FInnancial
FInnancial
FInnancial
GENERAL INSTRUCTIONS: No examinee shall copy or refer to any solution, answer or work of another or allow
anyone to copy or refer to his work, nor in any manner help or ask the help of any person or communicate with any
person by means of words, signs, gestures, codes, and other similar acts which may enable him to exchange, impart
or acquire relevant information while the examination is in progress. Shade the corresponding letter of your answer
in the answer sheet provided. ERASURES ARE NOT ALLOWED.
1. A formal written statement of management's plans for the future, expressed in financial terms, is
A. gross profit report
B. responsibility report
C. budget
D. performance report
2. The budgeting process does not involve which of the following activities
A. Specific goals are established
B. Periodic comparison of actual results to goals
C. Execution of plans to achieve goals
D. Increase of sales by increasing marketing efforts.
3. The process of developing budget estimates by requiring all levels of management to estimate sales, production, and
other operating data as though operations were being initiated for the first time is referred to as
A. flexible budgeting
B. continuous budgeting
C. zero-based budgeting
D. master budgeting
4. The benefits of comparing actual performance of the operations against planned goals include all of the following
except
A. providing prompt feedback to employees about their performance relative to the goal
B. preventing unplanned expenditures
C. helping to establish spending priorities
D. determining how managers are performing against prior years' actual operating results
5. When management seeks to achieve personal departmental objectives that may work to the detriment of the entire
company, the manager is experiencing
A. budgetary slack
B. padding
C. goal conflict
D. cushions
6. Other things held constant, which of the following would tend to reduce the cash conversion cycle?
A. Carry a constant amount of receivables as sales decline
B. Place larger orders for raw materials to take advantage of price breaks
C. Take all discounts that are offered
D. Continue to take all discounts that are offered and pay on the net date
E. Offer longer payment terms to customers.
7. Which of the following factors are not important to consider in making a sales forecast?
A. Past Sales Volume
B. Distribution Costs involved
C. Conditions within the industry
D. Plant Capacity
E. None of the above
8. The master budget
A. Shows forecasted and actual result
B. Reflects controllable costs only
C. Can be used to determine manufacturing cost variances
D. Contains the operating budget
9. Which of the following is an operating budget?
A. Cash budget
B. Sales budget
C. Budgeted balance sheet
D. Capital expenditure budget
10. Which of the following concerning a budget is correct?
A. It can serve as a substitute for management
B. It is a written statement of the management’s plan for a specified future time period
C. It is required for all business operations
D. It is used only by manufacturing companies
11. Which of the following is an output of financial planning model?
A. Strategic plan
B. Actual financial results
C. Projected financial statements
D. Variance Analysis
12. Which of the following actions would be likely to shorten the cash conversion cycle?
A. Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20
days to 10 days
B. Change the credit terms offered to customers from 3/10 net 30 to 1/10net 50
C. Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30
D. Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw
materials to finished goods from 10 days to 20 days
E. Change the credit terms offered to customers from 2/10 net 30 to 1/10net 60.
13. Which of the following statements concerning the cash budget is CORRECT?
A. Depreciation expense is not explicitly included, but depreciation's effects are reflected in the estimated tax
payments
B. Cash budgets do not include financial items such as interest and dividend payments
C. Cash budgets do not include cash inflows from long-term sources such as the issuance of bonds
D. Changes that affect the DSO do not affect the cash budget
E. Capital budgeting decisions have no effect on the cash budget until projects go into operation and start
producing revenues.
14. Which of the following statements is CORRECT?
A. A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually.
Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be
used to finance the 10% growth rate
B. In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts
receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently
C. Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales
D. Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio
must also have a high payables-to-sales ratio
E. Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio.
15. Which of the following statements is CORRECT?
A. Other things held constant, the higher a firm's days sales outstanding (DSO), the better its credit department
B. If a firm that sells on terms of net 30 changes its policy to 2/10 net 30, and if no change in sales volume occurs,
then the firm's DSO will probably increase
C. If a firm sells on terms of 2/10 net 30, and its DSO is 30 days, thenthe firm probably has some past-due
accounts
D. If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharp peak in December, then its
DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in
January than in July
E. If a firm changed the credit terms offered to its customers from 2/10net 30 to 2/10 net 60, then its sales should
increase, and this should lead to an increase in sales per day, and that should lead to a decrease in the DSO.
16. Net working capital is a firm’s
A. Current assets
B. Current Liabilities
C. Current assets less current liabilities
D. Total assets less total liabilities
17. A firm following a flexible working capital strategy would
A. Hold substantial amounts of liquid assets
B. Minimize the amount of short-term financing
C. Finance fluctuating assets with long-term financing
D. Minimize the amount of funds held in liquid assets
18. The probability of technical insolvency is reduced by?
A. Financing permanent asset with short-term debt
B. Financing fluctuating assets with long-term debt
C. Maintaining a high level of liquid assets
D. Both b and c
19. Working capital is very important for all the following reasons except that is
A. Consists of a large portion of a firm’s total assets
B. Affects a firm’s liquidity and profitability
C. Consumes a small portion of the financial manager’s time
D. Consists of those assets that are most manageable
20. For a retailer with a highly seasonal sales volume, the level of investment in ___________ does not change with the
changes in seasonal demand.
A. Current assets
B. Total assets
C. Permanent current assets
D. Temporary current assets
21. The term “short selling” is the
A. Selling of a security that was purchased by borrowing money from a broker
B. Selling of a security that is not owned by a seller
C. Selling of all the shares you own in a company in anticipation that the price will decline dramatically
D. Betting that a stock will increase by a certain amount within a given period of time
22. When managing cash and short-term investments, a corporate treasurer is primarily concerned with
A. Maximizing rate of return
B. Minimizing taxes
C. Investing in treasury bonds since they have no default risk
D. Liquidity and safety
23. A compensating balance
A. Compensates a financial institution for services rendered by providing it with deposits of funds
B. Is used to compensate for possible losses on a marketable securities portfolio
C. Is a level of inventory held to compensate for variations in usage rate and lead time
D. Is the amount of prepaid interest on a loan
24. A working capital technique that increases the payable float and therefore delays outflow of cash is
A. Concentration banking
B. A draft
C. Electronic data interchange
D. A lockbox system
25. A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of
bad debts, and a decrease in the investments in accounts receivable. Based upon this information, the company’s
A. Average collection period has decreased
B. Percentage discounts offered has decreased
C. Accounts receivable turnover has decreased
D. Working capital has increased
26. I Can Do it Corp’s budgeted monthly sales are P5,000, and they are constant from month to month. 40% of its
customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the
sale and do not receive a discount. The firm has no bad debts. Purchases for next month’s sales are constant at 50%
of projected sales for the next month. “Other payments,” which include wages, rent, and taxes, are 25% of sales for
the current month. Construct a cash budget for a typical month and calculate the average net cash flow during the
month.
A. P1,092
B. P1,150
C. P1,210
D. P1,271
E. P1,334
Below is budgeted production and sales information for Three Points For You Company for the month of December:
30. The number of pounds of materials A and B required for July production is:
A. 216,000 lbs. of A; 36,000 lbs. of B
B. 216,000 lbs. of A; 72,000 lbs. of B
C. 234,000 lbs. of A; 39,000 lbs. of B
D. 225,000 lbs. of A; 37,500 lbs. of B
31. The total direct materials purchases of materials A and B (assuming no beginning or ending material inventory)
required for July production is:
A. $1,080,000 for A; $648,000 for B
B. $1,080,000 for A; $1,296,000 for B
C. $1,170,000 for A; $702,000 for B
D. $1,125,000 for A; $675,000 for B
32. Keep on Going Inc. carries an average inventory of P750,000. Its annual sales are $10 million, its cost of goods sold is
75% of annual sales, and its average collection period is twice as long as its inventory conversion period. The firm
buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 10
days, based on a 365-day year. He believes he can reduce the average inventory to P647,260 with no effect on sales.
By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash
conversion cycle?
A. P123,630
B. P130,137
C. P136,986
D. P143,836
E. P151,027
33. Nothing’s Impossible Company, a retail store, is considering foregoing sales discounts in order to delay using its cash,
Supplier credit terms are 2/10, net 30. Assuming a 360-day year, what is the annual cost of credit if the cash
discount is not taken and Barbie pays net 30?
A. 24.0%
B. 24.5%
C. 36.0%
D. 36.7%
34. Don’t Give Up Now Company believe that its collection costs could be reduced through modification of collection
procedures. This action is expected to lengthening of the average collection period from 28 days to 34 days;
however, there will be no change in uncollectible accounts. The company’s budgeted credit sales for the coming
year are P27,000,000, and short-term interest rates are expected to average 8%. To make changes in collection
procedures cost beneficial, the minimum saving collection costs (using a 360-day year) for the coming year would
have to be
A. P30,000
B. P360,000
C. P180,000
D. P36,000
35. For a Better Future Company turns out 200 calculators a day at a cost of P250 per calculator for materials and
variable conversion cost. It takes the firm 18 days to convert raw materials into calculator. For a Better Future usual
credit terms extended to its customers is 30 days, and the firm generally pays its suppliers in 20 days.
If the foregoing cycles are constant, what amount of working capital must For a Better Future Company finance?
A. P1,400,000
B. P2,400,000
C. P 900,000
D. P1,800,000
36. I believe in you firm averages P4,000 in sales per day and is paid, on an average, within 30 days of the sale. After
they receive their invoice, 55% of the customer pay by check, while the remaining 45% pay by credit card.
Approximately how much would the company show in accounts receivable on its statement of financial position on
any given date?
A. P4,000
B. P120,000
C. P48,000
D. 54,000
37. Never Doubt Yourself Bank requires a compensating balance of 20% on a P100,000 loan. If the stated interest on the
is 7%, what is the effective cost of the loan?
A. 5.83%
B. 7.00%
C. 8.40%
D. 8.75%
38. A firm has a daily cash receipts of P100,000 and collection time for 2 days. A bank has offered to reduce the
collection time on the firm’s deposit by 2 days for a monthly fee of P500. If money market rates are expected to
average 6% during the year, the net annual benefit (loss) from having this service is
A. P3,000
B. P12,000
C. P0
D. P6,000
39. You Reap What You Sow Corporation estimates its total annual cash disbursements of P3,251,250 which are to be
paid uniformly.It has the opportunity to invest the money at 9% per annum. The company spends, on the average,
P25 for every cash conversion to marketable securities and vice versa.
What is the opportunity cost of keeping cash in the bank account?
A. P3,825.00
B. P1,912.50
C. P4,190.00
D. P 188.55
40. Treat Yourself After, Inc. has P5 million in inventory and P2 million in accounts receivable. Its average daily sales are
P100,000. The company has P1.5 million in accounts payable. Its average daily purchases are P50,000. What is the
length of the company’s inventory conversion period?
A. 50 days
B. 90 days
C. 120 days
D. 40 days
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