Ateneo de Naga University
FMAC227_Financial Analysis and Reporting
Midterm Examination
AM21
1. A company’s quick assets are its cash, accounts receivables are its cash, accounts
receivable, notes receivable, short term investments, and merchandise inventory.
True
False
Neither True or False
Quick assets are cash and other assets that are easily convertible to cash.
Merchandise inventory is not considered as quick assets because it is
assumed to be sold on credit.
2. In analyzing the ability of a company to pay its bill in the near future, the amount of its
quick assets is generally significant.
True
False
Neither True or False
3. The amounts shown on a single balance sheet or income statement are useful for
evaluating trends in operating efficiency.
True
False
Neither True or False
Trend analysis is performed on at least two years financial statements because
goal is to calculate and analyze the amount change and percent change from
one period to the next.
4. The four basic financial statements are Statement of Financial Position, Statement
of Comprehensive Income, Statement of Shareholder’s Loan and Statement of
Cash Flows.
True
False
Neither True or False
The four basic financial statements are Statement of Financial Position,
Statement of Comprehensive Income, Statement of Shareholder’s Equity and
Statement of Cash Flows.
5. Net working capital is synonym of working capital.
True
False
Neither True or False
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6. The process of preparing and issuing financial information is called financial
reporting.
True
False
Neither True or False
7. A synonym for acid-test ratio is current ration.
True
False
Neither True or False
A synonym for acid-test ratio is current ratio is quick ratio.
8. The operating efficiency of a company can be expressed in terms of profit margin and
total asset turnover.
True
False
Neither True or False
9. Current assets minus current liabilities is called working capital.
True
False
Neither True or False
10. Financial statement analysis involves gaining an understanding of an
organization's financial situation by reviewing its financial reports. The results can be
used to make investment and lending decisions.
True
False
Neither True or False
11. Financial statement analysis reviews financial information found on financial
statements to make informed decisions about the business.
True
False
Neither True or False
12. Statement of Financial Position reports the company’s financial performance at a
point in time.
True
False
Neither True or False
Statement of Financial Position reports the company’s financial position at a
point in time. Statement of Comprehensive Income reports the company’s
financial performance over a period of time.
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13. Transactions recorded under Liabilities and Equity are financing activities.
True
False
Neither True or False
Transactions recorded under Asset is investing activities while Liabilities and
Equity are financing activities.
14. Horizontal Analysis is the proportional analysis of a financial statement, where
each line item on a financial statement is listed as a percentage of another item.
True
False
Neither True or False
15. Cash coverage ratio measures the amount of time required to convert assets into
cash.
True
False
Neither True or False
Liquidity index measures the amount of time required to convert assets into cash
while Cash coverage ratio shows the amount of cash available to pay interest.
16. Current ratio measures the amount of liquidity available to pay for current liabilities.
True
False
Neither True or False
17. Inventory turnover ratio measures a company's ability to generate sales from a
certain base of fixed assets while Sales to working capital ratio shows the amount of
working capital required to support a given amount of sales.
True
False
Neither True or False
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18. Which of the following is an inflow of cash?
Funds spent in normal business operations. – cash outflow
The purchase of a new factory – cash outflow
The acquisition of equity instrument – cash outflow
Cash proceeds from borrowings
19. Ratio that measures a company's ability to generate sales from a certain base of
working capital.
Fixed asset turnover ratio.
Inventory turnover ratio.
Sales to working capital ratio.
Working capital turnover ratio
20. Ratio that measures a company's ability to generate sales from a certain base of
fixed assets. (Refer to Item No. 19 slide screenshot)
Fixed asset turnover ratio.
Inventory turnover ratio.
Sales to working capital ratio.
Working capital turnover ratio
21. Ratio that measures the speed with which a company pays its suppliers. (Refer to
Item No. 19 slide screenshot)
Accounts payable turnover ratio
Accounts receivable turnover ratio.
Fixed asset turnover ratio.
Inventory turnover ratio.
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22. The statement of cash flows does not include which of the following sections?
Cash flows from operating activities
Cash flows from sales activities
Cash flows investing activities
Cash flows from financing activities
23. Ratio that measures a company's ability to collect accounts receivable. (Refer to
Item No. 19 slide screenshot)
Accounts payable turnover ratio
Accounts receivable turnover ratio.
Fixed asset turnover ratio.
Inventory turnover ratio.
24. Which of the following is an investing activity in Statement of Financial Position?
Sale of used tractors at net realizable value
Cash proceeds from borrowings from bank – financing activity
Sale of own company stocks – financing activity
Payment of interest expense – financing activity
25. Which of the following transactions should not be reported in income statement?
Cash proceeds of loan from a microfinance institution – reported under Asset Account (Dr
Cash) and Liability account (Cr Loans Payable)
Retirement of asset due to damage of Typhoon Ulysses – Dr Loss On Asset
Retirement and Cr Asset
Cash proceed from sale of damaged goods – Dr Cash and Cr Sale Of Damaged
Goods (Other Income)
All of the above
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26. When the allowance of recognizing bad debt expense is used, the typical write
off of a specific customer’s account:
Has no effect on net income
Derease net income
Decrease current assets
Dereases working capital
If the Allowance method is used, the entry would be: Debit to Allowance and Credit to
Accounts Receivable. There is no nominal account affected. If Direct write off is used,
the entry would be: Debet to Bad Debts and Credit to Accounts Receivable
27. Short term creditors would probably be most interested in which ratio?
Current ratio
Interest coverage
Asset turnover
Profit Margin
Bonus 1* The answer should be ACID TEST RATIO which is not in the choices. Acid test
ratio or quick ratio is a measure of solvency. It measures availability of the quick assets
to be used in paying currently maturing obligations.
28. Which of the following is a measure of long term solvency?
Current ration
Earnings per share
Debt to equity ration
Profit margin
The determination of the number to the times interest is earned is a measure of longterm
solvency or stability.
29. The main internal user of financial statements is:
SEC
Management
Investors
Creditors
The SEC, investor and creditors are external users, in the given choices only
management is the internal user.
30. Which of the following should be included in the computation of total quick
assets?
Marketable securities
Cash
Trade receivables
All of the above
None of the above
Quick assets are cash and other assets that are easily convertible to cash like
marketable securities and trade receivables.
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31. Which of the following ratios is not a test of liquidity?
Current ratio
Receivables turnover
Equity ratio
Quick ratio
None of the above
The current ratio, quick ratio and receivable turnover formulas measure solvency of a
business.
Items 32-34 Using the below information: At December 31, 2020, Mark Inc’s current ratio was:
Mark Incorporated
Selected Financial Data
December 31
2020 2019
Cash 170,000.00 90,000.00
Accounts Receivable – net 450,000.00 400,000.00
Merchandise Inventory 540,000.00 420,000.00
Short-term Marketable Securities 80,000.00 40,000.00
Land and building (net) 1,000,000.00 1,000,000.00
Mortgage Payable – current portion 60,000.00 50,000.00
Accounts payable and accrued liabilities 240,000.00 220,000.00
Short term notes payable 100,000.00 140,000.00
Net credit sales totaled to P3, 000,000.00 and P2, 000,000.00 for the years ended December
31, 2020 and 2019, respectively.
32. At December 31, 2020, Mark Inc’s current ratio was: 12.1
1.50 to 1
1.75 to 1
2.06 to 1
3.10 to 1
33. At December 31, 2020, Mark Inc’s acid test ratio was: 12.2
1.50 to 1
1.75 to 1
2.06 to 1
3.10 to 1
34. For 2020, Mark Inc’s accounts receivable turnover was: 12.3
1.13
1.5
6.67
7.06
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35. Using below information: The Average number of days in the cycle for 1996 was:
Selected information for Cain Corp for the year ended December 31, 2020 follows:
Average days’ sales in inventories 124
Average days’ sales in accounts receivables 48
The Average number of days in the cycle for 1996 was:
172
124
86
76
The average number of days in the operating cycle is the total of the number of days it
takes to sell the inventory and number of days to collect receivables from customers.
The average number of days in the operating cycle is 172 days (124 days plus 48 days)
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36. During 2020, Ran Co, purchased P960,000.00 of inventory. The Cost of Goods Sold for
2020 was P900,000.00 and the ending inventory at December 31, 2020 was Php180,000.00.
What was the inventory turnover for 2020?
6.4
6.0
5.3
5.0
Merchandise of Finished Goods Inventory turnover is computed by dividing cost of
goods sold by average inventory. To be able to compute inventory the beginning
balance should be computed:
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Items 37-40: Lambada Inc. presents only the following figures from its balance sheet. You are to
calculate the amounts represented by questions mark (?) from the additional information
given:
ASSET LIABILITIES AND SHE
Cash P37,500.00 Acct Payable P?
Acct Receivables Net ? Income Tax Payable 37,500.00
Inventory ? Long-term debt ?
Plant and Equipment 441,000.00 Common Stock 450,000.00
Retained Earnings
Assets 648,000.00 648,000.00
Additional Information:
Current Ratio at year end 1.5 to 1 Total liabilities divided by total stockholder’s equity
0.8 Inventory turnover based on sales and ending inventory 15 times Inventory
turnover based on cost of goods sold and ending inventory 10.5 times Gross margin
for 2020 P450, 000.00
37. What was the balance in trade receivables? Bonus 2* Typo Error: it should be Trade
Payables and the answer is Php100,500.00
169,500
138,000
182,000
207,000
Not given
38. What was the balance in retained earnings?
(90,000)
90,000
(132,000)
132,000
Not given
39. What was the balance in the inventory account?
30,000
45,000
100,000
135,000
Not given
40. The balance of accounts receivables?
100,000
92,000
81,000
130,000
Not given
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