Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Warner Machines missed recording purchases worth P10,000 in the current year's income statement. While
finalizing the financial statements, the company's accountant detected the error and partially corrected it.
Under which of the following situations will the company report lower than actual net income?
a. If the accountant has reduced cash by P10,000
b. If the accountant has only added missing purchases worth P10,000 to the cost of
goods sold
c. If the accountant has only increased accounts payable by P10,000
d. If the accountant has reduced inventory by P10,000
____ 2. Rogers Electronics is planning to make a market in the company's stock. The company's CFO suggests the
reacquisition of shares. Which of the following is most likely to happen if the CFO's suggestion is
implemented?
a. The risk of takeovers by competitors will increase
b. This will hinder exercise of employee stock options
c. The stock price will increase
d. This could serve as an indication of the company's negative outlook about its
future performance
____ 3. A customer of Irving Gemstones owed P20,000 on account. Due to nonreceipt of payments after 5 months of
the due date, the amount was written off as doubtful using the direct write-off method. After 2 years, the
customer paid the full amount due. How should this transaction be journalized?
a. The amount received should be debited to Cash and credited to the Accounts
Receivable account
b. The amount received should be debited to Accounts Receivable and credited to
the Allowance for Doubtful accounts
c. The amount received should be debited to Cash and credited to a revenue
account, such as Uncollectible Accounts Recovered
d. The amount received should be debited to the Allowance for Doubtful accounts
and credited to Accounts Receivable
____ 4. The management accountant of Tillboard Inc. has recognized a sale of receivables or factoring in the books
for the current year. In doing so, he considered these three factors:
Under which of the following situations can the decision of the management
accountant go wrong?
a. The seller should be able to use the asset as collateral
b. The asset is outside the reach of the creditors of the company
c. The company has an agreement to repurchase the asset before its maturity
d. The seller is liable for any loss realized or gain earned on the asset
____ 5. Shelton Devin Corp. has two subsidiaries, of which 30% of ownership in each subsidiary lies with Shelton
Devin. The CEO of the company is not in favor of presenting consolidated financial statements. Based on the
information, which of the following is most likely true?
a. The decision of the CEO is correct as companies are required to issue
consolidated statements only when the ownership exceeds 50%
b. The decision of the CEO is wrong as companies are required to issue consolidated
statements when the ownership exceeds 20%.
c. The decision of the CEO is wrong as companies are required to issue consolidated
statements only if they hold more than ten subsidiaries
d. The decision of the CEO is correct as companies are required to issue
consolidated statements when they have three or more subsidiaries
____ 6. Elsa Fashions wants to eliminate its credit department. It also wants to get cash immediately and continue all
operational activities directly with the customers. Which of the following approaches would be the best to
fulfill the company's objectives?
a. Factoring
b. Securitization.
c. Sale with recourse
d. Special investment vehicle
____ 7. Claire Enterprises has P150,000 in accounts receivable at the end of Year 1, and it estimates its bad debts to
be 5% of the receivables. Hence, the accountant reports P7,500 as bad debts and the net realizable value as
P142,500. Under which of the following circumstances will the amount of bad debts reported most likely
reduce?
a. If the company shortens the credit period allowed
b. If the company lengthens the credit period allowed
c. If the allowance for doubtful accounts has a credit balance of P1,500
d. If the allowance for doubtful accounts has a debit balance of P1,500
____ 8. Brendan Bishop Scientific is considering acquisition of a plant in exchange of the par value of its stock.
However, the CFO is not in favor of the acquisition. Which of the following is the most likely reason for the
CFO's disagreement?
a. The company has fewer amounts of long-term assets
b. The company's stock is most likely overpriced
c. It is difficult to estimate the net realizable value of the asset and, hence, difficult
to estimate the annual depreciation expenses
d. The true cost of the asset cannot be determined as the stock's trading activity
should also be considered
____ 9. Infinity Enterprises, a large organization with seven business units, recently prepared a BCG Growth-Share
Matrix to evaluate whether it has a balanced portfolio of businesses. Upon analysis, its three large business
units were identified as stars, two medium-size business units were identified as question marks, and one
small business unit each was identified as a cash cow and a dog. Which of the following is a conclusion you
can draw upon evaluating the data?
a. The company needs to set up more business units that operate in high-growth
markets
b. The company is probably facing a shortage of funds to fuel its growth
c. The company should sell off the business unit identified as a dog as it offers lowgrowth
prospects
d. The company is probably generating excess cash that can be used to start new
business units
____ 10. Romero Roman Inc., a leading manufacturer of cars, has two product lines: small family cars and luxury cars.
According to the BCG Growth-Share Matrix, which quadrant should small family cars be allocated?
a. Cash cows
b. Dogs
c. Stars
d. Question marks
____ 11. Elliott Enterprises is engaged in the construction of roads. The company falls under the OSHA regulations
that require it to extend accident prevention policies to its employees. How does this regulatory requirement
affect the organization's strategy?
a. It will force the organization to be environmentally accountable
b. It will restrict the marketing campaigns of the organization
c. It will affect the technological innovations planned by the organization
d. It will affect the human resource practices followed by the organization
____ 12. Umbra Inc., a business unit of ANB Inc., manufactures widgets. On its BCG Growth- Share Matrix, ANB has
identified Umbra as a cash cow. The market for Umbra recently has started growing rapidly, converting it into
a high-growth market. Given the changed market conditions, in which of the following situations will Umbra
eventually turn into a question mark on the BCG Growth-Share Matrix?
a. If Umbra operates in a market with high entry barriers
b. If Umbra is not able to expand its production capacity
c. If Umbra invests its excess cash in meeting additional demand
d. If ANB decides to sell off all business units identified as dogs
____ 14. A method of budgeting where the cost of each program must be justified, starting with the one most vital to
the company is:
a. zero-based budgeting (ZBB)
b. continuous budgeting
c. flexible budgeting
d. incremental budgeting
____ 15. The type of budget that is available on a continuous basis for a specified future period by adding a month, a
quarter, or a year in the future as the month, quarter, or year just ended is deleted, is called a:
a. flexible budget
b. kaizen budget
c. rolling budget.
d. activity-based budget
____ 16. One difference between incremental budgeting and zero-based budgeting (ZBB) is
that incremental budgeting:
a. eliminates functions and duties that have outlived their usefulness
b. accepts the existing base as being satisfactory
c. eliminates the need to periodically review all functions to obtain optimum
utilization of resources
d. makes it easy to discontinue outdated functions
____ 17. A firm wants to place its budgeting emphasis on teamwork, synchronized activity, and customer satisfaction.
Which of the following budget types would best fit these needs?
a. Zero-based budgeting
b. Project budgeting
c. Continuous budgeting
d. Activity-based budgeting
____ 18. A budgeting approach that requires a manager to justify the entire budget for each budget period is known
as:
a. program budgeting
b. incremental budgeting
c. zero-base budgeting
d. performance budgeting
____ 19. An appropriate transfer price between two divisions of Vroom Motorcycle Company:
Fabricating division:
Market price of subassembly P75
Variable cost of subassembly P30
Excess capacity (in units) 50
Assembling Division
Number of units needed 45
____ 20. A firm that uses reporting segments shows a bottom line for each segment that includes traceable fixed costs
but not common fixed costs. Which of the following is this bottom line called?
a. Controllable costs
b. Operating income
c. Net income
d. Segment margin
____ 21. Fox Enterprises' income statement for profit center store number 2 for July includes:
The profit center's manager would most likely be able to control which of the following:
a. 140,000
b. 150,500
c. 160,000
d. 90,000
____ 22. Morrison's Plastics Division, a profit center, sells its products to external customers as well as to other
internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a
product internally to another profit center at a price that is below the market-based transfer price?
a. Routine sales commissions and collection costs would be avoided
b. The selling unit is operating at full capacity
c. The profit centers' managers are evaluated on the basis of unit operating income
d. The buying unit has excess capacity
____ 23. Manhattan Corporation has several divisions that operate as decentralized profit centers. At the present time,
the Fabrication Division has excess capacity of 5,000 units with respect to the UT-371 circuit board, a popular
item in many digital applications. Information about the circuit board follows.
Manhattan's Electronic Assembly Division wants to purchase 4,500 circuit boards either internally, or else
use a similar board in the marketplace that sells for P46. The Electronic Assembly Division's management
feels that if the first alternative is pursued, a price concession is justified, given that both divisions are part of
the same firm. To optimize the overall goals of Manhattan, the minimum price to be charged for the board
from the Fabrication Division to the Electronic Assembly Division should be:
a. 46
b. 31
c. 21
d. 26
____ 24. Performance results for four geographic divisions of a manufacturing company are as follows:
____ 25. When using a contribution margin format for internal reporting purposes, the major distinction between
segment manager performance and segment performance is:
a. direct variable cost of selling the product
b. direct fixed cost controllable by others
c. unallocated fixed cost
d. direct fixed cost controllable by the segment manager
____ 26. Gap Industries is a multidivisional firm that evaluates its managers based on the return on investment (ROI)
earned by its divisions. The evaluation and compensation plans use a targeted ROI of 15% (equal to the cost
of capital), and managers receive bonus of 5% of basic compensation for every one percentage point that the
division’s ROI exceeds 15%.
Jerome Hetutua, manager of the Consumer products division, has made a forecast of the division’s operations
and finances for next year that indicates the ROI would be 24%. In addition, new short-term programs were
identified by the Consumer Products division and evaluated by the finance staff as shown.
Assuming no restrictions on expenditures, what is the optimal mix of new programs that would add value to
Gap Industries?
a. A, B, C, and D
b. B, C, and D only
c. C and D only
d. D only
____ 29. The expected rate of return for the stock of Cornhusker Enterprises is 20%, with a standard deviation of 15%.
The expected rate of return for the stock of Mustang Associates is 10%, with a standard deviation of 9%. The
riskier stock is
a. Cornhusker because its return is higher.
b. Cornhusker because its standard deviation is higher.
c. Mustang because its standard deviation is higher.
d. Mustang because its coefficient of variation is higher.
____ 30. The market price of a bond issued at a discount is the present value of its principal amount at the market
(effective) rate of interest
a. Less the present value of all future interest payments at the market (effective) rate of
interest.
b. Less the present value of all future interest payments at the rate of interest stated on the
bond.
c. Plus the present value of all future interest payments at the market (effective) rate of
interest.
d. Plus the present value of all future interest payments at the rate of interest stated on the
bond.
____ 31. Bennet Inc. uses the net present value method to evaluate capital projects. Bennet’s required rate of return is
10%. Bennet is considering two mutually exclusive projects for its manufacturing business. Both projects
require an initial outlay of P120,000 and are expected to have a useful life of four years. The projected after-
tax cash flows associated with these projects are as follows:
Assuming adequate funds are available which of the following project options would you recommend that
Bennet’s management undertake?
a. Project X only.
b. Project Y only.
c. Projects X and Y.
d. Neither project.
____ 32. Capital Invest Inc. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for
four projects for the upcoming year.
Which project(s) should Capital Invest Inc. undertake during the upcoming year assuming it has no budget
restrictions?
a. All of the projects.
b. Projects 1, 2, and 3.
c. Projects 2, 3, and 4.
d. Projects 1, 3, and 4.
____ 33. If a firm is offered credit terms of 2/10, net 30 on its purchases. Sound cash management practices would
mean that the firm would pay the account on which of the following days?
a. Day 2 and 30.
b. Day 2 and 10.
c. Day 10.
d. Day 30.
Sales P600,000
Net income 100,000
Capital investment 400,000
Which of the following equations should be used to compute Bala’s return on investment?
a. (4/6) x (6/1) = ROI
b. (6/4) x (1/6) = ROI
c. (4/6) x (1/6) = ROI
d. (6/4) x (6/1) = ROI
____ 36. Which of the following actions normally requires shareholder approval?
a. Appointing the chief executive officer
b. Issuing a dividend
c. The corporate strategic plan
d. Changing the nature of the corporation
____ 37. To which of the following rights is a stockholder of a public corporation entitled?
a. The right to have annual dividends declared and paid
b. The right to vote for the election of officers
c. The right to a reasonable inspection of corporate records
d. The right to have the corporation issue a new class of stock
____ 39. Which of the following is most effective as an external monitoring device for a publicly held corporation than
the others?
a. Internal auditors
b. External auditors
c. The SEC
d. Attorneys
____ 40. Which of the following components is considered the foundation of the internal controls established by an
organization?
a. Control activities
b. Monitoring
c. The control environment
d. The audit committee
____ 41. Which one of the following best describes the major difference between traditional and strategic
management accounting?
a. Traditional management accounting (focuses on the manufacturing environment);
Strategic management accounting (focuses on the public sector and service
organizations)
b. Traditional management accounting (focuses on planning, evaluating and controlling);
Strategic management accounting (focuses solely on strategic-level issues)
c. Traditional management accounting (focuses on product costing); Strategic management
accounting (incorporates both financial and non-financial performance measures)
d. Traditional management accounting (provides useful information to support managers);
Strategic management accounting (broadens the role to focus on value creation for all
significant stakeholders)
____ 42. Which one of the following is a form of strategic management accounting support for the operational
management task of planning?
a. measuring individual, departmental, team and organizational performance
b. preparing budgets and forecasts, using costing systems and providing historical data
c. using budgets to coordinate various departments and communicate organizational
priorities to employees
d. identifying causes of variance, establishing performance incentives and criteria,
reconciliation and internal controls
____ 43. Bramhall Pty Ltd has the following 20X9 estimates for its product.
Fixed costs are P200,000 per annum. Sales price per unit is P70. Raw materials cost is P12 per kilogram.
Raw materials required per unit is 0.5 kilograms. Raw materials inventory required at the end of each month
is 40 per cent of next month’s raw materials usage. Finished goods inventory required at the end of each
month is 10 per cent of the next month’s expected sales. Labor cost is P22 per hour. 1.5 hours of labor are
required for each unit. 25 per cent of sales are on credit.
Cash from 30 per cent of the credit sales is collected in the same month as the sale.
Cash from 60 per cent of the credit sales is collected in the month after the sale.
Cash from 5 per cent of the credit sales is collected in the second month after the sale
Variable selling costs are P3 per unit. Variable administration costs are P4 per unit. Variable manufacturing
overhead is P5 per unit.
Fixed costs are P200,000 per annum. Sales price per unit is P70. Raw materials cost is P12 per kilogram.
Raw materials required per unit is 0.5 kilograms. Raw materials inventory required at the end of each month
is 40 per cent of next month’s raw materials usage. Finished goods inventory required at the end of each
month is 10 per cent of the next month’s expected sales. Labor cost is P22 per hour. 1.5 hours of labor are
required for each unit. 25 per cent of sales are on credit.
Cash from 30 per cent of the credit sales is collected in the same month as the sale.
Cash from 60 per cent of the credit sales is collected in the month after the sale.
Cash from 5 per cent of the credit sales is collected in the second month after the sale
Variable selling costs are P3 per unit. Variable administration costs are P4 per unit. Variable manufacturing
overhead is P5 per unit.
The estimated total cash receipts collected in the month of March 20X9 are
a. $385,000.
b. $1,750,000.
c. $1,767,500.
d. $1,851,500.
____ 45. Bramhall Pty Ltd has the following 20X9 estimates for its product. Fixed costs are P200,000 per annum.
Sales price per unit is P70. Raw materials cost is P12 per kilogram. Raw materials required per unit is 0.5
kilograms. Raw materials inventory required at the end of each month is 40 per cent of next month’s raw
materials usage. Finished goods inventory required at the end of each month is 10 per cent of the next month’s
expected sales. Labor cost is P22 per hour. 1.5 hours of labor are required for each unit. 25 per cent of sales
are on credit.
Cash from 30 per cent of the credit sales is collected in the same month as the sale.
Cash from 60 per cent of the credit sales is collected in the month after the sale.
Cash from 5 per cent of the credit sales is collected in the second month after the sale
Variable selling costs are P3 per unit. Variable administration costs are P4 per unit. Variable manufacturing
overhead is P5 per unit.
Sales price per unit is P70. Raw materials cost is P12 per kilogram. Raw materials required per unit is 0.5
kilograms. Raw materials inventory required at the end of each month is 40 per cent of next month’s raw
materials usage. Finished goods inventory required at the end of each month is 10 per cent of the next month’s
expected sales. Labor cost is P22 per hour. 1.5 hours of labor are required for each unit. 25 per cent of sales
are on credit.
Cash from 30 per cent of the credit sales is collected in the same month as the sale.
Cash from 60 per cent of the credit sales is collected in the month after the sale.
Cash from 5 per cent of the credit sales is collected in the second month after the sale
Variable selling costs are P3 per unit. Variable administration costs are P4 per unit. Variable manufacturing
overhead is P5 per unit.
Cash from 30 per cent of the credit sales is collected in the same month as the sale.
Cash from 60 per cent of the credit sales is collected in the month after the sale.
Cash from 5 per cent of the credit sales is collected in the second month after the sale
Variable selling costs are P3 per unit. Variable administration costs are P4 per unit. Variable manufacturing
overhead is P5 per unit.
____ 48. The role of the management accountant has evolved to a more strategic focus. Which one of the following
activities are not appropriate to the role of the strategically oriented management accountant?
a. designing information systems that enable users to access information for themselves
b. designing control systems that promote ethical behavior and corporate social responsibility
c. acting as a business partner and consultant to management with a focus on improving
results and creating value
d. acting as the overseer of management, and avoiding any involvement in activities that
might create a conflict of interest
____ 49. TGC Pty Ltd (TGC) manufactures air-cooling fan components for the Australasian personal computer
assembly market. TGC is about to establish a total quality improvement program and has analyzed its
operating and accounting records for the year ending 30 June 20X0 and established that the following quality-
related costs have been incurred:
If TGC prepared a quality cost report for the year, what would be the total external failure costs?
a. 50,000
b. 80,000
c. 90,000
d. 100,000
____ 50. AirPorts Ltd (AP) runs an airport and has three airline customers (Panther Air, Lion Air and Leopard Air).
Airlines pay a P10 fee to AP for each traveler who passes through the airport. However, the cost of servicing
customers is only partly related to the volume of travelers. Current data for AP is:
____ 52. The full-employment gross domestic product is P1.3 trillion, and the actual gross domestic product is P1.2
trillion. The marginal propensity to consume is 0.8. When inflation is ignored, what increase in government
expenditures is necessary to produce full employment?
a. P100 billion
b. P80 billion
c. P20 billion
d. P10 billion
____ 53. Which of the following examples involves transfer pricing?
a. Donating a product to a charitable organization.
b. Selling a product between affiliated entities.
c. Changing the price of a product to meet a competitor’s price.
d. Transferring goods at a reduced price to customers for resale.
____ 54. Which of the following activities is most likely to be the first step in the strategic planning process?
a. Establishing objectives.
b. Formulating strategy.
c. Formulating mission statement.
d. Conducting environmental analysis.
____ 56. Which of the following factors is explicitly included in PESTEL analysis but is not explicitly in PEST analysis?
a. Economic growth rate.
b. Level of research and development.
c. Political stability.
d. Climate conditions.
____ 57. Is SWOT analysis concerned with external environment, internal characteristics, or both?
a. External Environment (Yes); Internal Characteristics (Yes)
b. External Environment (Yes); Internal Characteristics (No)
c. External Environment (No); Internal Characteristics (Yes)
d. External Environment (No); Internal Characteristics (No)
____ 58. Which one of the following would be least likely to be a possible threat to an entity?
a. The possibility of changes in customer preferences.
b. The prospect of new regulations on an entity’s industry.
c. Decreases in international trade barriers.
d. The possibility of lack of access to needed natural resources.
____ 59. The common stock of Global Corporation is selling at P54 per share. It expects to pay a dividend of P4 per
share and the dividend will grow at a rate of 9 percent per year. What is the cost of the common stock?
a. 13.7%
b. 14.9%
c. 15.0%
d. 15.5%
e. 16.4%
____ 60. Global Corporation has bonds outstanding. The bond's yield to maturity (before-tax cost of the bond) is 12.4
percent and the firm's tax rate is 40 percent. What is the after-tax cost of the bond?
a. 12.4%.
b. 10.9%.
c. 7.4%.
d. 6.2%.
e. 6.2%.
____ 61. Global Corporation has debt with a market value of P80,000 and common equity with a market value of
P120,000. The component costs of the capital structure for Global Corporation are 7.4 percent for bond and
16.4 percent for common equity. What is the weighted average cost of capital for Global Corporation?
a. 7.4%.
b. 12.8%.
c. 16.4%.
d. 19.6%.
e. 21.5%.
____ 62. The riskless rate of interest is 6 percent, the expected rate of return on a market portfolio is 8 percent, and
the beta coefficient of a common stock is 1.2. What is the cost of this common stock?
a. 5.0%
b. 6.3%
c. 7.3%
d. 7.9%
e. 8.4%
____ 63. A Philippine company borrows Mexican pesos for one year at 30 percent. During the year, the peso
depreciates 15 percent against the dollar. The Philippine tax rate is 35 percent. What is the after-tax cost of
this debt in Philippine dollar terms?
a. 5.66%
b. 6.00%
c. 6.80%
d. 6.83%
e. 7.00%
____ 64. Many researchers singled out ___ as an important factor influencing the international transfer pricing
decision
a. import duty minimization
b. income tax minimization
c. adjUSting for currency fluctuations
d. avoiding financial problems
e. increasing foreign sales
____ 65. Subsidiary A sells inventory with a cost of P10 to subsidiary B for P15. Subsidiary B then sells the finished
goods with a cost of P15 to a domestic independent third party for P25. The international transfer price is P
a. 10
b. 15
c. 25
d. 27
e. 40
____ 67. If prices in local currencies are increased by the same percentage as the increase in the cost of imports, ___.
a. the effect of exchange-rate fluctuations on profits is greater than the effect of a comparable
local inflation rate
b. the effect of exchange-rate fluctuations on profits is less than the effect of a comparable
local inflation rate
c. the effect of exchange-rate fluctuations on profits is identical with the effect of a
comparable local inflation rate
d. there is no effect on profits
e. there is no effect on the interest rate
____ 68. It is a systematic gathering and analysis of data concerning a proposed project and the formulation of
conclusion therefrom for the purpose of determining whether or not the project is viable, and if so, its
degree of profitability.
a. Budgeting
b. Feasibility Study
c. Viable Costing
d. Profit Planning
____ 69. Which of the following is used to describe the practice of adding resources to shorten selected activity time
on the critical path of a project?
a. Making adjustments
b. Project crashing
c. Slack time
d. Reengineering
____ 70. Anjo Company is considering a P600,000 investment in new equipment that is anticipated to produce the
following data over a five-year life:
Ignoring income taxes and assuming that cash flows occur evenly throughout a year, the equipment’s
approximate payback period is:
a. 1 year, 7 months
b. 2 years, 1 month
c. 2 years, 5 months
d. over 5 years
____ 71. The budgeting technique that focuses on different phases of a product such as planning and concept design,
testing, manufacturing and distribution and customer service is known as:
a. integrative budgeting
b. base budgeting
c. comprehensive budgeting
d. life-cycle budgeting
____ 72. Lea Corporation will evaluate a potential investment in an advanced manufacturing system by use of the net-
present-value (NPV) method. Which of the following system benefits is likely to be omitted from the NVP
analysis?
a. Savings in operating costs.
b. Greater flexibility in the production process.
c. Improved product quality.
d. Shorter manufacturing cycle time.
____ 73. A learning curve of 70% assumes that direct labor costs are reduced by 30% for each doubling of output.
What is the cost of the 8th unit produced as an approximate percentage of the first unit produced?
a. 34.30%
b. 70%
c. 30%
d. 0.343%
____ 76. In accordance with the dividend growth model, the three elements needed to estimate the cost of equity
capital for use in determining a firm’s weighted average cost of capital are
a. current dividends per share, expected growth rate in dividends per share, and current book
value per share of common stock
b. current earnings per share, expected growth rate in dividends per share, and current market
price per share of common stock
c. current earnings per share, expected growth rate in earnings per share, and current book
value per share of common stock
d. current dividends per share, expected growth rate in dividends per share, and current
market price per share of common stock
____ 77. Josh Corporation, which has no current debt, has a beta of 0.95 for its current stock. Management is
considering a change in the capital structure to 30% debt and 70% equity. This change would increase the bet
on the stock to 1.05, and the after tax cost of debt will be 7.5%. The expected return on equity is 16%, and the
risk free rate is 6%.
MULTIPLE CHOICE
1. ANS: B
SOL:
When the company misses recording a purchase but includes the purchase as part of cost of goods sold
(COGS) in the income statement, COGS will be understated and the net income will be overstated. The
missing P10,000 should have been included both in purchases and in ending inventory, which will result in
the COGS being unaffected.
TOP: Financial Management
2. ANS: C
SOL:
Reacquisition reduces the number of shares a company has outstanding without altering the value of the
company. Therefore, the stock price of the company will increase.
TOP: Financial Management
3. ANS: C
SOL:
If an account written off using the direct write-off method is subsequently collected, the amount is debited to
Cash and credited to a revenue account, such as Uncollectible Accounts Recovered.
TOP: Financial Management
4. ANS: C
SOL:
The asset should be outside the reach of the seller and the company's creditors.
TOP: Financial Management
5. ANS: A
SOL:
As required by ASC 810 Consolidation (formerly SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries), all companies with subsidiaries are required to issue consolidated statements including each
subsidiary they control, usually meaning 50% or more ownership.
TOP: Financial Management
6. ANS: A
SOL:
Companies that use factoring get immediate cash and can eliminate their credit department, because factors
usually take over these tasks. The company continues all operational activities directly with the customers,
such as order placement and fulfillment.
TOP: Financial Management
7. ANS: C
SOL:
If there is an existing credit balance in the allowance for doubtful accounts, then the bad debt expense should
be adjusted downward, as it is necessary to adjust the balance only to the desired level. Therefore, the correct
balance will be P7,500 - P1,500 = P6,000.
TOP: Financial Management
8. ANS: D
SOL:
When property, plant, and equipment assets are acquired through the issuance of stock or other securities, the
par value of the stock will be inadequate to measure the true cost of the property. Instead, if the stock is being
actively traded, its current market value is used. If the stock value cannot be determined because the stock is
not actively traded, an estimate of the market value of the property should be made and used as the basis for
recording the value of both the asset and the issuance of the stock.
TOP: Financial Management
9. ANS: B
SOL:
Most of Infinity's business units are either stars or question marks. These operate in high-growth markets and
require cash inputs to grow, which usually are provided by cash cows or dogs. Since Infinity has only two
business units in these two quadrants, the company is likely to be facing a cash crunch.
TOP: Business Strategy
10. ANS: A
SOL:
The cash cows quadrant includes those business units or product lines that have high market share in a slow-
growing industry. Small family cars have a higher demand than executive cars, and the automobile industry is
a slow-growth industry; therefore, family cars should be classified in the cash cows quadrant.
TOP: Business Strategy
11. ANS: D
SOL:
Providing accident prevention policies to employees falls under the human resource practices followed by an
organization. Therefore, in this case, the strategy of Elliott Enterprises regarding human resources will be
affected.
TOP: Business Strategy
12. ANS: B
SOL:
If Umbra is not able to expand its production capacity, it will be unable to capitalize on the opportunity
offered by an expanding market. Its market share in the highgrowth market will eventually dwindle, and it
will turn into a question mark on ANB's growth-share matrix.
TOP: Business Strategy
13. ANS: D
SOL:
Stakeholder analysis helps an organization frame its corporate social responsibility. It identifies the role good
citizenship plays in a business.
TOP: Business Strategy
14. ANS: A
SOL:
ZBB requires that the cost of each item or program in the budget be re-justified with each new budget. ZBB
ranks items and programs by how vital they are to the company. The base for each budget line item or
program is zero.
TOP: Budgeting
15. ANS: C
SOL:
A rolling budget (or continuous budget) is a plan that always covers a specified future period by adding a
period in the future and dropping the period just ended. It forces management to continuously focus on the
future specified time period. The time period is always the same length, but the actual time period covered by
the budget moves forward with the passage of time.
TOP: Budgeting
16. ANS: B
SOL:
Incremental budgeting accepts the current budget as satisfactory and uses it as the base. ZBB requires that the
cost of each item in the budget be re-justified with each new budget. The starting point, or base, for each
budgeting line item is zero.
TOP: Budgeting
17. ANS: D
SOL:
An activity-based budget places emphasis on teamwork, synchronized activity, and
customer satisfaction. Traditional budgeting places emphasis on increasing
management performance.
TOP: Budgeting
18. ANS: C
SOL:
Per the definition of zero-based budgeting, it is a budgeting approach that requires a manager to justify the
entire budget for each budget period
TOP: Budgeting
19. ANS: B
SOL:
Each division should have the ability to operate independently of one another, and strive for achieving its
divisional goals, as well as working towards the goals of the overall company. Figuring transfer prices can be
determined using normal market price, negotiated price, variable costs, or full absorption costs. In this case, if
the fabrication division has no excess capacity, it would charge the assembling division the regular market
price. However, the Fabrication division has excess capacity sufficient to meet Assembly division's need so
negotiation is possible. Any price greater than the variable costs of subassembly of P30 is acceptable, and will
increase profits of the Fabrication division by accepting any negotiated price between P30 and P75.
TOP: Responsibility Accounting
20. ANS: D
SOL:
The segment margin of a segment is it's contribution margin less all traceable fixed costs for the segment.
TOP: Responsibility Accounting
21. ANS: D
SOL:
Profit centers are responsible for both costs and revenues. Since profit is a function of both revenue and costs,
a manager for a profit center is responsible for generating profits. The contribution margin is the amount that
contributed towards fixed expenses and profits. Therefore, the manager can only have control over the
contribution margin (sales - variable costs). The other items included are not under the manager's control.
TOP: Responsibility Accounting
22. ANS: A
SOL:
In day-to-day operations of a business, a cost conscious approach needs to be taken. A cost savings
justification can be used in the problem as well. As justification for the Plastics Division to sell a product
internally to another profit center at a price that is below the market-based transfer price would be to avoid the
routine sales commissions and collection costs from selling externally.
TOP: Responsibility Accounting
23. ANS: C
SOL:
The optimal transfer price is calculated as follows:
Optimal transfer price, T(o) = (manufacturing division's opportunity cost of
production) + (any avoidable fixed costs) + (any foregone contribution from
manufacturing the product)
Since the Fabrication Division has excess capacity, the foregone contribution = P0.
There is no mention of avoidable fixed costs.
The higher standard deviation must be viewed relative to the expected return.
The other choices are incorrect because Project 1 has a negative net present value and should not be
undertaken.
TOP: Capital Budgeting
33. ANS: C
SOL:
A firm should take advantage of the cash discount and pay on the last day of the discount period, which is day
10.
TOP: Financial Management
34. ANS: D
SOL:
A horizontal merger is one between competitors in the same market.
TOP: Financial Management
35. ANS: B
SOL:
Return on investment (ROI) may be calculated using the following equation:
Sales/Investment x Net income/Sales = ROI
Thus, the equation that should be used to compute Bala’s return on investment is (6/4) x (1/6) = ROI
TOP: Performance Measurement
36. ANS: D
SOL:
Because changing the nature of the corporation requires approval by the shareholders.
TOP: Corporate Governance
37. ANS: C
SOL:
Shareholders have the right to inspect the corporate records if done in good faith for a proper purpose.
Shareholders do not have a right to dividends. It is the decision of the board of directors whether or not to
declare dividends.
Although at least one class of stock must have voting rights to elect the board of directors, the officers may be
selected by the board of directors.
Shareholders do not have the right to receive dividends unless they are declared by the board of directors.
Shareholders are not necessarily involved in the management of the corporation and cannot prevent corporate
borrowing
TOP: Corporate Governance
39. ANS: B
SOL:
External auditors audit the financial statements and internal controls of a publicly held corporation.
SEC relies upon external auditors to audit the corporation’s financial statements and internal controls.
Attorneys only advise management on legal issues. They cannot take action if management does not take their
advice
TOP: Corporate Governance
40. ANS: C
SOL:
The control environment is considered the foundation of all of the other components of internal control.
TOP: Corporate Governance
41. ANS: D
SOL:
Traditional management accounting (provides useful information to support managers); Strategic
management accounting (broadens the role to focus on value creation for all significant stakeholders) is
correct because it emphasizes the key importance of value creation for all significant stakeholders (both
internal and external) in strategic management accounting.
TOP: Performance Measurement
42. ANS: B
SOL:
Budgeting is a tool used by management accountants to support operational management in creating and
enhancing value. Budgeting is strategic when it is focused on value creation.
TOP: Performance Measurement
43. ANS: D
SOL:
68,000 units x P70 per unit = 4,760,000. The unit sales for the quarter are 68,000 (January 20,000 + February
22,000 + March 26,000).
TOP: Performance Measurement
44. ANS: B
SOL:
March cash sales 1,365,000 (26,000 × P70 × 0.75)
January credit sales P17,500 (20,000 × P70 × 0.25 × 0.05)
February credit sales 231,000 (22,000 × P70 × 0.25 × 0.60)
March credit sales 136,500 (26,000 × P70 × 0.25 × 0.30)
Total 1,750,000
TOP: Performance Measurement
45. ANS: C
SOL:
March
Sales 26,000
+ Ending finished goods inventory required (10% of next month’s sales) 2,700
28,700
- Beginning finished goods inventory (10% of this month’s sales) 2,600
Production requirements (units) 26,100
TOP: Performance Measurement
46. ANS: B
SOL:
During the month of March, we need to purchase enough raw materials (RM) to cover production in March,
and to ensure there is enough RM on hand at the end of March. The case study for this question provides
details of the starting RM balance for March (i.e. 40% of March RM usage), and the finishing RM balance for
March (i.e. 40% of April RM usage). From the previous question, we also know the production requirements
for March (26,100 units). We use this information to calculate how much RM needs to be purchased in March
(some of which will be used in March and some of which will be used in April).
The raw materials usage for the month of March is calculated as follows:
March production requirements (26,100) x 0.5 kg/unit = 13,050 RM usage in March
The case study states that RM inventory required at the end of the month (i.e. February) is 40 per cent of the
next month’s (i.e. March) RM usage. So, at the start of March, the beginning RM inventory should be 13,050
x 40% = 5,220. The April calculation follows, and then a summary.
April
Sales 27,000
+ Ending finished goods inventory required (10% of next month’s sales) 2,400
29,400
- Beginning finished goods inventory (10% of this month’s sales) 2,700
Production requirements (units) 26,700
March
Production required (units) 26,100
x Volume 0.5kg
13,050
+ Ending RM inventory (26,700 × 0.5 = 13,350 × 0.4 (40%)) 5,340
18,390
- Beginning RM inventory (13,050 × 0.4 (40%)) 5,220
Total kilograms 13,170
TOP: Performance Measurement
47. ANS: D
SOL:
March
Production requirements (a) 26,100
x Hours per unit 1.5 hrs
Total hours 39,150
x Cost per hour P22
Direct labor cost 861,300
†
See Question 1.8
TOP: Performance Measurement
48. ANS: D
SOL:
The management accountant’s role is that of a business partner, with a focus on enhancing performance.
The conformance role is often assigned to financial accountants rather than management accountants.
It is important to management performance and effective decision-making as it ensures that users have timely
access to information, and are familiar with the information systems relevant to their role.
The product-liability insurance contract protects the organization from a financial perspective, but it does not
prevent the products from being defective. Claims against the insurance policy will arise from external
failures.
TOP: Performance Measurement
50. ANS: C
SOL:
Revenue of P19m represents P19m / P10 = 1.9m travelers. Total costs are P4m+ P8m+ P1.2m = P13.2m.
Cost per traveler is P13.2m / 1.9m = P6.95. The margin per traveler is P10 - P6.95 = P3.05 or P3.05 / P10 =
30.5%. Option A is incorrect because this is the cost per traveler. Option B is incorrect because it is the
revenue per traveler less the cost per traveler, but ‘cost per traveler has the decimal in the wrong place: 0.695
instead of 6.95. (P10 - P0.695 = P9.31).
TOP: Performance Measurement
51. ANS: D
SOL:
By definition, the gross domestic product (GDP) is a measure of the market value of all final goods and
services produced within the country during a one-year period. GDP includes only goods that are in their
completed form and ready for the end use, whether or not the final product has been sold. Nominal GDP is
measured at current prices. Real GDP measures output (GDP) at constant prices, that is, adjusted for changes
in the level of prices since a base year. Finally, potential GDP is a measure of the market value of maximum
production of final goods and service that is possible in the economy without putting upward pressure on the
level of prices in the economy.
TOP: Government, Taxation and Expenditure
52. ANS: C
SOL:
In order to reach full employment, gross domestic product needs to increase by P.1 trillion (i.e., P1.3 trillion at
full employment - P1.2 trillion at current = P.1 trillion shortfall). Because of the multiplier effect, additional
government expenditures needed to increase gross domestic product by that amount is P20 billion. The
formula is:
A P20B increase in government expenditures would result in P100 billion increase in gross domestic product.
TOP: Government, Taxation and Expenditure
53. ANS: B
SOL:
Selling a product between affiliated entities is an example that involves transfer pricing and is a special issue
when the transfers are between entities located in different countries.
TOP: Transfer Pricing
54. ANS: C
SOL:
Formulating its mission statement will be the first step in the strategic planning process. An entity’s mission
statement provides an expression of its purpose and range of activities.
TOP: Business Strategy
55. ANS: A
SOL:
PEST analysis, which is concerned with the political, economic, social, and technical characteristics of a
nation or region, can be used when considering either a domestic location or a foreign location.
TOP: Business Strategy
56. ANS: D
SOL:
Climate conditions is not a factor that is explicitly included in PEST analysis, but is explicitly included in
PESTEL analysis. In PESTEL analysis, climate conditions would be part of the environmental (the second
“E”) factors considered.
TOP: Business Strategy
57. ANS: A
SOL:
SWOT is concerned with both the external environment of an entity (the opportunities and threats) and its
internal characteristics (strengths and weaknesses).
TOP: Business Strategy
58. ANS: C
SOL:
Decreases in international trade barriers would not be a possible threat to an entity. Decreased trade barriers
may make it easier for the entity to purchase goods from foreign suppliers (imports) or sell to foreign buyers
(exports), either of which would be an opportunity, not a threat.
TOP: Business Strategy
59. ANS: E
SOL:
Cost of common stock = 4/54 + .09 = 16.4%
TOP: Capital structure
60. ANS: C
SOL:
Cost of bond = .124(1 - .40) = 7.4%
TOP: Capital structure
61. ANS: B
SOL:
Cost of capital = (120,000/200,000).164 + (80,000/200,000).074 = 12.8%
TOP: Capital structure
62. ANS: E
SOL:
Cost of common stock = 0.06 + (0.08 - 0.06)1.2 = 8.4%
TOP: Capital structure
63. ANS: D
SOL:
The before-tax cost of debt = 0.30 x 0.85 - 0.15 = 0.105.
After-tax cost of debt = 0.105 (1 - 0.35) = 6.83%
TOP: Capital structure
64. ANS: B TOP: Transfer pricing
65. ANS: B TOP: Transfer pricing
66. ANS: C TOP: Transfer pricing
67. ANS: C TOP: Transfer pricing
68. ANS: B TOP: Business Planning
69. ANS: B TOP: Budgeting
70. ANS: C
SOL:
Net cash flows:
Year 1 (P350,000 - P130,000) P220,000
Year 2 (P450,000 - P190,000) 260,000
Year 2 (P450,000 - P170,000) 280,000