POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Sta. Mesa, Manila

Mid Term Examination- ACCO 204 - Financial Management
First Semester AY 2023 – 2024
November 20, 2023

Test I. Multiple Choice (Theories). Select and shade the letter of your best answer on the ANSWER SHEET
provided. (1 point each)

1. It is about preparing, directing and managing the money activities of a company such as buying, selling and
using money to its best results to maximize wealth or produce best value for money.
a. Finance b. Financial Management c. Finance Manager d. Financial Statement Analysis

2. A graduate-level course of study focused largely on the investments side of finance. This is offered by the
CFA Institute.
a. Certified Management Accountant c. Certified Treasury professional
b. Certified Financial Analyst d. Certified Financial Planner

3. Which of the following is NOT a principle of basic financial management?

a. Risk/Return tradeoffs c. Incremental cash flow counts
b. Efficient Capital Market d. Profit is King

4. Which of the following statement is correct?

Statement I. The corporation is the most effective form of organization in terms of raising capital.
Statement II. Ethical dilemma frequently exists in finance.
a. Only the first statement is true. c. Only the second statement is true.
b. Both statements are true. d. Both statements are false.

5. Which of the following statement is correct?

Statement I. Limited liability is not an advantage of a sole proprietorship.
Statement II. Normally, stockholders can only sell their ownership interests when the corporation is
terminated.
a. Only the first statement is true. c. Only the second statement is true.
b. Both statements are true. d. Both statements are false.

6. The primary goal of a financial manager is

a. minimizing risk b. maximizing profit c. minimizing return d. maximizing wealth

7. Which of the following is correct?

Statement I. A company's return on assets will always equal or exceed its profit margin.
Statement II. A company's price-to-earnings ratio is equal to one minus its earnings yield.
a. Only the first statement is true. c. Only the second statement is true.
b. statements are true. d. Both statements are false.

8. Which of the following statement is correct?

Statement I. Return on assets can be calculated as profit margin times asset turnover.
Statement II. An inventory turnover ratio of 10 means that, on average, items are held in inventory for 10
days.
a. Only the first statement is true. c. Only the second statement is true.
b. statements are true. d. Both statements are false.

9. Which of the following ratios are measures of the firm's liquidity?

I. Fixed asset turnover ratio II. Current ratio III. Debt-equity ratio IV. Acid test ratio
a. I and III only b. II and IV only c. III and IV only d. I, II, and III only

10. When preparing a horizontal analysis of financial statement, subtract the:

a. later year amount from the earlier year amount and divide by the later year amount.
b. earlier year amount from the later year amount and divide by the later year amount
c. earlier year amount from the later year amount and divide by the earlier year amount.
d. later year amount from the earlier amount and multiply by the earlier year amount.
11. Net working capital is the difference between
a. Total Assets and Total Liabilities c. Total Assets and Total Equity
b. Total Current Assets and Total Current Liabilities d. Total Assets and Current Assets

12. This is the time from the beginning of the production process to collection of cash from the sale of the
finished product.
a. Cash Conversion Cycle b. Accounting Cycle c. Cycle Turnover d. Operating Cycle

13. A constant investment in operating assets resulting from constant sales over time.
a. Permanent Funding Requirement c. Temporary Funding Requirement
b. Aggressive Funding Strategy d. Conservative Funding Strategy

14. All are management responsibilities relating to cash, except

a. To prevent losses from fraud and theft
b. To provide accurate accounting of cash receipts, cash payments and cash balances
c. To maintain large cash balances at all times to make immediate payments including emergencies
d. To prevent unnecessary large amounts of cash from being held idle in bank accounts which produce no
revenue

15. This is the reduction in price to encourage prompt payment

a. Purchase Volume Discounts c. Cash Purchases Discount
b. Purchase Returns d. Purchase Allowances

16. This is the number of times each year that the firm’s receivables are turned into cash
a. Turnover of inventory c. Turnover of payables
b. Turnover of receivables d. Turnover of cash

17. The level of accounts receivable is least affected by which of the following factors?
a. Credit standards of the seller b. Collection practices of the seller
c. Tight money d. Length of the company’s production process

18. The following factors affect the level of receivables, except:

a. Type of products or services c. Existing terms with own suppliers
b. Reputation to extend credit terms d. Existing competitors

19. Which of the following statement is correct?

Statement I. The reorder point is the point at which the firm receives orders.
Statement II. Safety stocks are extra inventories that can be drawn down when actual lead times and/or usage
rates are greater than expected.
a. Statement I only c. Statement II only
b. Both statements are correct d. Both statements are incorrect

20. Which of the following statement is correct?

Statement I. In the ABC system of inventory management, the red-line method or system could be utilized to
control C items.
Statement II. In EOQ model, the average inventory is defined as the order quantity divided by 2.
a. Statement I only c. Statement II only
b. Both statements are correct d. Both statements are incorrect

21. Which of the following statement is correct?

Statement I. The economic order quantity (EOQ) is the order quantity which minimizes the carrying costs
per unit per period.
Statement II. In the economic order quantity model, if carrying costs increase while all other costs remain
unchanged, the number of orders placed would be expected to increase.
a. Statement I only c. Statement II only
b. Both statements are correct d. Both statements are incorrect
22. Which of the following statement is correct?
Statement I. In the EOQ model, the total cost is minimized at the point where the order costs and carrying
costs are equal.
Statement II. The reorder point is an inventory management system that compares production needs to
available inventory balances and determines when orders should be placed for various items on the firm's bill of
materials.
a. Statement I only c. Statement II only
b. Both statements are correct d. Both statements are incorrect

23. It is making projections of sales or revenues, expenditures based on alternative production and marketing
strategies, as well as asset acquisitions necessary to achieve those strategies and then deciding how to meet
forecasted financial requirements.
a. Financial Planning b. Budget c. Strategic Planning d. Financial Control

24. It is a detailed plan defining or outlining the sourcing and uses of financial and other resources of the
company in a given period of time.
a. Financial Planning b. Financial services c. Budget d. Financial control

25. Which of the following statements is/are TRUE about cash budget?
Statement I. It deals with the feedback and adjustment process that is required to assure that plans are followed
or to modify existing plans in response to changes in the operating environment.
Statement II. It is used to determine when the firm will have cash surpluses and shortfalls, and helps the
management plan to invest surplus or to cover shortages.
a. I only b. II only c. Both statements are correct d. Both statements are incorrect

26. Which of the following statements is/are TRUE about financial control?
Statement I. It deals with the feedback and adjustment process that is required to assure that plans are followed
or to modify existing plans in response to changes in th operating environment.
Statement II. It sets the overall goals and objectives of the organization.
a. I only b. II only c. Both statements are correct d. Both statements are incorrect

27. Which of the following statement is TRUE?

Statement I. Commercial paper consists of short term, secured, notes payable issued in large denomination by
large companies with high credit ratings to other companies and institutional investors.
Statement II. Commercial bank loans include Lines of Credits and Traditional loans
a. I only b. II only c. Both statements are correct d. Both statements are incorrect

28. Which of the following is a spontaneous source of financing?

a. Accounts payable
b. Accounts payable, and wages and salaries payable
c. Accounts payable and inventories
d. Accounts payable, and wages and salaries payable, and accrued interest.

29. Which of the following statement is TRUE?

Statement I. Short term credits may be sourced from secured funds or unsecured credit.
Statement II. The prime interest rate is the rate charged by commercial banks to their business customers which
is lower than the prevailing market rate.
a. I only b. II only c. Both statements are correct d. Both statements are incorrect

30. Which of the following statement is TRUE?

Statement I. Trade credit provides one of the most flexible sources of financing available to the firm.
Statement II. One of the advantages of short term credit is the extra risk that the borrower must bear because the
lender can demand payment on short notice and the cost of loan will increase if interest rates increase.
a. I only b. II only c. Both statements are correct d. Both statements are incorrect
Test II. Multiple Choice (Problem Solving). Select and shade the letter of your best answer on the ANSWER
SHEET provided. (2 points each)

31. The following information applies to Medplus, which supplies microscopes to laboratories throughout the
country. Medplus purchases the microscopes from a manufacturer which has a reputation for very high quality
in its manufacturing operation.
Annual demand (weekly demand=1/52 of annual demand) 20,800 units
Orders per year 20
Lead time in days 15 days
Cost of placing an order P100
What is the reorder point?
a. 1,040 units b. 857 units c. 1,560 units d. 2,080 units

32. The only product of a company has an annual demand of 4,000 units. The cost of placing an order is P20
and the cost of carrying one unit in inventory for one year is P4. Determine the economic order quantity.
a. 500 b. 300 c. 200 d. 400

33. Here are some important figures from the budget of DT Poultry Supply, for the
second quarter of 2023:
April May June
Credit Sales 547,200 570,540 630,720
Credit Purchases 211,680 252,720 288,710
Cash disbursements
Wages, other expenses 57,240 69,420 72,430
Interest 16,410 16,410 16,410
Equipment purchases 119,520 131,040 0

The company predicts that 3 percent of its credit sales will never be collected, 36 percent of its sales will be
collected in the month of sale, and the remaining 61 percent will be collected in the following month. Credit
purchases will be paid in the month following the purchase. In March 2023, credit sales were P302,400, and
credit purchases were P224,640. The April 1 cash balance was P403,200. What is the cash balance at the end of
May?
a. P348,887
b. P414,141
c. P457,777
d. P477,374

34. The Bungae Man Corp purchases from suppliers in a quarter are equal to 65 percent of the next quarter's
forecasted sales. The payables period is 60 days. Wages, taxes, and other expenses are 16 percent of sales, and
interest and dividends are P60 per quarter. No capital expenditures are planned. Sales for the first quarter of the
following year are projected at P720. The projected quarterly sales are:
Q1 Q2 Q3 Q4
Sales P690 P660 P590 P560

What is the amount of the total disbursements for Quarter 2?

a. 564.27
b. 579.43
c. 582.15
d. 585.30

35. At the end of 2022, Mason Company had P500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2022,
Mason had an asset turnover of 3.0. What were annual sales for Mason in 2022?
a. P333,333 b. P1,200,000 c. P1,800,000 d. P3,000,000

36. Hamas Corp has asset turnover of 3.5, a profit margin of 5.2%, and a current ratio of 0.5. What is Hamas
Corp's return on equity?
a. 8.7% b. 9.1% c. 18.2% d. Insufficient information to find ROE
37. Valak Holdings has a profit margin of 25%, an asset turnover of 0.5, and assets to equity ratio of 1.5. Valak
has P20 billion in assets, of which half, is in cash and marketable securities. Assume that Valak earns a 3
percent after-tax return on cash and securities. What would Valak's return on equity be if it paid out 90% of its
cash and marketable securities as dividend to shareholders?
a. Between 0% and 20% c. Between 20% and 40%
b. Between 40% and 60% d. Greater than 60%

38. What is the length of the cash conversion cycle for a firm with P3,000,000 in inventory, P1,500,000 in
accounts payable, a collection period of 40 days, and an annual cost of goods sold of P18,000,000?
a. 34 days b. 52 days c. 71 days d. 132 days

39. A company reported net income of P10,000 and paid cash dividend on common stock of P2 per share on
each of 2,000 shares outstanding. What is the EPS?
a. P5.00 b. P3.00 c. P4.00 d. P2.00

40. Rich Good Company has 100,000 shares of P10 par value common stock issued and outstanding and
10,000 shares of 10%, P100 par value preferred stock. Total stockholders' equity is P2,800,000 and net income
for the year is P800,000. During the year Rich Good paid P2 per share in dividends on its common stock. The
market value of Rich Good's common stock is P28. What is the price-earnings ratio?
a. 3 b. 4 c. 7 d. 8

41. Using the information for Rich Good Company, determine the dividend payout ratio.
a. 7.14% b. 12.5% c. 25% d. 28.6%

42. Virgin’s Café has an average collection period of 30 days. Assuming there are 360 days in a year, what is its
turnover of accounts receivable?
a. 12 days b. 18 days c. 24 days d. 36days

43. Marilag’s sales amounted to P27,000,000.00 with terms of 1/10, n30 Average days in receivables is 20 days.
The cost of borrowed funds is 25%, which is considered as the carrying costs of accounts receivable. The
variable cost ratio is 60% of sales. How much is the cost of carrying accounts receivable? (use 360-day year).
a. P125,000.00 b. P225,000.00 c. P325,000.00 d. P425,000

44. is the effective annualized cost of foregoing the trade discount with terms 2/15 net 65 (round to the nearest
.1%)
a. 13.1% b. 13.4% c. 14.7% d. 14.8%

45. Mc Queen Burger obtains cash receipts of P100,000.00 per day. Normally it takes 5 days from the time the
check is mailed to its availability to use. How much cash is tied up?
a. P20,000.00 b. P100,000.00 c. P500,000.00 d. P50,000

46. Jolly King takes about 8 days to receive and deposit collections from customers amounting to P400,000.00
per day. A lockbox system is being offered and this will reduce the expected float to 5 days. The charge will be
P2,000.00 per month. How much is the advantage of the system if an investment of 10.0% which is taxed at
20.0% is available?
a. P96,000.00 b.P72,000,00 c. P120,000.00 . d. P100,000.00

47. Prince Pizza has an agreement with Bill Bank to collect P6,000,000.00 a day in exchange for compensating
balance of P1,600,000.00. The company is thinking of engaging Coin Bank and the new set up would be Bill
Bank would collect P4,000,000.00 with a compensating balance of P1,200,000.00 and Coin Bank will collect
P2,000,000.00 with a compensating balance of P900,000.00 and reducing collection period by a day. How
much is the advantage, if any, if the firm’s rate of return is 6.0%?
a. P330,000.00 b. P500,000.00 c. P165,000.00 d. P450,000.00

48. Renrich Company has an average production time of 35 days. Finished goods are kept on storage for an
average of 18 days before they are sold. Accounts receivable are outstanding at an average of 28 days and the
firm gets 32 days on credit purchases from suppliers. Using 365 calendar days, what is the company’s cycle
turnover?
a. 10.43 times b. 6.89 times c. 5.79 times d. 4.51 times
49. Chiello Inc. records an annual revenue of P5,000,000.00 and spends P3,500,000.00 for cash payments for
expenses. Every transfer transaction the bank charges P50.00 including all incremental fees. What is the
Economic Conversion Quantity (ECQ) if marketable securities yield 8%?
a. P6,614.38 b. P46,770.72 c. P66,143.78. d. P9,354.14

50. Rejirey Company has a permanent funding requirement of P225,000.00 in operating asset and seasonal
funding that vary between P100.00 and P900,000.00 and average of P120,000.00. It can borrow short term
funds at 6.0% and long-term funds at 10.0%, and earn P8.0% on the investment of surplus balances, what is the
annual cost of aggressive strategy for seasonal funding?
a. P 29,700.00 b. P7,200.00 c. P18,000.00 d. P 32,400.00

51. Big Boy Company has an average production process time of 40 days. Finished goods are stored on hand
for an average of 15 days before they can be sold. Accounts receivable are outstanding at an average of 30 days
and the firm gets 40 days credit on its purchases from suppliers. What is the company’s operating cycle?
a. 55 days b. 70 days c. 85 days d. 125 days

52. Use the following data, determine the working capital

Assets Liabilities and Shareholders’ Equity

Cash P 20,000.00 Accounts Payable P 20,000.00
Marketable Securities 80,000.00 Short Term Notes Payable 50,000.00
Accounts Receivable 40,000.00 Long Term Notes Payable 60,000.00
Inventories 150,000.00 Preferred Stocks 100,000.00
Net Plant and 200,000.00 Common Stocks 100,000.00
Equipment
Retained Earnings 160,000.00
Total Assets P490,000.00 Total Liabilities and Shareholders’ Equity P490,000.00

a. P360,000.00 b. P220,000.00 c. P160,00.00 d. P420,000.00

53. The current price of the stock is P26.50 per share. The stock has a par value of P25.00, earnings per share
is P2.00/share and it pays a dividend of P2.00/share. What would be the price earnings per share of the stock?
a. P12.50 b. P13.25 c. P26.50 d. P50.00

54. ABC Company reported net income of P18,000 for 2020, P24,000 for 2021, and P26,000 for 2022. What is
the percentage change in net income from 2021 to 2022?
a. 20% b. 30% c. 10% d. 8.33%

55. ABC Company had a balance in the Accounts Receivable of P780,000 at the beginning of the year, and a
balance of P820,000 at the end of the year. Net credit sales during the year amounted to P5,840,000. (using
365 days in a year) What is the average age of collection period?
a. 7.3 days b. 365 days c. 100 days d. 50 days

56. ABC Company had a net income of P250,000, and paid dividends to preference stockholders of P50,000 in
2023. The weighted average number of shares outstanding in 2023 was 50,000 shares. The firm’s common
stock is selling for P50 per share on the Philippine Stock Exchange. What is the price-earnings ratio?
a. 2 times b. 8 times c. 12.5 times d. 10 times

57. National Steel Corp. is required to carry a minimum of 40 days' raw steel, which is 250 tons. It takes 15
days between order and delivery. At what level of steel would Steel Works reorder?
a. 3,750 tons b. 600 tons c. 667 tons d. 344 tons

58. Candy, Inc is considering relaxing its credit standards to encourage more sales. As a result, sales are
expected to increase 15% from 300 units per year to 345 units per year. The average collection period is
expected to increase to 40 days from 30 days and bad debts are expected to double the current 1% level. The
price per unit is P850, the variable cost per unit is P650 and the average cost per unit at the 300 unit level is
P700. The firm's required return on investment is 20%. What is the firm's additional profit contribution from
sales under the proposed relaxation of credit standards?
a. P2,250 b. P6,750 c. P9,000 d. P69,000
59. ABC Company has an average payment period of 30 days, an average age of inventory of 10 days, and a
cash conversion cycle of 30 days. What is the firm’s average collection period?
a. 10 days b. 40 days c. 70 days d. 50 days

60. Mr. Davd Garcia borrowed P100,000.00 from a commercial bank at an interest rate of 16% to be paid 12
equal monthly installments in one year. What is the effective interest rate?

a. 16% b. 16.5% c. 8.88% d. 12.7%

61-65. Below is the following financial data for Amelia Inc.

61. Please refer to the financial data for Amelia Inc. The current ratio for Amelia at the end of 2022 is
a. 10.21 b. 2.31 c. 2.76 d. 10.30

62. Please refer to the financial data for Amelia Inc. above. Assume a 365-day year for your calculation.
Amelia's collection period in days, based on sales, at the end of 2022 is
a.24.3 b. 219.6 c. 35.7 d. 28.8

63. Please refer to the financial data for Amelia Inc. above. Assume a 365-day year for your calculation.
Amelia's payable period in days, based on cost of goods sold, at the end of 2022 is
a. 5.2 b. 24.3 c. 28.8 d. 35.7

64. Please refer to the financial data for Amelia Inc. above. Assume a 365-day year for your calculation.
Amelia's inventory turnover, based on cost of goods sold, at the end of 2022 is
a. 5.2 b. 4.3 c. 28.8 d. 35.7

65. Please refer to the financial data for Amelia Inc. Amelia's profit margin for 2022 is
a. -94% b. 13% c. 26% d. 10%

END