 48

64. The following computations were made from B Companys 2013 booksNumber of days sales in inventory

61Number of days sales in trade accounts receivable 33What was the number of days in Bs 2013 operating cycle?A. 33

B. 94

C. 61

D. 47

65. If the average age of the inventory is 90 days, the average age of accounts payable is 60 days, and the average age of accounts receivables is 65 days, the number of days in the cash flow cycle isA. 95 days.

C. 215 days.B. 125 days.

D. 85 days.66. Selected data from the year-end financial statements of U Corp. are presented below. The difference between average and ending inventories is immaterial.Current ratio 2.0Quick ratio 1.5Current liabilities P600,000Inventory turnover (based on cost of sales) 8 timesGross profit margin 40%

Us net sales for the year wereA. P2.4 million.

C. P1.2 million.B. P4.0 million.

D. P6.0 million.

67. O Corporation has current assets totaling P15 million and a current ratio of 2.5 to 1. What is Os current ratio immediately after it has paid P2 million of its accounts payable?A 3.75 to 1

C.3.25 to 1B.2.75 to 1

D.4.75 to 1

68. E Companys net accounts receivable were P250,000 at December 31, 2012, and P300,000 atDecember 31, 2013. The accounts receivable turnover for 2013 was 5.0. What were Es total net sales for 2013?A. P1,375,000

C. P1,600,000B. P1,500,000

D. P2,750,000

69. It is the policy of F Corp. that the current ratio cannot fall below 1.5 to 1.0. Its current liabilities are p400,00 and the present current ratio is 2 to 1. How much is the maximum level of new short-term loans it can secure without violating the policy?A. P400,000

C. P266,667B. P300,000

D. P800,000

70. Mr. S, the owner of FT Co. is arguing with his accountant as to the best measure of liquidity. He was considering the following and you are to advise him which one is the best. Which one will you choose?A. Current assets minus inventories to current liabilities.B. Total assets minus goodwill to total liabilities.C. Net income minus dividends to interest expense.D. Sales minus returns to total Debt.

71. LT Corp. has an acid test ratio i.5 to 1.0. Which of the following will cause this ratio to deteriorate?A. payment of cash dividends previously declaredB. Borrowing short term loan from a bankC. Sale of inventory on accountD. Sale of equipment at a loss

72. How are trade receivables used in the calculation of each of the following

Acid test (quick ratio)

Receivable turnoverA.

Numerator

NumeratorB.

Numerator

DenominatorC.

Denominator

DenominatorD.

Not used

Numerator

73. If current assets exceed current liabilities, payments to creditors made on the last day of the month willA. Decrease current ratioB. Increase current ratioC. Decrease net working capitalD. Increase net working capital

74. X, Inc. has current ratio of 4:1. Which of the following transactions would normally increase its current ratio?A. purchasing inventory on accountB. purchasing machinery for cash C. Selling inventory on account D. Collecting an account receivable

75. Which of the following ratios measures short-term solvency?A. Current ratio

B. Age of receivablesC. Creditors equity to total assetsD. Return on investment

76. Shortterm creditors would probably be most interested in which ratio?

A. Current ratio

C. Debt-to-equity ratio

B. Earnings per share

D. Quick ratio.

77. On December 31, 2013, F Company collected a receivable due from a major customer. Which of the following ratios would be increased by this transaction?A. Inventory turnover ratioB. Quick ratioC. Receivable turnover ratioD. Current ratio

78. A company has a current ratio of 2 to 1. This ratio will decrease if the companyA. receives a 5% share dividend on one of its marketable securitiesB. Pays a large account payable which had been a current liabilityC. Borrows cash on a six-month noteD. Sells merchandise for more than cost and records the sale using the perpetual inventory method

79. How is the average inventory used in the calculation of each of the following?

Acid test (quick ratio)

Inventory turnover rateA.

Numerator

NumeratorB.

Numerator

DenominatorC.

Not used

DenominatorD.

Not used

Numerator

80. The ratio that measures a firms ability to generate earnings from its resources isA. Days sales in inventory

C. Sales to working capitalB. Asset turnover

D. Days sales in receivables

81. XO Co. has a high sales-to-working capital ratio. This could indicateA. The firm is undercapitalizedB. The firm is likely to have liquidity problems.C. Working capital is not profitability utilized.

D. The firm is not profitable.82. The ratio of sales to working capital is a measure ofA. Collectibility

C. LiquidityB. Operational leverage

D. Financial leverage

83. Jack & Sons, Inc. has a 2 to 1 acid test (quick) ratio. This ratio would decrease to less than 2 to 1 ifA. the company purchased inventory on open account.B. the company sold merchandise on open account that earned a normal gross margin.C. the company collected an account receivable.D. the company paid an account payable.

COMPREHENSIVE PROBLEMSQuestions 84 through 87 are based on the following information:

You are requested to reconstruct the account of OS Supplies for analysis. The following data were made available to you:Gross margin for 2013 amounted to

P472,500.Ending balance of merchandise inventory was

P300,000.Long-term liabilities consisted of bonds payable with interest rate of 20%.Total shareholders equity as of December 31, 2013 was

P750,000.Gross margin ratio

35%Debt-to-equity ratio

0.8 to 1Times interest earned

10Quick ratio

1.3 to 1Operating expenses to sales ratio

18%

84. What is the operating income for 2013?A. P472,500

C. P206,500B. P243,000

D. P229,500

85. How much was the bonds payable?A. P400,000

C. P114,750B. P200,750

D. P370,500

86. Total current liabilities would amount toA. P600,000

C. P485,250B. P714,750

D. P550,000

87. Total current assets would amount toA. P630,825

C. P580,000B. P780,000

D. P930,825

Questions 88 and 89 are based on the following information AA Corporation registered accelerated increase in its net income from p437,500 in 2012 to P1,260,000 in 2013. Rate of return on current assets increased from 25% in 2012 to 30% in 2013. Current asset turnover, on the other hand, went up to 2.87 turnovers in 2011 from 2.45 turnovers in 2012

88. The average investment in current assets of AA Corporation in 2013 was:A. P1,697,500

C. P4,200,000B. P1,750,000

D. P5,040,000

89. The cost of goods sold and operating expenses, including depreciation, in 2013 amounted to:A. P10,794,000

C. P6,022,500B. P5,022,500

D. P12,054,000

Documents

Mas.m-1404. Financial Statements Analysis