MANUEL S.

ENVERGA UNIVERSITY FOUNDATION Document Code : CBA-F-ME

An Autonomous University Document Title : Major
Lucena City Examination
COLLEGE OF BUSINESS AND ACCOUNTANCY
Page : 01 of 04
PACUCOA Level IV Accredited Revision Number : 0
Effectivity Date : August 2019
QUALITY FORM
Prepared by : CBA
Reviewed by : QMR
Approved by : President

ACCOUNTING REVIEW 1 (ACCE102A)

PRELIMINARY EXAMINATION

NAME: _______________________________________ Date: _____________

Section Code: C094

Instructions: Choose and encircle the correct answer. (NO ERASURES. USE BALLPEN)

Preliminary Exam KTC

1 D 11 A 21 B 31 C
2 D 12 B 22 BONUS 32 C
3 D 13 C 23 B 33 A
4 C 14 B 24 A 34 A
5 B 15 C 25 D 35 BONUS
6 D 16 C 26 A
7 B 17 B 27 B
8 C 18 A 28 A
9 B 19 C 29 B
10 D 20 D 30 B

1. A company is determining how to finance some long-term projects. The company has decided it prefers the benefits
of no fixed charges, no fixed maturity date and an increase in the creditworthiness of the company. Which of the
following would best meet the company’s financing requirements? [FM]
a. Short-term debt c. Bonds
b. Long-term debt d. Common Stock
[Items 2-3] CHARLIZE Corp. uses 12,000 units of a product per year on a continuous basis. The product has a
fixed cost of ₱20 per order, and carrying cost is ₱3 per unit per year. It takes 5 days to receive a shipment after
an order is placed, and the firm wishes to hold 5 days usage in inventory as a safety stock.

2. The total transaction cost associated with inventory is [WCM]

a. ₱1,200 b. ₱180 c. ₱90 d. ₱600

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3. What is the reorder point? [WCM]
a. 167 units b. 2,164 units c. 300 units d. 329 units

4. ARIANE Corp. has ₱1,500,000 invested in fixed assets. In addition, the firm has ₱1,000,000 in current
assets, ₱750,000 of which are considered permanent. ARIANE wishes to finance all permanent assets plus
half of its temporary assets with long-term financing costing 7%. Short-term financing currently costs 5%.
ARIANE ‘s earnings before interest and taxes are ₱1,800,000. Income tax rate is 30%. How much would
ARIANE’s earnings after taxes be under this financing plan? [WCM]
a. 1,087,500 b. 1,627,500 c. 1,139,250 d. 1,143,625

5. What type of financial policy is applied in number 4? [WCM]

a. Short-term financing c. Moderate financing
b. Conservative financing d. Restricted financing
6. S1: Commercial paper is a capital market instrument.
S2: Government issues debt and equity securities.
S3: Repurchase agreement is a money market instrument. [WCM]
a. S1, S2, and S3 are correct c. S1, S2, and S3 are incorrect
b. S1 and S3 are correct d. S1 and S2 are incorrect

7. MIKIE purchases raw materials on September 1. It converts the raw materials into inventory by November 30.
However, MIKIE pays for the materials on September 10. On December 31, it sells the finished goods. Then, the firm
collects cash from the sale 1 month later on January 31. If this sequence accurately represents the average working
capital cycle, what is the firm’s cash conversion cycle in days? [WCM]
a. 152 days b. 143 days c. 121 days d. 159 days

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 Image 1 Image 2

8. S1: Image 1 is a restricted financial policy.

S2: Image 2 is a conservative financial policy [WCM]
S3: Image 1 has lower risk than image 2
S4: Image 2 has higher potential return than image 1.
a. S1, S2, S3, and S4 are correct c. S1, S3, and S4 are incorrect
b. S1 and S2 are incorrect d. S3 and S4 are correct
Image 1 represents a moderate or maturity-matching financial policy, while Image 2 illustrates a conservative financial
policy. Generally, the lower the risk, the lower the return, and vice versa.

[ITEMS 9-11] The following information pertains to a company:

Month Sales Purchases

August ₱25,000 ₱12,000
September 40,000 25,000
October 75,000 32,000
 Cash is collected 30% from customers in the month of sale and 70% in the month following the sale.
 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following
month.
 Labor costs are 15% of sales. Other operating costs are ₱10,000 per month (excluding ₱3,000 of
depreciation). Both are paid in the month incurred.
 The cash balance on October 1 is ₱2,000.

9. How much cash will be collected from customers in October? [WCM]

a. 64,500 b. 50,500 c. 75,000 d. None

10. How much cash will be disbursed in total in October? [WCM]

a. 27,800 b. 39,050 c. 46,050 d. 49,050

11. What is the ending cash balance for October? [WCM]

a. 3,450 b. 6,450 c. 27,800 d. 13,450

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12. KIRSTINE company obtained a short-term bank loan of ₱150,000 at a nominal rate of 6%. As a condition of
the loan, the KIRSTINE is required to maintain a balance of ₱12,000 in its checking account, which earns
2%. What is the effective interest rate of the loan? [STF]
a. 4.35% b. 6.35% c. 6.52% d. 6.21%

13. KIRSTEN Traders borrowed 90-day simple loan of ₱20,000 at a stated rate of 10%. The loan called for a
compensating balance of 10%. Assuming a 360-day year, what is the effective interest rate (EAR) on the
loan? [STF]
a. 4.44% b. 10.26% c. 11.11% d. 11.43%

14. KEITH Company has a ₱2,000,000 line of credit. The line has an interest rate of 9% and a commitment fee
of 2.5%. If KEITH is using ₱600,000 of the line of credit, what is the effective rate on the line of credit? [STF]
a. 4.45% b. 14.83% c. 23.50% d. 6.36%

15. Management accounting is [BASIC]

a. Provides information that is generally available only on a quarterly or annual basis.
b. Provides information that is generally available only on a quarterly or annual basis.
c. Focuses on estimating future revenues, costs, and other measures to forecast activities and their
results.
d. Provides information about the company as a whole.
16. The goal of working capital management is to [WCM]
a. Pay off short-term debts
b. Balance current assets against current liabilities
c. Achieve a balance between risk and return to maximize the firm’s value
d. Achieve a balance between short-term and long-term assets to achieve the firm’s overall goals
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17. If a firm’s credit terms require payment within 45 days but allow a discount of 3% if paid within 15 days (using a 360-
day period), the effective annual rate is [STF]
a. 36% b. 37.11% c. 30% d. 24.74%

18. KHAILYN is currently experiencing cash-flow problems and has determined that she needs short-term credit. She can
either use its trade credit on ₱250,000 of accounts payable with terms of 1/10, net 30 or a 60-day note with
20% annual simple interest rate. Which is best alternative, and what is its effective rate of interest (rounded
to a whole percentage and using a 360-day year)? [STF]
a. The trade credit. Its effective rate of interest is 18%
b. The trade credit. Its effective rate of interest is 20%
c. The note. Its effective rate of interest is 3%
d. The note. Its effective rate of interest is 20%

[ITEM 19-20] KAMILLAH Industries is currently selling its product for ₱20 per unit. Sales (all on credit) for last
year were 20,000 units. The variable cost per unit is ₱14. The firm’s total fixed costs are ₱60,000. KAMILLAH is
currently contemplating a relaxation of credit standards that is expected to result in the following: a 10%
increase in unit sales; an increase in the average collection period from 30 days to 45 days; an increase in bad
debt expenses from 1% to 2%. KAMILLAH determines that its cost of tying up funds in receivables is 8% before
taxes. Assume 365-working days.

19. What is the incremental investment in receivables? [WCM]

a. 28,000 b. 3,452 c. 14,959 d. 21,370

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20. What is the net profit/loss from implementing the plan? [WCM]
a. 4,960 b. 6,924 c. 5,490 d. 6,003

21. Which security is most often held as a substitute for cash? [WCM]
a. Gold c. Treasury bonds
b. Commercial Paper d. AAA corporate bonds
22. Which statement best summarizes the factor that affects the level of safety stock that a firm will carry? [WCM]
a. Items purchased have a lower price
b. Discount percentage is lower
c. Supplier offers a longer discount period
d. Items purchased have a higher price

BONUS
[ITEM 23-26] ISABEL Corporation has just acquired a large account and need to increase its working
capital by ₱1,000,000. The four sources of funds have been identified and ISABEL needs to choose
the best alternative.
I. Borrow ₱1,100,000 from a bank at 14%. A 9% compensating balance would be required.
II. Borrow ₱1,250,000 from a bank on a discount basis at 20%.
III. Borrow ₱1,000,000 from a bank at 10% and was to pay back on monthly installment for 1 year.
IV. Issue ₱1,110,000 of 6-month commercial paper to net ₱1,000,000 with flotation cost of
₱10,000. Assume a 360-day in all of alternatives.
23. The cost of Alternative I is [STF]
a. 14.0% b. 15.38% c. 25.27% d. 5%

24. The cost of Alternative II is [STF]

a. 25.0% b. 28.17% c. 20.0% d. 11.0%

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25. The cost of Alternative III is [STF]
a. 10.0% b. 11.67% c. 20.0% d. 18.46%

26. The cost of Alternative IV is [STF]

a. 22.0% b. 19.82% c. 20.0% d. 21.78%

27. The following is not an example of a money market instrument, except? [FM]
a. Credit unions c. Subordinated Bonds
b. Eurodollars d. All are not money market instruments
28. If the risk-free rate of return is 10% and the rate of return if traded in the market is 14%, and the firm’s beta
is 1.2, what is the cost of common equity based upon the CAPM? [FM]
a. 14.8% b. 16.8% c. 6.8% d. 4.8%

[ITEM 29-30] HOWARD Company issued 1,000 bonds with a 8% interest rate, maturing in five years,
each valued at P2,000, at a time when the prevailing market interest rate was 6%. The company
committed to making annual cash interest payments at the end of each year. The company also
incurred P25,000 in bond issuance costs. Simultaneously, the company issued 10,000 ordinary
shares at P50 per share, with a par value of P45.
29. What is the fair value of issued bonds if company uses FAAC model? [FM]

a. 2,143,584 b. 2,168,584 c. 2,000.000 d. 1,840,124

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30. What is the total market value of HOWARD Company? [FM]

a. 2,643,584 b. 2,668,584 c. 2,500.000 d. 2,340,124

31. Which of the following is true regarding the comparison of managerial and financial accounting? [BASIC]
a. Managerial accounting is generally more precise.
b. The emphasis on managerial accounting is relevance, and the emphasis on financial accounting is
timeliness.
c. Managerial accounting need not follow generally accepted accounting principles (GAAP),
while financial accounting must follow them.
d. Managerial accounting has a past focus, and financial accounting has a future focus.

[ITEMS 32-33] NICHOLAS INC. reported the following financial liabilities on December 31, 2024:

12% subordinated bonds, due in 2025 300,000.00

Bonds maturing in installments, secured by land 1,000,000.00
8% collateral trust bonds maturing annually beginning in 2023 3,000,000.00
Unsecured 9% coupon bonds, lump sum payment 500,000.00
12% bonds convertible into preferred shares starting 2024, due
in 2026 1,000,000.00
10% guaranty security bonds, callable in 2025, maturing in a
single date 200,000.00
Registered 8% debenture bonds, maturing in installments 3,000,000.00
8% bonds secured by investment in bonds, maturing annually 5,000,000.00
14,000,000.00

32. The total amount of term bonds is [FM]

a. 1,500,000 c. 2,000,000
b. 2,500,000 d. 1,000,000

33. The total amount of secured bonds is [FM]

a. 9,200,000 c. 10,200,000
b. 6,200,000 d. 13,200,000

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34. S1: Financial accounting data should be objective and verifiable. [BASIC]
S2: Managerial accounting is concerned with reporting for a company as a whole
S3: Managerial accounting focuses more on accuracy.
S4: Financial accounting focuses more on timeliness.
a. One statement is correct
b. Two statements are correct
c. Three statements are correct
d. All statements are correct.

35. Guess your raw score. A correct guess will earn you an additional 5 points on your quiz score. __________

Fighting Future CPA!

Prepared by:

MARY JOY L. DIALA

Faculty

Reviewed and Calibrated by:

CATHERINE L. GUIA
Department Chair-BSA