FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

Name: ________________________________________ Score: _____________

Student no. ____________________________________ Date: ______________

Answer Sheet (please place your answer here when you upload):

1 21 41
2 22 42
3 23 43
4 24 44
5 25 45
6 26 46
7 27 47
8 28 48
9 29 49
10 30 50
11 31
12 32
13 33
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19 39
20 40

Multiple Choice.

1. The balance sheet is useful for analyzing all of the following except
A. liquidity. C. profitability.
B. solvency. D. financial flexibility.
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. comparisons with industry ratios are not meaningful.
C. 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. How are financial rations used in decision-making?
A. They can help identify the reasons for success and failure in business, but
decision making requires information beyond the ratios.
B. They remove the uncertainty of the business environment.
C. They aren’t useful because decision making is too complex.
D. They give clear signals about the appropriate action to take
4. Data portrayed in comparative financial statements are useful
A. in analyzing the sources of increase in assets.
B. to indicate earnings and costs trends.
C. in analyzing changes in gross and net earnings.
D. in performing (a) and (c) above only.
E. in accomplishing all of the above.
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

5. Last year, a business had no long-term investments; this year long term
investments amount to P100,000. In a horizontal analysis the change in long-term
investments should be expressed as
A. an absolute value of P100,000, and an increase of 100%
B. an absolute value of P100,000 and an increase of 1,000%
C. an absolute value of P100,000 and no value for a percentage change
D. no change in any terms because there was no investment in the previous
year.
6. Which of the following ratios would be LEAST helpful in appraising the liquidity of
current assets?
A. Accounts receivable turnover.
B. Current ratio.
C. Days’ sales in inventory.
D. Days’ sales in accounts receivable.

7. Statement A: Some of the cash flows shown on a timeline can be in the form of
annuity payments but none can be uneven amounts. Statement B: If the discount
(or interest) rate is positive, the present value of an expected series of payments
will always exceed the future value of the same series.

A. Both statements are true.

B. Both statements are false.
C. Statement A is true; Statement B is false.
D. Statement A is false; Statement B is true.

8. As a result of compounding, the effective annual rate on a bank deposit (or a loan)
is always equal to or less than the nominal rate on the deposit (or loan).

A. True
B. False

9. The payment made each period on an amortized loan is constant, and it consists
of some interest and some principal. The closer we are to the end of the loan's
life, the greater the percentage of the payment that will be a repayment of principal.

A. True
B. False

10. You plan to analyze the value of a potential investment by calculating the sum of
the present values of its expected cash flows. Which of the following would
increase the calculated value of the investment?

A. The cash flows are in the form of a deferred annuity, and they total to
Php100,000. You learn that the annuity lasts for 10 years rather than 5
years, hence that each payment is for Php10,000 rather than for
Php20,000.
B. The discount rate decreases.
C. The riskiness of the investment’s cash flows increases.
D. The total amount of cash flows remains the same, but more of the cash
flows are received in the later years and less are received in the earlier
years.
E. The discount rate increases.

11. After the initial year of operation, the Ryan and Sally Co. had the following data in
its operating result:
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

Net profit is P75,000. Selling expenses is 12.5% of sales and 25% of cost of sales.
General and administrative expenses and other expenses, 17.5% and 5% of sales,
respectively.
The gross profit is
A. P250,000 C. P75,000
B. P500,000 D. P175,000

12. Lordie Incorporated has a debt ratio of .42, noncurrent liabilities of Php20,000, and
total assets of Php70,000. What is Snort and Smiley’s level of current liabilities?
A. Php8,400 C. Php12,340
B. Php9,400 D. Php10,600

13. Rose Limited has a debt ratio of .57, current liabilities of Php14,000, and total
assets of Php70,000. What is the level of Spinnit, Limited’s total liabilities?
A. Php25,900 C. Php39,900
B. Php24,600 D. Php53,900

14. The following information pertains to the income statement of XYZ Co. for the year
ended December 31, 2019:
Merchandise inventory, end, 11% of net sales
Selling expenses, 15% of net sales
Gross profit of P17,500 is equal to 35% of net sales
Merchandise inventory, beginning, 8% of net sales
General and administrative expenses, 10% of net sales
Income tax for 2019, 25% of net income

The net income after income tax is

A. P3,750 C. P3,900
B. P7,500 D. Answer not given

15. In 2019, Pseudo Corporation’s net income was P800,000 and in 19x6 it was
P200,000. What percentage increase in net income must Psuedo achieve in 19x7
to offset the 2020 decline in net income?
A. 60% C. 400%
B. 600% D. 300%

16. Cash is P10,000, net accounts receivable amount to P22,000, inventory is

P55,000, prepaid expenses total P3,000, and current liabilities are P40,000. What
is the acid test ratio?
A. 2.25 C. 0.80
B. 0.25 D. 2.18

17. Given the following data: Current assets = 400; Current liabilities = 200; Inventory
= 100; Account receivables = 100, calculate the cash ratio:
A. 1.0 C. 1.5
B. 2.0 D. None of the above

18. GG enterprise has Php400 of current assets, composed of Php200 of cash,

Php100 of accounts receivable, and Php100 of inventory. The enterprise has
Php200 of long-term debt, Php100 of accounts payable, and Php75 of notes
payable. The notes payable is due in 6 months. The acid-test ratio, to two decimal
places, is
A. 0.80 C. 1.71
B. 1.29 D. 2.29
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

19. Lordie Co. has total debt of Php252,000 and stockholders' equity of Php420,000.
Lordie is seeking capital to fund an expansion. Lordie is planning to issue an
additional Php180,000 in common stock, and is negotiating with a bank to borrow
additional funds. The bank requires a maximum debt ratio of .75. What is the
maximum additional amount Lordie will be able to borrow after the common stock
is issued?
a. Php639,000 c. Php1,236,000
b. Php852,000 d. Php1,548,000

20. It is the policy of Liana Corp. that the current ratio cannot fall below 1.5 to 1.0. Its
current liabilities are P400,000 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. P266,667
B. P300,000 D. P800,000

21. Frannie Incorporated has an average collection period of 74 days. What is the
accounts receivable turnover ratio for Frannie? You may use a 360-day year.
A. 4.86 C. 2.66
B. 2.47 D. 1.68

22. The annual (360 days) credit sales of XYZ Company are P600,000. The credit
terms of the firm are net 60 days. The actual receivables for the firm are P200,000.
What is the accounts receivable turnover for XYZ?
A. Four. C. Three.
B. Two. D. Five

23. IPB, Inc.’s financial statements as at the year ended December 31, 2019 show
accounts receivable, net of P750,000 and sales at P15 million. Accounts
receivable remained relatively constant during the year. IPB’s accounts receivable
turnover in days is (Assume 365 days in one year)
A. 18.25 C. 15.25
B. 20.25 D. 16.25

24. Gina Industries has an accounts receivable turnover ratio of 4.3. If Gina has an
accounts receivable balance of Php90,000, what is Gina’s average daily credit
sales?
A. Php387,000 C. Php1,075
B. Php1,548 D. Php3,521

25. XYZ Corp. extends credit terms of 45 days to its customers. Its credit collection
would be considered poor if its average collection period was
A. 30 days. C. 47 days.
B. 36 days. D. 57 days.

26. Litom Inc. has a cash conversion cycle of 120 days, an average collection period
of 25 days, and an average payment period of 50 days. Litom Inc. average age of
inventory is ______ days.
A. 45 C. 125
B. 95 D. 145

27. Given the following data: Sales = 2000; Cost of goods sold = 1500; Average total
assets = 1600; Average inventory = 100, calculate the days in inventory:
A. 18.3 C. 22.8
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

B. 24.3 D. None of the above

28. Lipa Company's average number of days to sell inventory for the current year is
A. 51.18 days. C. 71.51 days.
B. 65.00 days. D. 72.50 days.

29. What would a company’s equity-debt ratio if: Current liabilities are P362,000; long-
term liabilities – P448,000; common stock paid-in P800,000 and retained earnings
– P658,000
A. 1.2:1 C. 1.6:1
B. 1.4:1 D. 1.8:1

30. Kliya Company has total assets of Php190,000 and total liabilities of Php90,000.
The company's debt-to-equity ratio is closest to:
A. 0.47 to 1. C. 0.53 to 1.
B. 0.90 to 1. D. 0.32 to 1.

31. Lipa Partnership has Php3 million in total assets, Php1.65 million in equity, and a
Php500,000 capital budget. To maintain the same debt-equity ratio, how much
debt should be incurred?
A. Php50,000 C. Php275,000
B. Php225,000 D. Php450,000

32. Litas Inc. has Php100 million in current liabilities, Php200 million in total long-term
liabilities and Php300 million in stockholders' equity, total assets of Php600 million.
Calculate the debt ratio for the firm.
A. 40% C. 50%
B. 20% D. None of the above

33. Given the following data: Long term debt = 100; Value of leases = 20; Book value
of equity = 80; Market value of equity = 100, calculate the debt ratio.
A. 0.56 C. 0.55
B. 0.60 D. 0.50

34. Data from an XYZ's balance sheet (in millions) is given in the table below.
Year 1 Year 2
Total assets 70 140
Long-term debt 30 60
Current liabilities 10 10
Based on an assessment of the enterprise's capital structure, the risk of bankruptcy
is
A. Zero in each year. C. Higher in Year 1.
B. The same in both years. D. Higher in Year 2.

35. RCPS Co. has total debt of Php252,000 and stockholders' equity of Php420,000.
RCPS is seeking capital to fund an expansion. RCPS is planning to issue an
additional Php180,000 in common stock, and is negotiating with a bank to borrow
additional funds. The bank requires a maximum debt ratio of .75. What is the
maximum additional amount RCPS will be able to borrow after the common stock
is issued?
A. Php639,000 C. Php1,236,000
B. Php852,000 D. Php1,548,000

36. Marie Co. has the following income statement items.

FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

Sales Php200,000
Cost of sales 80,000
Selling expenses 24,000
Depreciation 26,000
Interest expense 12,000
Income taxes 28,000
Net income Php 30,000

Marie has total assets of Php350,000 and a debt ratio of 30%. All equity is
common equity.
Times interest earned is
A. 2.0 times. C. 2.5 times.
B. 5.8 times. D. 3.5 times.

37. Shallow Load, Inc. has sales of Php3,450,000, total assets of Php1,240,000, and
total liabilities of Php275,000, which consist strictly of notes payable. The firm’s
operating profit margin is 16.1%, and it pays a 10% rate of interest on its notes
payable. How much is the firm’s times-interest-earned?
A. 15.6 C. 20.2
B. 45.3 D. 3.0

38. The following data pertains to Tarzan Corp.'s operations for the year ended
December 31, 1996:
Operating income P1,600,000
Interest expense 200,000
Income before income tax 1,400,000
Income tax expense 490,000
Net income 910,000
The times interest earned ratio is
A. 8.0 to 1 C. 5.6 to 1
B. 4.0 to 1 D. 7.0 to 1

39. Foodia Corporation has Php800,000 of debt outstanding, and it pays an interest
rate of 10 percent annually on its bank loan. Foodia’s annual sales are
Php3,200,000, its average tax rate is 40 percent, and its net profit margin on sales
is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its
bank will refuse to renew its loan, and bankruptcy will result. What is Foodia’s
current TIE ratio? A. 2.4 D. 4.0
B. 3.4 E. 5.0
C. 3.6

40. Fishy’s Loan Co. has an annual interest expense of Php30,000. If Fishy’s times-
interest-earned ratio is 2.9, what is Fishy’s Earnings Before Taxes (EBT)?
A. Php87,000 C. Php117,000
B. Php57,000 D. Php60,000

41. Marita Co. has the following income statement items.

Sales Php200,000
Cost of sales 80,000
Selling expenses 24,000
Depreciation 26,000
Interest expense 12,000
Income taxes 28,000
Net income Php 30,000
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

Marita has total assets of Php350,000 and a debt ratio of 30%. All equity is
common equity.
Cash flow to debt is
A. 0.57 C. 0.53
B. 0.15 D. some other number.

42. Lita Industries has sales of Php2,000,000, cost of goods sold of Php900,000,
operating expenses of Php650,000, and net income of Php150,000. Equity (all
common) totals Php990,000; the debt ratio is 45%. The gross profit ratio is
A. 7.5% C. 25.0%
B. 15.2% D. 55.0%

43. The following data were taken from the financial statements of Senjen Corporation
for the year ended December 31, 2019:
Net sales ............................................... Php120,000
Net income .............................................. 30,000
Total assets, January 1, 2019 ........................... 400,000
Total assets, December 31, 2019 ......................... 600,000
What was Senjen's rate of return on assets for 2019?
a. 5 percent c. 20 percent
b. 6 percent d. 24 percent

44. The average stockholders equity for XYZ Company for 2019 was P2,000,000.
Included in this figure is P200,000 par value of 8% preferred stock, which remained
unchanged during the year. The return on common shareholders’ equity was
12.5% during the 2019. How much was the net income of the company in 2019?
A. P234,000 C. P250,000
B. P241,000 D. P225,000

45. The following data pertains to Milan Corp. for the calendar year 2019:
Net income ---------------------------------------------------------------------P480,000
Dividends paid on common stock-------------------------------------------240,000
Common stock outstanding (unchanged during the year)------------300,000 shares
The market price/share of Mission Viejo’s common stock at December 31, 2019 is
P24
The price-earnings ratio at December 31, 2019 was
A. 15.0 to 1 C. 20.0 to 1
B. 30.0 to 1 D. 19.2 to 1

46. You are given the following information: Stockholders’ equity = Php1,250;
price/earnings ratio = 5; shares outstanding = 25; market/book ratio = 1.5.
Calculate the market price of a share of the company’s stock.
A. Php 33.33 D. Php166.67
B. Php 75.00 E. Php133.32
C. Php 10.00

47. The Lita Company projects the following for the upcoming year:
Earnings before interest and taxes P40 million
Interest expense P 5 million
Preferred stock dividends P 4 million
Common stock dividend payout ratio 20%
Average number of common shares outstanding 2 million
Effective corporate income tax rate 40%
The expected dividend per share of common stock is
A. P1.70 C. P2.10
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department

B. P1.86 D. P1.00

48. Dimpo Associates has a total asset turnover ratio of 1.90 and a return on total
assets of 7.20%. What is Dimpo’s net profit margin?
A. 3.79 C. 9.10
B. 13.68 D. None of the above

49. The Limpa Company has determined that its return on equity is 15 percent.
Management is interested in the various components that went into this
calculation. You are given the following information: total debt/total assets = 0.35
and total assets turnover = 2.8. What is the profit margin?
A. 3.48% D. 2.45%
B. 5.42% E. 12.82%
C. 6.96%

50. Likya Corporation has a net profit margin of 15% and a total asset turnover of 1.7.
What is Likya’s return on total assets?
A. 12.3% C. 8.8%
B. 25.5% D. 11.1%
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
MIDTERM EXAMINATION Faculty, Accountancy Department