PRELIMS EXAMMANAGEMENT ACCOUNTING I

1. The discipline of accounting concerned with providing information to management in making decisions about business operations.a. Cost Accounting c. Government Accountingb. Financial Accounting d. Management Accounting

2. Which of these information characteristics is deemed most important to management accounting?a. Verifiability and Accuracy c. Relevance, Flexibility and Timelinessb. Comparability and Full Disclosure d. Conservatism and substance over form

3. Which of the following characteristics does not relate to management accounting?a. Accounting reports may include non-monetary informationb. It is subject to restrictions imposed by GAAP.c. Reports are often based on estimates and are seldom useful for anything other than the purpose for which they are

prepared.d. It provides data for internal users within the business organization.

4. In financial accounting, certain rules and regulations must be followed on how financial statements must be presented to the reader. In managerial accounting, no such restrictions generally apply because it is: a. An entirely different field that need not observe the broad guidelines in financial accounting.b. Designed to provide management with non-financial information for decision-making.c. Designed to provide accounting and other financial data to assist management in making business decisions.d. A discipline that does not require preparation of other financial statements

5. A practice in which a subordinate and a supervisor agree on goals and the methods of achieving them.a. Management by objectives c. Management by exceptionb. Management by subjective d. Management by example

6. Controllers are ordinarily not concerned with:a. Preparation of tax returns c. Protection of assetsb. Reporting to governments d. Investor relations

7. Which of the following does not relate to management services by CPAs? a. Design and/or installation of accounting systems.b. Cost analysis of major investment decisions.c. Financial analysis for project feasibility studies. d. None of the above.

8. Which item is not an IMA Standard for Ethical Conduct for Management Accountants?a. Competence c. Loyaltyb. Integrity d. Objectivity

9. The following characteristics refer to Financial Accounting excepta. Provides information to external usersb. Emphasizes on objective datac. Has no externally imposed standardsd. Generates general purpose financial statements

10. All of the following statements are correct concerning line and staff position, except:a. Both line and staff position functions are depicted in the organization chartb. Line functions are directly related to the basic objectives of an organizationc. Persons occupying staff functions have authority over persons occupying line functionsd. None of the above

11. Which type of authority do management accountants generally exercise?a. Functional b. Company c. Line d. Staff

12. Which of the following is not an element of competency?a. To refrain from engaging in an activity that would discredit the accounting professionb. To develop appropriate knowledge and expertise about a particular subjectc. To perform duties in accordance with relevant laws and technical standardsd. To prepare clear reports after an analysis of relevant and reliable information

13. Obtaining feedback is generally identified most directly with the management function of a. Planningb. Directing and motivating c. Controlling d. Decision Making

14. Which of the following statement is true regarding ethics in decision-making?a. Since most business decision making are simply a matter of economics, ethical considerations should be ignored.b. Decision making can have an ethical as well as an economic impact.c. Managerial accountants do not face ethical issues.d. Business managers will always agree on ethical choices.

15. An integrated group of programs that supervises and support the operations of a computer system as it executes users application programs is called a(n)a. operating system c. utility programsb. data base management system d. language program

16. A system flowcharta. is synonymous with a program flowchart.b. is necessary for only computer processes.c. shows general flow and sequence but not processing detailsd. is necessary for only manual processes.

17. The type of data processing in which remote terminals provide direct access to the computer isa. on-line processing c. batch processingb. remote processing d. central processing

18. A systems programa. manipulates application programsb. employs complex mathematics algorithmsc. is written in a high level languaged. is used in systems analysis and design activities

19. An operating system isa. the assembler program including the source and object programb. all hardware and software needed to operate the computer systemc. the programs that manage the processing operations of the computerd. only the hardware of the computer system

20. A computer system that allows for immediate updating of files is referred to asa. on-line processing c. instantaneous processingb. a mainframe processing d. batch processing

21. Which of the following comprises all of the data components of the dataprocessing cycle?

a. Batching, processing, output.b. Collection, refinement, processing, maintenance, output.c. Input, classifying, batching, verification, transmissiond. Collection, refinement, storing, output.

22. The main components of the central processing unit (CPU) of a computer include onlya. control, arithmetic/logic, and memoryb. input, processing, and outputc. software, register, and primary memoryd. memory, processing, and register

23. A compiler isa. a procedure oriented languageb. a symbolic languagec. a machine that translates the assembler program to machine languaged. a program that converts procedure oriented language to machine language

24. The amount of useful work performed by a computer system during a given period of time is referred to asa. overlap c. input/outputb. overload d. throughput

25. A data base isa. essential for storage of large data setsb. a real-time systemc. a collection of related filesd. a network of computer terminals

26. Just in Time purchasing requiresa. Larger and less frequent purchase ordersb. Smaller and less frequent purchase ordersc. Smaller and more frequent purchase ordersd. Larger and more frequent purchase orders

27. All of the following are potential financial benefits of just in time, except:a. Reducing the risk of obsolescence c. Lower investment in inventoriesb. Reducing manufacturing lead time d. Lower investments in plant space for inventories

28. The unyielding and continuing improving effort by everyone in the organization to understand, meet and exceed the expectation of customers.a. Just in time manufacturing c. Total Quality Managementb. Conventional manufacturing d. Total Quantity Management

29. Which of the following is at the core of the definition of TQM?a. Customer Surveys c. Reduced delivery chargesb. Continuous Improvement d. Greater employee participation

30. In which of the following organization does TQM work best?a. Hierarchal c. Teams of people from the same specialtyb. Specialist working individually d. Teams of people from different specialties

31. Which of the following quality tools is another term for continuous improvement?a. Theory of constraints b. Kaizen c. Six-sigma d. Lean manufacturing

32. Value chain is the sequence of business functions in whicha. Value is deducted from the products or services of an organization.b. Value is proportionately added to the products or services of an organizationc. Products and services are evaluated with respect to their value to the supply chaind. Usefulness is added to the products or services of an organization

33. In Process, Reengineering, two objectives are to simplify and to possibly eliminatea. Value added activities c. Constraintb. Non-value added activities d. Non-constraint

34. There are 4 broad classes of activities in the value chain. Billing activity is part ofa. Activities related to getting ready to make the productb. Activities related to making the productc. Activities related to dealing with customerd. Other activities that support the first three activities

35. There are 4 broad classes of activities in the value chain. Research and Development is part ofa. Activities related to getting ready to make the productb. Activities related to making the productc. Activities related to dealing with customerd. Other activities that support the first three activities

36. In financial statement analysis, expressing all financial statement items as a percentage of base year amounts is calleda. Horizontal common-size analysis c. Trend Analysisb. Vertical common-size analysis d. Ratio Analysis

37. Horizontal, vertical and common-size analysis are techniques that are used by analyst in understanding the financial statements of companies. Which of the following is an example of vertical common-size analysis?a. Commission expense in 2013 is 10% greater than it was in 2012 which serves as a base year.b. A comparison in financial ratio between two or more firms in the same industry.c. A comparison in financial ratio between two or more firms in the different industries.d. Commission expense in 2013 is 5% of net sales.

38. The statement of cash flowsa. Reports the revenues earned and expenses incurred by the firm during the periodb. Shows the company’s total asset, liabilities and capitalc. Shows the company’s capital structure for the period of timed. Reports the periodic cash inflows and outflows in operating, investing and financing activities

39. Under the direct method of determining net cash provided by operating activities on the statement of cash flows, a gain on the sale of plant assets would be:a. Added to the amount of operating expenses reported under the accrual basisb. Deducted from the amount of operating expenses reported under the accrual basisc. Deducted from the amount of sales reported under the accrual basisd. Totally ignored since the gain is not a part of sales, cost of goods sold, or operating expenses.

40. The income statement of Jollibee Company shows operating expenses of P265. The following information is also available: Prepaid expenses 1/1 P14Prepaid expenses 12/31 21Accrued expenses 1/1 40Accrued expenses 12/31 36

Cash paid for operating expenses wasa. P224 b. 262 c. P268 d. P276

41. Using the indirect method of computing operating cash flows, decrease in trade receivables is treated asa. A cash inflow c. An addition to incomeb. A cash outflow d. A deduction from income

42. After generating a sizable year-end profit, Greenwich Company declared and issued 2 50% stock dividend. In the preparation of the cash flows, the transaction would be included as

a. An operating activity c. A financing activityb. An investing activity d. Would not appear at all in the statement of cash flows

43. Which of the following account changes would result in a decrease in cash?a. An increase in A/P c. A decrease in A/Pb. An increase in Retained Earnings d. A decrease in A/R

44. Short-term solvency is another term fora. Liquidity b. Stability c. Profitability d. Marketability

45. Which of the following ratios best measures short-term solvency?a. Quick ratio b. Earnings per Share c. Current ratio d. Return on sales

46. Ratios are used as tools in financial analysisa. instead of horizontal and vertical analyses.b. because they can provide information that may not be apparent from inspection of the individual components of a

particular ratio.c. because even single ratios by themselves are quite meaningful.d. because they are prescribed by GAAP.

47. In the near term, the important ratios that provide the information critical to the short-run operation of the firm are:a. liquidity, activity, and profitability c. liquidity, activity, and equityb. liquidity, activity, and debt d. activity, debt, and profitability

48. The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as:a. solvency and leverage c. solvency and liquidityb. solvency and profitability d. solvency and equity

49. The percentage analysis of increases and decreases in individual items in comparative financial statements is called:a. vertical analysis c. profitability analysisb. solvency analysis d. horizontal analysis

50. Horizontal analysis is also known asa. linear analysis. c. trend analysis.b. vertical analysis. d. common size analysis.

51. In which of the following cases may a percentage change be computed?a. the trend of the amounts is decreasing but all amounts are positive.b. there is no amount in the base year.c. there is a negative amount in the base year and a negative amount in the subsequent year.d. there is a negative amount in the base year and a positive amount in the subsequent year.

52. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of timea. that has been arranged from the highest number to the lowest number.b. that has been arranged from the lowest number to the highest number.c. to determine which items are in error.d. to determine the amount and/or percentage increase or decrease that has taken place.

53. McDonalds Company has current assets of P400,000 and current liabilities of P500,000. Mc Donald Company’s current ratio would be increased bya. The purchase of P100,000 of inventory on accountb. The payment of P100,000 accounts payablec. The collection of 100,000 accounts receivabled. Refinancing a P100,000 long term loan with short-term debt

54. Shakey’s Corp. has an acid test ratio of 1.5 to 1.0. Which of the following will cause this ratio to decrease?a. Payment of cash dividend previously declaredb. Borrowing short-term loan from a bankc. Sale of inventory on accountd. Sale of equipment at loss

55. The acid-test or quick ratioa. 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.

56. Total asset turnover measures the ability of a firm to:a. generate profits on salesb. generate sales through the use of assetsc. cover long-term debtd. buy new assets

57. A measure of how efficiently a company uses its assets to generate sales is the a. asset turnover ratio. c. profit margin ratio.b. cash return on sales ratio. d. return on assets ratio.

58. Long-term creditors are usually most interested in evaluatinga. liquidity. c. profitability.b. marketability. d. solvency.

59. A company has a current ratio greater than 1:1 and a quick ratio less than 1:1. Soon thereafter, all cash was used to reduce accounts payable. How did these cash payments affect (1) current ratio (2) quick ratio.a. (1) Decreased (2) Decreased c. (1) Increased (2) Decreasedb. (1) Decreased (2) Increased d. (1) Increased (2) Increased

60. Given a quick ratio of 2.0, current assets of 5,000 and inventory of P2,000. The current liabilities isa. 1,500 b. 2,500 c. 3,500 d. 6,000

61. The percent of property, plant and equipment to total assets is an example of:a. vertical analysis b. profitability analysis c. solvency analysis d. horizontal analysis

62. Kline Corporation had net income of P2 million in 2011. Using the 2011 financial elements as the base data, net income decreased by 70 percent in 2012 and increased by 175 percent in 2013. The respective net income reported by Kline Corporation for 2012 is:a. 600,000 b. 700,000 c. 1,400,000 d. 3,500,000

63. In the problem above, the net income in 2013 is:a. 5,500,000 b. 600,000 c. 1,400,000 d. 3,500,000

Question Nos. 64 through 66 are based on the data taken from the balance sheet of Nomad Company at the end of the current year:

Accounts payable P145,000Accounts receivable 110,000Accrued liabilities 4,000Cash 80,000Income tax payable 10,000Inventory 140,000Marketable securities 250,000Notes payable, short-term 85,000Prepaid expenses 15,000

64. The amount of working capital for the company is:a. 351,000 b. 361,000 c. 211,000 d. 366,000

65. The company’s current ratio as of the balance sheet date is:a. 2.67:1 b. 2.44:1 c. 2.02:1 d. 1.95:1

66. The company’s acid-test ratio as of the balance sheet date is:a. 1.80:1 b. 2.40:1 c. 2.02:1 d. 1.76:1

67. Pine Hardware Store had net credit sales of P6,500,000 and cost of goods sold of P5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were P600,000 and P700,000, respectively. The receivables turnover wasa. 7.7 times b. 9.3 times c. 10.8 times d. 10.0 times

68. Milward Corporation’s books disclosed the following information for the year ended December 31, 2014:

Net credit sales P1,500,000Net cash sales 240,000Accounts receivable at beginning of year 200,000Accounts receivable at end of year 400,000

Milward’s accounts receivable turnover isa. 3.75 times c. 5.00 timesb. 4.35 times d. 5.80 times

69. Batik Clothing Store had a balance in the Accounts Receivable account of P390,000 at the beginning of the year and a balance of P410,000 at the end of the year. The net credit sales during the year amounted to P4,000,000. Using 360-day year, what is the average collection period of the receivables?a. 30 days c. 73 daysb. 65 days d. 36 days

70. Deity Company had sales of P30,000, increase in accounts payable of P5,000, decrease in accounts receivable of P1,000, increase in inventories of P4,000, and depreciation expense of P4,000. What was the cash collected from customers?a. P31,000 c. P34,000b. P35,000 d. P25,000

71. During 2014, Tarlac Company purchased P960,000 of inventory. The cost of goods sold for 2014 was P900,000, and the ending inventory at December 31, 2014 was P180,000. What was the inventory turnover for 2014?a. 6.4 c. 5.3b. 6.0 d. 5.0

72. Selected information from the accounting records of Petals Company is as follows:Net sales for 2014 P900,000Cost of goods sold for 2014 600,000Inventory at December 31, 2013 180,000Inventory at December 31, 2014 156,000

Petals’ inventory turnover for 2014 isa. 5.77 times c. 3.67 timesb. 3.85 times d. 3.57 times

73. The Moss Company presents the following data for 2007.Net Sales, 2014 P3,007,124Net Sales, 2013 P 930,247Cost of Goods Sold, 2014 P2,000,326Cost of Goods Sold, 2013 P1,000,120Inventory, beginning of 2014 P 341,169Inventory, end of 2014 P 376,526

The merchandise inventory turnover for 2014 is:a. 5.6 c. 7.5b. 15.6 d. 7.7

74. Based on the following data for the current year, what is the inventory turnover?Net sales on account during year P 500,000Cost of merchandise sold during year 330,000Accounts receivable, beginning of year 45,000Accounts receivable, end of year 35,000Inventory, beginning of year 90,000Inventory, end of year 110,000

a. 3.3 c. 3.7b. 8.3 d. 3.0

75. Selected information from the accounting records of Eternity Manufacturing Company follows:Net sales P3,600,000Cost of goods sold 2,400,000Inventories at January 1 672,000Inventories at December 31 576,000

What is the number of days’ sales in average inventories for the year?a. 102.2 c. 87.6b. 94.9 d. 68.1

76. Net sales are P6,000,000, beginning total assets are P2,800,000, and the asset turnover is 3.0. What is the ending total asset balance?

a. P2,000,000. c. P2,800,000. b. P1,200,000. d. P1,600,000.

77. Jordan Manufacturing reports the following capital structure:Current liabilities P100,000Long-term debt 400,000Deferred income taxes 10,000Preferred stock 80,000Common stock 100,000Premium on common stock 180,000Retained earnings 170,000

What is the debt ratio?a. 0.48 c. 0.93b. 0.49 d. 0.96

78. House of Fashion Company had the following financial statistics for 2013:Long-term debt (average rate of interest is 8%) P400,000Interest expense 35,000Net income 48,000Income tax 46,000Operating income 107,000

What is the times interest earned for 2013?a. 11.4 times c. 3.1 timesb. 3.3 times d. 3.7 times

79. Brava Company reported the following on its income statement:Income before taxes P400,000Income tax expense 100,000Net income P300,000

An analysis of the income statement revealed that interest expense was P100,000. Brava Company’s times interest earned (TIE) wasa. 5 times c. 3.5 timesb. 4 times d. 3 times

80. The balance sheet and income statement data for Candle Factory indicate the following:Bonds payable, 10% (issued 1998 due 2022) P1,000,000Preferred 5% stock, P100 par (no change during year) 300,000Common stock, P50 par (no change during year) 2,000,000Income before income tax for year 350,000Income tax for year 80,000Common dividends paid 50,000Preferred dividends paid 15,000

Based on the data presented above, what is the number of times bond interest charges were earned (round to one decimal point)?a. 3.7 c 4.5b. 4.4 d. 3.5

81. The following data were abstracted from the records of Johnson Corporation for the year:Sales P1,800,000Bond interest expense 60,000Income taxes 300,000Net income 400,000

How many times was bond interest earned?a. 7.67 c. 12.67b. 11.67 d. 13.67

82. The times interest earned ratio of Mikoto Company is 4.5 times. The interest expense for the year was P20,000, and the company’s tax rate is 40%. The company’s net income is:

a. P22,000 c. P54,000b. P42,000 d. P66,000

83. Selected information for Ivano Company as of December 31 is as follows:

2013 2014Preferred stock, 8%, par P100, nonconvertible,

noncumulativeP250,000 P250,000

Common stock 600,000 800,000Retained earnings 150,000 370,000Dividends paid on preferred stock for the year 20,000 20,000Net income for the year 120,000 240,000

Ivano’s return on common stockholders’ equity, rounded to the nearest percentage point, for 2014 is

a. 17% c. 21%b. 19% d. 23%

84. Selected information from the accounting records of the Blackwood Co. is as follows:Net A/R at December 31, 2013 P 900,000Net A/R at December 31, 2014 P1,000,000Accounts receivable turnover 5 to 1Inventories at December 31, 2013 P1,100,000Inventories at December 31, 2014 P1,200,000Inventory turnover 4 to 1What was the gross margin for 2014?

a. 150,000 c. 300,000b. 200,000 d. 400,000

85. Recto Co. has a price earnings ratio of 10, earnings per share of P2.20, and a pay out ratio of 75%. The dividend yield is

a. 25.0% c. 7.5%b. 22.0% d. 10.0%

Items no. 86 to 96 are based on the following information. The following data pertains to Cerveza Corporation

CERVEZA CORPORATIONComparative Income Statement

This year Last yearSales (all on account) 452,000 388,000Cost of goods sold 260,000 221,000Gross Margin 192,000 167,000Operating Expenses 104,000 89,000Net Operating Income 88,000 78,000Interest Expense 8,000 8,000Net income before taxes 80,000 70,000Income Taxes 30% 24,000 21,000Net income 56,000 49,000

CERVEZA CORPORATIONComparative Balance Sheet

This year Last yearASSETSCurrent AssetsCash 42,000 21,000Marketable Securities 32,000 28,000A/R, net 84,000 102,000Inventory 96,000 70,000Prepaid Expenses 11,000 9,000Total Current Assets 265,000 230,000

Plant and Equipment, net 410,000 380,000TOTAL ASSETS 675,000 610,000

LIABILITIESCurrent Liabilities 115,000 90,000Bonds Payable, 10% 80,000 80,000TOTAL LIABILITIES 195,000 170,000

SHAREHOLDER’S EQUITYPreferred Stock, P100 par, 7% 100,000 100,000Common Stock, P5 par 300,000 300,000Retained Earnings 80,000 40,000TOTAL STOCKHOLDER’S EQUITY 480,000 440,000TOTAL LIABILITIES AND EQUITY 675,000 610,000

*In addition to the preferred dividends, dividend of P0.15 per share were declared and paid on the common stock this year

86. Using vertical analysis, what percent would be shown for retained earnings at the end of this yeara. 9.3% b. 11.9% c. 16.7% d. 17.7%

87. Dividend pay-out ratio for this year is:a. 18,4% b. 3.0% c. 11.2% d. 16.1%

88. Return on total asset for this year is:a. 7.3% b. 7.6% c. 8,7% d. 9.6%

89. Return on common stockholder’s equity for this year is:

a. 12.9% b. 13.6% c. 15.6% c. 16.2%90. Book Value per share at the end of this year is:

a. 6.00 b. 6.33 c. 7.67 d. 8.0091. Current ratio at the end of this year is:

a. 1.36 b. 1.77 c. 2.30 d. 2.4192. Acid-test ratio at the end of this year is:

a. 0.64 b. 0.77 c. 0.81 d. 1.3793. Cerveza’s accounts receivable turnover for this year is:

a. 67.8 days b. 75.1 days c. 80.8 days d. 117.9 days94. Cerveza’s inventory turnover is:

a. 67.0 days b. 116.5 days c. 126.0 days d. 134.8 days95. Cerveza’s times interest earned for this year is:

a. 6.125 b. 7 c. 10 d. 1196. Cerveza’s debt-to-equity ratio at the end of this year is:

a. 0.24 b. 0.29 b. 0.41 d. 0.51

Items no. 93 to 96 are based on the following information. The following data pertains to Parson’s Company

Year 4 Year 3 Year 2 Year 1Sales 800,000 700,000 600,000 570,000Cash 35,000 30,000 24,000 18,000Accounts Receivable 75,000 50,000 58,000 45,000Inventory 78,000 75,000 80,000 75,000Prepaid Expenses 47,000 39,000 11,000 25,000Total Current Assets 235,000 194,000 173,000 163,000

97. Using Year 2 as the base year, Cash for the year 3 expressed as a trend percentage would be closest to:a. 167% b. 133% c. 120% d. 125%

98. Using Year 1 as the base year, Sales for the year 4 expressed as a trend percentage would be closest to:a. 140% b. 114% c. 71% d. 133%

99. Using Year 2 as the base year, Inventory for the year 3 expressed as a trend percentage would be closest to:a. 40% b. 94% c. 100% d. 107%

100.Using common size statements to analyze changes in current assets. The increase or decrease in the Prepaid Expenses account with Year 4 when compared to Year 3 would be closest to:a. 254% increase b. 20.5% decrease c. 20.5% increase d. 254% decrease

“The surest way not to fail is to be determined to succeed.”