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Set A Financial Management-answer key midterm
Accountancy (University of Luzon)
Studocu is not sponsored or endorsed by any college or university
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UNIVERSIDAD DE DAGUPAN
Arellano Street, Dagupan City
School of Business and Accountancy
FINANCIAL MANAGEMENT
CAEC14
Midterms Examination
AY 2021-2022
SET A
A. Multiple Choice
Question Nos. 1 through 4 are based on the following information:
Apollo Merchandiser asks your services to develop cash and other budget
information for the first quarter of 2007. In December 31, the store
had the following balance:
Cash
Accounts receivable
Inventories
Accounts payable
P 55,000
4,370,000
3,094,000
1,330,550
The following information are relevant to 2007 operations:
Sales:
a. Each month’s sales are billed on the last day of the month.
b. Customers are allowed a 3 percent discount if payment is made within
10 days after the billing date. Receivables are booked gross.
c. Sixty percent of the billings are collected within the discount
period, twenty-five percent are collected by the end of the month,
nine percent are collected by the end of the second month, and six
percent are considered entirely uncollectible.
Purchases:
1. Fifty four percent of all purchases and selling, general, and
administrative expenses are paid in the month purchased and the
remainder in the following month.
2. Each month’s units of ending inventory is equal to one hundred thirty
percent of the next month’s units of sales.
3. The cost of each unit of inventory is P200.
4. Selling, general, and administrative expenses, of which P20,000 is
depreciation, are equal to fifteen percent of the current month’s
sales.
Actual and projected sales are as follows:
UNITS
PESOS
November
11,800
P3,540,000
December
12,100
3,630,000
January
11,900
3,570,000
February
11,400
3,420,000
March
12,000
3,600,000
April
12,200
3,660,000
1.) The respective amounts of budgeted purchases for the months of
January and February are:
A.
P2,418,000 and P2,360,000 C.
P2,250,000 and P2,436,000
B.
P2,380,000 and P2,280,000 D.
P3,570,000 and P3,420,000
2.) The budgeted cash disbursements for the month of February are:
A.
P2,929,000
C.
P2,949,000
B.
P2,873,790
D.
P2,853,790
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3.) The amount of cash collected from sales during the month of January
is:
A.
P3,338,760
C.
P3,404,100
B.
P3,551,160
D.
P3,556,560
4.) The number of units to be purchased during the month of March is:
A.
15,860
C.
12,000
B.
12,260
D.
15,600
Question Nos. 5 through 11 are based on the following data:
The Ingo Corporation makes standard-size 2-inch fasteners, which it
sells for P155 per thousand. Irine Tee, the major stockholder, manages
the inventory and finances of the company. She estimates sales for the
following months to be:
January
February
March
April
May
P263,500
P186,000
P217,000
P310,000
P387,500
(1,700,000
(1,200,000
(1,400,000
(2,000,000
(2,500,000
fasteners)
fasteners)
fasteners)
fasteners)
fasteners)
Last year Ingo Corporation's sales were
P232,500 in December (1,500,000 fasteners).
P175,000
in
November
and
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation
to arrange the financing for the first quarter. Based on her sales
forecast and the following information she has provided, you have to
prepare a monthly cash budget, a monthly and quarterly pro forma income
statement, a pro forma quarterly balance sheet, and all necessary
supporting schedules for the first quarter.
Past history shows that Ingo Corporation collects 50 percent of its
accounts receivable in the normal 30-day credit period (the month after
the sale) and the other 50 percent in 60 days (two months after the
sale). It pays for its materials 30 days after receipt. In general, Ms.
Tee likes to keep a two-month supply of inventory in anticipation of
sales. Inventory at the beginning of December was 2,600,000 units.
(This was not equal to her desired two-month supply.)
The major cost of production is the purchase of raw materials in the
form of steel rods, which are cut, threaded, and finished. Last year
raw material costs were P52 per 1,000 fasteners, but Ms. Tee has just
been notified that material costs have risen, effective January 1, to
P60 per 1,000 fasteners. The Ingo Corporation uses FIFO inventory
accounting. Labor costs are relatively constant at P20 per thousand
fasteners, since workers are paid on a piecework basis. Overhead is
allocated at P10 per thousand units, and selling and administrative
expense is 20 percent of sales. Labor expense and overhead are direct
cash outflows paid in the month incurred, while interest and taxes are
paid quarterly.
The corporation usually maintains a minimum cash balance of P25,000,
and it puts its excess cash into marketable securities. The average tax
rate is 40 percent, and the company usually pays out 50 percent of net
income in dividends to stockholders. Marketable securities are sold
before funds are borrowed when a cash shortage is faced. Ignore the
interest on any short-term borrowings. Interest on the long-term debt
is paid in March, as are taxes and dividends.
As of year-end, the Ingo Corporation balance sheet was as follows:
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Ingo Corporation
Balance Sheet
December 31, 2006
ASSETS
Current assets:
Cash
Accounts receivable
Inventory
Total current assets
Plant and equipment,
net of accumulated depreciation of P200,000
Total Assets
800,000
1,387,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
Long-term debt, 8%
Common stock
Retained earnings
Total Liabilities and Stockholders’ Equity
93,600
400,000
504,200
390,000
1,387,800
30,000
320,000
237,800
587,800
5.) The budgeted production respective to each month of the first
quarter of the coming year are:
A. 1,400,000;2,000,000;2,500,000 C. 2,500,000;2,000,000;1,400,000
B. 1,400,000;2,500,000;2,000,000 D. 2,000,000;1,400,000;2,500,000
6.) The amount of accounts payable paid in March for the purchase of
materials is:
A. P150,000
C. P104,000
B. P120,000
D. P130,000
7.) The expected cash collections on accounts receivable in the month
of February are:
A. P224,750
C. P 93,000
B. P248,000
D. P186,000
8.) The amount of accounts receivable outstanding as of March 31, 2007
is:
A. P217,000
C. P310,000
B. P224,750
D. P108,500
9.) The cost of goods sold for the first quarter of the coming year
amounts to:
A. P363,800
C. P426,400
B. P453,600
D. P373,400
10.) The total cash and marketable securities as of January 31 will
be:
A. P45,450
C. P91,800
B. P25,000
D. P54,450
11.) The expected net income during the first quarter of the coming
year is:
A. P 91,080
C. P 96,840
B. P161,400
D. P151,800
Question Nos. 12 through 14 are based on the Russon Corporation, a
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retailer whose sales are all made on credit. Sales are billed twice
monthly, on the 10th of the month for the last half of the prior
month’s sales, and on the 20th of the month for the first half of the
current month’s sales.
The terms of all sales are 2/10, net 30.
Based upon past experience, the collection of accounts receivable is
as follows:
Within the discount period
80%
On the 30th day
18%
Uncollectible
2%
Russon’s average markup on its products is 20% of the sales price.
All sales and purchases occur uniformly throughout the month.
The
sales value of shipments for May and the forecasts for the next four
months follow:
May (actual)
P500,000
June
600,000
July
700,000
August
700,000
September
400,000
Russon purchases merchandise for resale to meet the current month’s
sales demand and to maintain a desired monthly ending inventory of 25%
of the next month’s sales. All purchases are on credit with terms of
net/30.
Russon pays for 50% of a month’s purchases in the month of
purchase and 50% in the month following the purchase.
12.) How much cash can Russon plan to collect in September from sales
made in August?
A. P337,400
C. P400,400
B. P343,000
D. P280,000
13.) The budgeted peso value of Russon’s inventory on August 31 will
be
A. P110,000
C. P112,000
B. P 80,000
D. P100,000
14.) How much cash can Russon plan to collect from accounts receivable
during July?
A. P574,000
C. P619,000
B. P662,600
D. P608,600
15.) The Avelina Company has the following historical pattern on its
credit sales.
70
percent collected in month of sale
15
percent collected in the first month after sale
10
percent collected in the second month after sale
4
percent collected in the third month after sale
2
percent uncollectible
The sales on open account have been budgeted for the last six months
of 2007 are shown below:
July
August
September
October
November
December
60,000
70,000
80,000
90,000
100,000
85,000
The estimated total cash collections during the fourth calendar
quarter from sales made on open account during the fourth calendar
quarter would be
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A. P172,500
B. P230,000
C. P265,400
D. P251,400
16.) Budgeted sales for the first six months of 2001 for Henry Corp.
are listed below:
Feb
Mar
Apr
May
June
Jan
UNITS
6,000
7,000
8,000
7,000
5,000
4,000
:
Henry Corp. has a policy of maintaining an inventory of finished goods
equal to 40 percent of the next month's budgeted sales. If Henry Corp.
plans to produce 6,000 units in June, what are budgeted sales for
July?
a. 3,600 units
b. 1,000 units
c. 9,000 units
d. 8,000 units
17.) Beatless Corp, plans to sell 200,000 units of Let-It-Be product
in July and anticipate a growth in sales of 5% per month. The target
ending inventory in units of the product is 80% of the next month’s
estimated sales. There are 150,000 units in inventory as of the end
of June.
The production requirement in units of Let-It-Be for the
quarter ending September 30 would be
a. 670,560
b. 691,525
c. 665,720
d. 675,925
18.) Mien Co. is budgeting sales of 53,000 units of product Nous for
October 2000. The manufacture of one unit of Nous requires 4 kilos of
chemical Loire.
During October 1998, Mine plans to reduce the
inventory of Loire by 50,000 kilos and increase the finished goods
inventory of Nous by 6,000 units.
There is no Nous work in process
inventory. How many kilos of Loire is Mien budgeting to purchase in
October 2000?
a. 138,000
b. 162,000
c. 186,000
d. 238,000
19.) Next month’s budgeted sales for TEMP is 18,000 units. Each unit
of product TEMP uses 6 kilograms of raw materials. The production and
inventory budgets for June 1992 are as follows:
Opening Inventory
Planned Ending
Inventory
Raw materials
21,000 kgs.
24,400 kgs.
Finished goods
15,000 units
11,400 units
During the production process, it is usually found that 10% of
production units are scrapped as defective and this loss occurs after
the raw materials have been placed in process.
What will the raw material purchases be in June?
a. 89,800 kgs.
b. 96,000 kgs.
c. 98,440 kgs.
d. 99,400 kgs.
Questions 20 and 21 are based on the following information.
Sta. Barbara is one of the manufacturers of a part used in the
production of a popular consumer product.
Sales of the consumer
product in 1985 are estimated at 5,000,000 units.
Sta. Barbara
regularly supplies 40% of the parts used in the new products.
Two
parts units are needed for each product unit.
Aside from the new
products, there is also a replacement parts market.
Over the past
three years, the company has sold the following number of replacement
parts:
1982
300,000
1983
330,000
1984
363,000
This trend is expected to continue. The parts are sold for P4 per
piece in the new products market and P4.50 in the replacement parts
market.
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20.) The estimated number of parts to be sold by Sta. Barbara in 1985
is
a. 2,399,300
b. 4,000,000
c. 4,399,300
d. 4,435,600
21.) The amount of expected revenue based on the estimated number of
parts to be sold in 1985 is
a. P9,796,850
b. P16,000,000
c. P17,597,200
d. P17,796,850
22.) In preparing its cash budget for July, 19x7, Art Company made the
following projections
Sales
P1,500,000
Gross Profit
25%
Decrease in inventories
P
70,000
Decrease in accounts payable for inventories
120,000
For July, 19X7,
inventories?
a. P1,050,000.
what
were
the
b. P1,055,000.
estimated
cash
c. P1,175,000.
disbursement
d. P
for
935,000.
23.) Cook Co.’s total costs of operating five sales offices last year
were $500,000, of which $70,000 represented fixed costs.
Cook has
determined that total costs are significantly influenced by the number
of sales offices operated.
Last year’s costs and number of sales
offices can be used as the bases for predicting annual costs.
What
would be the budgeted cost for the coming year if Cook were to operate
seven sales offices?
a. $700,000
b. $672,000
c. $602,000
d. $586,000
24.) Each unit of product ZIM takes five direct labor hours to make.
Quality standards are high and 8% of units produced are normally
rejected due to substandard quality.
Next month’s budgets are as
follows:
Beginning inventory of finished goods
Planned ending inventory of finished
goods
Budgeted sales of ZIM
3,000 units
7,600 units
36,800 units
All stocks of finished goods must have successfully passed the quality
control check. What is the direct labor budget for the month?
a. 198,720 hours b. 200,000 hours c. 223,500 hours d. 225,000
hours
25.) Tropical Manufacturing Corporation is using the following
flexible-budget formula for annual indirect labor cost: Total cost =
P12,000 + P0.75 per machine hour. For the month of June, the
operating budgets are based upon 10,000 hours of planned machine time.
Indirect labor costs included in this planning budget are
a. P7,500
b. P8,500
c. P17,500
d. P19,500
Questions 26 and 27 are based on the following information.
The budget committee of Ferbel Company is preparing its manufacturing
budget for the year 1983. Initial estimates indicate an annual sales
forecast of 40,000 units.
The company shall also need 10,000 units
for stock. Economic lot purchases of 1,750 kilos of material A at P8
per kilo and 1,000 liters of material B at P15 per liter are required
to produce the 50,000 units.
Budgeted factory overhead expenses for this production are:
Fixed factory overhead
Supervision
P4,000
Depreciation
P2,300
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Insurance
Variable factory overhead
Indirect labor
Indirect supplies
General factory
P
500
P0.50 per direct labor hour
P0.008 per unit
P0.10 per direct labor hour
Labor hours and rates for the two operations are
Operation 1
4,000 hours at P5.00 per hour
Operation 2
2,000 hours at P4.50 per hour
26. Based on the above information, the budgeted total manufacturing
costs for Ferbel Company for the year 1983 would be
a. P51,040
b. P60,800
c. P68,800
d. P76,560
27. The factory overhead rate based on direct labor hours would be
a. P0.67 per direct labor hour
c. P2.16 per direct labor hour
b. P1.80 per direct labor hour
d. P2.70 per direct labor hour
28. Budji Corp. is preparing
following were reported:
Sales (100,000 units)
Cost of Goods Sold
Gross Profit
Operating Expenses (including
P40,000)
Net Income
its
budget
for
depreciation
19B.
For
19A,
the
P1,000,000
600,000
P
400,000
240,000
of
P
160,000
Selling prices will increase by 10% and sales volume in units will
decrease by 5%. The cost of goods sold as a percent of sales will
increase to 62%. Other than depreciation, all operating costs are
variable. Budji will budget a net income for 19B of
a. P167,100
b. P167,500
c. P168,000
d. P176,000
29.) Karmel, Inc. pays out sales commissions to its sales team in the
month the company receives cash for payment. These commissions equal
5% of total (monthly) cash inflows as a result of sales. Karmel has
budgeted sales of $300,000 for August, $400,000 for September, and
$200,000 for October. Approximately, half of all sales are on credit,
and the other half are all cash sales. Experience indicates that 70%
of the budgeted credit sales will be collected in the month following
the sale, 20% the month after that, and 10% of the sales will be
uncollectible.
Based on this information, what should be the total
amount of sales commissions paid out by Karmel in the month of
October?
a. $8,500
b. $13,500
c. $17,000
d. $22,000
30.) It is budgeting time for Del Co. The following assumptions were
agreed upon for the next year after a strategic planning session which
covered a five-year horizon
1. Sales is estimated to be at 70,000 units at its national selling
price of P126.00.
75% of total sales are on credit.
1.5% of net
sales is provided for doubtful accounts.
2. Sales discounts are given to various customers at different rates
and net to gross ratio is at 93%
3. Mark-up on merchandise is at 45% of invoice cost.
Beginning
inventory is P80,900 and is expected to be reduced by P15,000 at the
end of the period.
4. Selling and administrative expenses is expected to be 15% of gross
sales.
5.
Depreciation is computed at P500,000.
The projected operating income for the year is
a. P252,741
b. P296,841
c. P252,341
d. P173,802
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31.) Which of these statements are advantages of profit planning?
1.
Develops profit-mindedness, encourages cost consciousness and
resources utilization throughout the company.
2.
Provides vehicle to communicate objectives, gain support for the
plan, of what is expected, thereby developing a sense of commitment to
achieve established goals.
3.
Provides yardstick to evaluate actual performance; encouraging
efficiency, increasing output and reducing cost.
4.
Provides a sense of direction for the company and enhances
coordination of business activity.
5.
Eliminates or takes over the role of administration by providing
detailed information t1hat allows executives to operate toward
achievement of the organization’s objectives.
a. Statements 3, 4, and 5 only. c. Statements 1, 3, and 4 only.
d. Statements 1, 2, 3, and 4 only.
b. All five statements.
32.) For a company that does not have resource limitations in what
sequence would the budgets be prepared?
1. cash budget
4. production budgets
2. sales budget
5. purchase budgets
3. inventory budgets
a. sequence 2, 3, 4, 5 and 1
c. sequence 2, 4, 3, 5 and 1
b. sequence 2, 3, 4,1 and 5
d. sequence 4, 3, 2, 1 and 5
33.) A budget that identifies revenues and costs with an individual
controlling their incurrence is
a. Master budget
c. Responsibility budget
b. Product budget
d. None of the above
34.) If a company has a policy of maintaining an inventory of finished
goods at a specified percentage of the next month's budgeted sales,
budgeted production for January will exceed budgeted sales for January
when budgeted
a.
February sales exceed budgeted January sales.
b.
January sales exceed budgeted December sales.
c.
January sales exceed budgeted February sales.
d.
December sales exceed budgeted January sales.
35.) A company that maintains a raw material inventory, which is based
on the following month's production needs, will purchase less material
than it uses in a month where
a.
sales exceed production.
b.
production exceeds sales.
c.
planned production exceeds the next month's planned production.
d.
planned production is less than the next month's planned
production.
36.) A company has prepared a cash budget for January through June of
20x3.
Which of the following, discovered in February 20x3, is LEAST
likely to require revising the cash budget?
a. February sales are lower than budgeted.
b. The interest rate on short-term borrowing is higher than budgeted.
c. The company increased from 10% to 20% the down payment it requires
from customers.
d. The company changed inventory methods from LIFO to FIFO.
37.) Which of the following is not a functional budget?
a. Research and development budget c.
Cash budget
b. Purchasing budget
d.
Direct labor cost
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38.) By the end of this year you expect to have a cash balance of
P500,000.
Which of these transactions/indicators (not considered in
your estimate) will reduce this balance?
a. A modification on credit terms to customers will reduce credit
sales.
b. A dialogue with key suppliers will allow discounts on extended
payment terms.
c. A new machine will be bought with proceeds from a bank loan that
will carry a 17% interest per annum and monthly payments over 2 years.
d.The ratio of current trade receivables to total receivables will
decrease.
39.) Information not shown in the cash budget but needed in
preparation of the statement of operations for the period
a. Sales
b. Dividends
c. Inventory levels
d. Tax Payments
the
40.) Which of the following is LEAST likely to be affected if unit
sales for this month are lower than budgeted?
a. Production for this month.
c. Cash receipts for next month.
b. Production for next month.
d. Inventory at the end of this
month.
41.) The cash budget for 20x2 would be affected in some way by all of
the following EXCEPT
a. A cash dividend declared in 20x1 for payment in 20x2.
b. A cash dividend declared in 20x2 for payment in 20x3.
c. Interest expense on loans taken out and repaid during 20x2.
d. The sales forecast for the first month in 20x3.
42.) Net cash inflow is given too much emphasis by managers today, for
they know that cash is the common cause of business failures.
Net
cash inflow is equal to
a. Cash balance at the beginning + cash receipts – cash
disbursements
b. Cash balance at the end of last month + cash from all sources of
revenue – revenue payments
c. Cash received during the period minus cash disbursements during
the period
d. Cash sales and collections of accounts receivable minus revenue
and capital expenditures
43.) A financing gap occurs when
a. Required assets exceed available equities.
b. The budgeted cash balance goes below the minimum required
balance.
c. Budgeted cash receipts are less than budgeted cash disbursements.
d. Any of the above occurs.
44.) A budget that includes a 12-month planning period at all times is
called a __________ budget.
a. pro forma
b. flexible
c. master
d. continuous
45.) Budget slack is a condition in which
a. demand is low at various times of the year.
b. excess machine capacity exists in some areas of the plant.
c. there is an intentional overestimate of expenses or an
underestimate of revenues.
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d. managers grant favored employees extra time off.
46.) Which of the following
forecasting?
a. exponential smoothing
b. moving average
c. Delphi method
d. none of the above
is
considered
a
causal
method
of
47.) Enrolment in a particular class for the last four semesters has
been 120, 126, 110 and 130. Suppose a one-semester moving average was
used to forecast enrolment (naïve forecast). Thus, the forecast for
the second semester would be 120, for the third semester it would be
126, and for the last semester it would be 110. What would the mean
squared error be for this situation?
a. 196
b. 230.67
c. 100
d. 42
48.) Daily demand for newspapers for the last 10 days has been as
follows: 12, 13, 16, 15, 12, 18, 14, 12, 13, 15 (from oldest to most
recent). Forecast sales for the next day using a two-day moving
average.
a. 14
b. 13
c. 15
d. None of the above.
49.) Which of the following
components of a time series?
a. trend
b. seasonality
c. variance
d. cycles
is
not
considered
to
be
one
of
the
50.) A time series forecasting model in which the forecast for the
next period is the actual value for the current period is the
a. Delphi model
b. Holt’s model
c. naïve model
d. exponential smoothing model
51.) A judgmental forecasting technique that uses decision makers,
staff personnel, and respondent to determine a forecast is called
a. exponential smoothing
b. Delphi method
c. consumer market survey
d. jury of executive opinion
52.) Daily demand for newspaper for newspapers for the
has been as follows: 12, 13, 16, 15, 12, 18, 14, 12, 13,
oldest to most recent). Forecast sales for the next
three-day weighted moving average where the weights are
(the highest weight is for the most recent number)
a. 12.8
b. 13
c. 70
d. 14
last 10 days
13, 15 (from
day using a
3, 2, and 1
53.)
Which time-series component is said to fluctuate around the long-term
trend and is fairly irregular in appearance?
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a.
b.
c.
d.
Trend.
Cyclical.
Seasonal.
Irregular.
54.)
Which of the following smoothing constants would make an exponential
smoothing forecast equivalent to a naive forecast?
a. 0
b. .01
c. .1
d. 1.0
55.)
Simple exponential smoothing is being used to forecast demand. The
previous forecast of 66 turned out to be four units less than actual
demand. The next forecast is 66.6, implying a smoothing constant,
alpha, equal to:
a. .01
b. .10
c. 15
d. .20
56.) 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-ofthe-year amount is combined with an end-of-the-year amount.
57.) How are financial ratios 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.
58.) A useful tool in financial statement analysis is the common-size
financial statement. What does this tool enable the financial analyst
to do?
a.
Evaluate financial statements of companies within a given
industry of approximately the same value.
b.
Determine
which
companies
in
the
same
industry
are
at
approximately the same stage of development.
c.
Compare the mix of assets, liabilities, capital, revenue, and
expenses within a company over time or between companies within a
given industry without respect to relative size.
d.
Ascertain the relative potential of companies of similar size in
different industries.
59.) Which of the following is not revealed on a common size balance
sheet?
a.
The debt structure of a firm.
b.
The capital structure of a firm.
c.
The peso amount of assets and liabilities.
d. The distribution of assets in which funds are invested.
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60.) If a transaction causes total liabilities to decrease but does
not affect the owners’ equity, what change if any, will occur in total
assets?
a.
Assets will be increased. c.
No change in total assets.
b.
Assets will be decreased.
d. None of the above.
-ENDPrepared by:
Marc Anthony Max P. Magbalon, CPA
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