PRELIMS EXAM

MANAGEMENT ACCOUNTING I
1. The discipline of accounting concerned with providing information to management in making
decisions about business operations.
a. Cost Accounting
c. Government Accounting
b. Financial Accounting
d. Management Accounting
2. Which of these information characteristics is deemed most important to management accounting?
a. Verifiability and Accuracy
c. Relevance, Flexibility and Timeliness
b. Comparability and Full Disclosure
d. Conservatism and substance over form
3. Which of the following characteristics does not relate to management accounting?
a.
Accounting reports may include non-monetary information
b.
It is subject to restrictions imposed by GAAP.
c.
Reports are often based on estimates and are seldom useful for anything other than the purpose
for which they are prepared.
d.
It provides data for internal users within the business organization.
4. In financial accounting, certain rules and regulations must be followed on how financial statements
must be presented to the reader. In managerial accounting, no such restrictions generally apply
because it is:
a. An entirely different field that need not observe the broad guidelines in financial accounting.
b. Designed to provide management with non-financial information for decision-making.
c.Designed to provide accounting and other financial data to assist management in making
business decisions.
d. A discipline that does not require preparation of other financial statements
5. A practice in which a subordinate and a supervisor agree on goals and the methods of achieving
them.
a. Management by objectives
c. Management by exception
b. Management by subjective
d. Management by example
6. Controllers are ordinarily not concerned with:
a. Preparation of tax returns
c. Protection of assets
b. Reporting to governments
d. Investor relations
7. Which of the following does not relate to management services by CPAs?
a.
Design and/or installation of accounting systems.
b.
Cost analysis of major investment decisions.
c.
Financial analysis for project feasibility studies.
d.
None of the above.
8. Which item is not an IMA Standard for Ethical Conduct for Management Accountants?
a. Competence
c. Loyalty
b. Integrity
d. Objectivity
9. The following characteristics refer to Financial Accounting except
a.
Provides information to external users
b. Emphasizes on objective data
c. Has no externally imposed standards
d. Generates general purpose financial statements
10. All of the following statements are correct concerning line and staff position, except:
a. Both line and staff position functions are depicted in the organization chart
b. Line functions are directly related to the basic objectives of an organization
c. Persons occupying staff functions have authority over persons occupying line functions
d. None of the above
11. Which type of authority do management accountants generally exercise?
a. Functional
b. Company
c. Line
d. Staff
12. Which of the following is not an element of competency?
a. To refrain from engaging in an activity that would discredit the accounting profession
b. To develop appropriate knowledge and expertise about a particular subject
c. To perform duties in accordance with relevant laws and technical standards
d. To prepare clear reports after an analysis of relevant and reliable information
13. Obtaining feedback is generally identified most directly with the management function of
a. Planning
b. Directing and motivating c. Controlling
d. Decision Making
14. Which of the following statement is true regarding ethics in decision-making?
a. Since most business decision making are simply a matter of economics, ethical considerations
should be ignored.
b. Decision making can have an ethical as well as an economic impact.
c. Managerial accountants do not face ethical issues.
d. Business managers will always agree on ethical choices.
15. An integrated group of programs that supervises and support the operations of a
computer system as it executes users application programs is called a(n)
a. operating system
c. utility programs
b. data base management system
d. language program
16. A system flowchart
a. is synonymous with a program flowchart.
b. is necessary for only computer processes.
c. shows general flow and sequence but not processing details

d. is necessary for only manual processes.

17. The type of data processing in which remote terminals provide direct access to the computer is
a. on-line processing
c. batch processing
b. remote processing
d. central processing
18. A systems program
a. manipulates application programs
b. employs complex mathematics algorithms
c. is written in a high level language
d. is used in systems analysis and design activities
19. An operating system is
a. the assembler program including the source and object program
b. all hardware and software needed to operate the computer system
c. the programs that manage the processing operations of the computer
d. only the hardware of the computer system
20. A computer system that allows for immediate updating of files is referred to as
a. on-line processing
c. instantaneous processing
b. a mainframe processing
d. batch processing
21. Which of the following comprises all of the data components of the data
processing cycle?
a. Batching, processing, output.
b. Collection, refinement, processing, maintenance, output.
c. Input, classifying, batching, verification, transmission
d. Collection, refinement, storing, output.
22. The main components of the central processing unit (CPU) of a computer include only
a. control, arithmetic/logic, and memory
b. input, processing, and output
c. software, register, and primary memory
d. memory, processing, and register
23. A compiler is
a. a procedure oriented language
b. a symbolic language
c. a machine that translates the assembler program to machine language
d. a program that converts procedure oriented language to machine language
24. The amount of useful work performed by a computer system during a given period of time is
referred to as
a. overlap
c. input/output
b. overload
d. throughput
25. A data base is
a. essential for storage of large data sets
b. a real-time system
c. a collection of related files
d. a network of computer terminals
26. Just in Time purchasing requires
a. Larger and less frequent purchase orders
b. Smaller and less frequent purchase orders
c. Smaller and more frequent purchase orders
d. Larger and more frequent purchase orders
27. All of the following are potential financial benefits of just in time, except:
a. Reducing the risk of obsolescence
c. Lower investment in inventories
b. Reducing manufacturing lead time
d. Lower investments in plant space for inventories
28. The unyielding and continuing improving effort by everyone in the organization to understand, meet
and exceed the expectation of customers.
a. Just in time manufacturing
c. Total Quality Management
b. Conventional manufacturing
d. Total Quantity Management
29. Which of the following is at the core of the definition of TQM?
a. Customer Surveys
c. Reduced delivery charges
b. Continuous Improvement
d. Greater employee participation
30. In which of the following organization does TQM work best?
a. Hierarchal
c. Teams of people from the same specialty
b. Specialist working individually
d. Teams of people from different specialties
31. Which of the following quality tools is another term for continuous improvement?
a. Theory of constraints
b. Kaizen
c. Six-sigma
d. Lean manufacturing
32. Value chain is the sequence of business functions in which
a. Value is deducted from the products or services of an organization.
b. Value is proportionately added to the products or services of an organization
c. Products and services are evaluated with respect to their value to the supply chain
d. Usefulness is added to the products or services of an organization
33. In Process, Reengineering, two objectives are to simplify and to possibly eliminate
a. Value added activities
c. Constraint
b. Non-value added activities
d. Non-constraint
34. There are 4 broad classes of activities in the value chain. Billing activity is part of

a. Activities related to getting ready to make the product

b. Activities related to making the product
c. Activities related to dealing with customer
d. Other activities that support the first three activities
35. There are 4 broad classes of activities in the value chain. Research and Development is part of
a. Activities related to getting ready to make the product
b. Activities related to making the product
c. Activities related to dealing with customer
d. Other activities that support the first three activities
36. In financial statement analysis, expressing all financial statement items as a percentage of base
year amounts is called
a. Horizontal common-size analysis
c. Trend Analysis
b. Vertical common-size analysis
d. Ratio Analysis
37. Horizontal, vertical and common-size analysis are techniques that are used by analyst in
understanding the financial statements of companies. Which of the following is an example of
vertical common-size analysis?
a. Commission expense in 2013 is 10% greater than it was in 2012 which serves as a base year.
b. A comparison in financial ratio between two or more firms in the same industry.
c. A comparison in financial ratio between two or more firms in the different industries.
d. Commission expense in 2013 is 5% of net sales.
38. The statement of cash flows
a. Reports the revenues earned and expenses incurred by the firm during the period
b. Shows the companys total asset, liabilities and capital
c. Shows the companys capital structure for the period of time
d. Reports the periodic cash inflows and outflows in operating, investing and financing activities
39. Under the direct method of determining net cash provided by operating activities on the statement
of cash flows, a gain on the sale of plant assets would be:
a. Added to the amount of operating expenses reported under the accrual basis
b. Deducted from the amount of operating expenses reported under the accrual basis
c. Deducted from the amount of sales reported under the accrual basis
d. Totally ignored since the gain is not a part of sales, cost of goods sold, or operating expenses.
40. The income statement of Jollibee Company shows operating expenses of P265. The following
information is also available:
Prepaid expenses 1/1
P14
Prepaid expenses 12/31
21
Accrued expenses 1/1
40
Accrued expenses 12/31
36
Cash paid for operating expenses was
a. P224
b. 262
c. P268
d. P276
41. Using the indirect method of computing operating cash flows, decrease in trade receivables is
treated as
a. A cash inflow
c. An addition to income
b. A cash outflow
d. A deduction from income
42. After generating a sizable year-end profit, Greenwich Company declared and issued 2 50% stock
dividend. In the preparation of the cash flows, the transaction would be included as
a. An operating activity
c. A financing activity
b. An investing activity
d. Would not appear at all in the statement of cash flows
43. Which of the following account changes would result in a decrease in cash?
a. An increase in A/P
c. A decrease in A/P
b. An increase in Retained Earnings
d. A decrease in A/R
44. Short-term solvency is another term for
a. Liquidity
b. Stability
c. Profitability
d. Marketability
45. Which of the following ratios best measures short-term solvency?
a. Quick ratio
b. Earnings per Sharec. Current ratio
d. Return on sales
46. Ratios are used as tools in financial analysis
a. instead of horizontal and vertical analyses.
b. because they can provide information that may not be apparent from inspection of the individual
components of a particular ratio.
c. because even single ratios by themselves are quite meaningful.
d. because they are prescribed by GAAP.
47. In the near term, the important ratios that provide the information critical to the short-run
operation of the firm are:
a. liquidity, activity, and profitability
c.
liquidity, activity, and equity
b. liquidity, activity, and debt
d. activity, debt, and profitability
48. The ability of a business to pay its debts as they come due and to earn a reasonable amount of
income is referred to as:
a. solvency and leverage
c. solvency and liquidity
b. solvency and profitability
d. solvency and equity
49. The percentage analysis of increases and decreases in individual items in comparative financial
statements is called:
a. vertical analysis
c. profitability analysis
b. solvency analysis
d. horizontal analysis

50. Horizontal analysis is also known as

a. linear analysis.
c. trend analysis.
b. vertical analysis.
d. common size analysis.
51. In which of the following cases may a percentage change be computed?
a. the trend of the amounts is decreasing but all amounts are positive.
b. there is no amount in the base year.
c. there is a negative amount in the base year and a negative amount in the subsequent year.
d. there is a negative amount in the base year and a positive amount in the subsequent year.
52. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of
time
a. that has been arranged from the highest number to the lowest number.
b. that has been arranged from the lowest number to the highest number.
c. to determine which items are in error.
d. to determine the amount and/or percentage increase or decrease that has taken place.
53. McDonalds Company has current assets of P400,000 and current liabilities of P500,000. Mc Donald
Companys current ratio would be increased by
a. The purchase of P100,000 of inventory on account
b. The payment of P100,000 accounts payable
c. The collection of 100,000 accounts receivable
d. Refinancing a P100,000 long term loan with short-term debt
54. Shakeys Corp. has an acid test ratio of 1.5 to 1.0. Which of the following will cause this ratio to
decrease?
a. Payment of cash dividend previously declared
b. Borrowing short-term loan from a bank
c.Sale of inventory on account
d. Sale of equipment at loss
55. The acid-test or quick ratio
a. is used to quickly determine a companys solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the balance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.
56. Total asset turnover measures the ability of a firm to:
a. generate profits on sales
b. generate sales through the use of assets
c. cover long-term debt
d. buy new assets
57. A measure of how efficiently a company uses its assets to generate sales is the
a. asset turnover ratio.
c. profit margin ratio.
b. cash return on sales ratio.
d. return on assets ratio.
58. Long-term creditors are usually most interested in evaluating
a. liquidity.
c. profitability.
b. marketability.
d. solvency.
59. A company has a current ratio greater than 1:1 and a quick ratio less than 1:1. Soon thereafter, all
cash was used to reduce accounts payable. How did these cash payments affect (1) current ratio (2)
quick ratio.
a. (1) Decreased (2) Decreased
c. (1) Increased (2) Decreased
b. (1) Decreased (2) Increased
d. (1) Increased (2) Increased
60. Given a quick ratio of 2.0, current assets of 5,000 and inventory of P2,000. The current liabilities is
a. 1,500
b. 2,500
c. 3,500
d. 6,000
61. The percent of property, plant and equipment to total assets is an example of:
a. vertical analysis
b. profitability analysis
c. solvency analysis d.
horizontal
analysis
62. Kline Corporation had net income of P2 million in 2011. Using the 2011 financial elements as the
base data, net income decreased by 70 percent in 2012 and increased by 175 percent in 2013. The
respective net income reported by Kline Corporation for 2012 is:
a. 600,000
b. 700,000
c. 1,400,000 d. 3,500,000
63. In the problem above, the net income in 2013 is:
a. 5,500,000
b. 600,000
c. 1,400,000 d. 3,500,000
Question Nos. 64 through 66 are based on the data taken from the balance sheet of Nomad Company at
the end of the current year:
Accounts payable
Accounts receivable
Accrued liabilities
Cash
Income tax payable
Inventory
Marketable securities
Notes payable, short-term
Prepaid expenses

P145,000
110,000
4,000
80,000
10,000
140,000
250,000
85,000
15,000

64. The amount of working capital for the company is:

a. 351,000
b. 361,000
c. 211,000

d. 366,000

65. The companys current ratio as of the balance sheet date is:
a. 2.67:1
b. 2.44:1
c. 2.02:1
d. 1.95:1
66. The companys acid-test ratio as of the balance sheet date is:
a. 1.80:1
b. 2.40:1
c. 2.02:1
d. 1.76:1
67. Pine Hardware Store had net credit sales of P6,500,000 and cost of goods sold of P5,000,000 for
the year. The Accounts Receivable balances at the beginning and end of the year were P600,000
and P700,000, respectively. The receivables turnover was
a. 7.7 times
b. 9.3 times c. 10.8 times d. 10.0 times
68. Milward Corporations books disclosed the following information for the year ended December 31,
2014:
Net credit sales
P1,500,000
Net cash sales
240,000
Accounts receivable at beginning of year
200,000
Accounts receivable at end of year
400,000
Milwards accounts receivable turnover is
a. 3.75 times
c. 5.00 times
b. 4.35 times
d. 5.80 times
69. Batik Clothing Store had a balance in the Accounts Receivable account of P390,000 at the beginning
of the year and a balance of P410,000 at the end of the year. The net credit sales during the year
amounted to P4,000,000. Using 360-day year, what is the average collection period of the
receivables?
a. 30 days
c. 73 days
b. 65 days
d. 36 days
70. Deity Company had sales of P30,000, increase in accounts payable of P5,000, decrease in accounts
receivable of P1,000, increase in inventories of P4,000, and depreciation expense of P4,000. What
was the cash collected from customers?
a. P31,000
c. P34,000
b. P35,000
d. P25,000
71. During 2014, Tarlac Company purchased P960,000 of inventory. The cost of goods sold for 2014
was P900,000, and the ending inventory at December 31, 2014 was P180,000. What was the
inventory turnover for 2014?
a. 6.4
c. 5.3
b. 6.0
d. 5.0
72. Selected information from the accounting records of Petals Company is as follows:
Net sales for 2014
P900,000
Cost of goods sold for 2014
600,000
Inventory at December 31, 2013
180,000
Inventory at December 31, 2014
156,000
Petals inventory turnover for 2014 is
a. 5.77 times
c. 3.67 times
b. 3.85 times
d. 3.57 times
73. The Moss Company presents the following data for 2007.
Net Sales, 2014
P3,007,124
Net Sales, 2013
P 930,247
Cost of Goods Sold, 2014
P2,000,326
Cost of Goods Sold, 2013
P1,000,120
Inventory, beginning of 2014
P 341,169
Inventory, end of 2014
P 376,526
The merchandise inventory turnover for 2014 is:
a. 5.6
c. 7.5
b. 15.6
d. 7.7
74. Based on the following data for the current year, what is the inventory turnover?
Net sales on account during year
P 500,000
Cost of merchandise sold during year
330,000
Accounts receivable, beginning of year
45,000
Accounts receivable, end of year
35,000
Inventory, beginning of year
90,000
Inventory, end of year
110,000
a. 3.3
c. 3.7
b. 8.3
d. 3.0
75. Selected information from the accounting records of Eternity Manufacturing Company follows:
Net sales
P3,600,000
Cost of goods sold
2,400,000
Inventories at January 1
672,000
Inventories at December 31
576,000
What is the number of days sales in average inventories for the year?
a. 102.2
c. 87.6

b. 94.9
d. 68.1
76. Net sales are P6,000,000, beginning total assets are P2,800,000, and the asset turnover is 3.0.
What is the ending total asset balance?
a. P2,000,000.
c. P2,800,000.
b. P1,200,000.
d. P1,600,000.
77. Jordan Manufacturing reports the following capital structure:
Current liabilities
P100,000
Long-term debt
400,000
Deferred income taxes
10,000
Preferred stock
80,000
Common stock
100,000
Premium on common stock
180,000
Retained earnings
170,000
What is the debt ratio?
a. 0.48
c. 0.93
b. 0.49
d. 0.96
78. House of Fashion Company had the following financial statistics for 2013:
Long-term debt (average rate of interest is 8%)
P400,000
Interest expense
35,000
Net income
48,000
Income tax
46,000
Operating income
107,000
What is the times interest earned for 2013?
a. 11.4 times
c. 3.1 times
b. 3.3 times
d. 3.7 times
79. Brava Company reported the following on its income statement:
Income before taxes
P400,000
Income tax expense
100,000
Net income
P300,000
An analysis of the income statement revealed that interest expense was P100,000. Brava
Companys times interest earned (TIE) was
a. 5 times
c. 3.5 times
b. 4 times
d. 3 times
80. The balance sheet and income statement data for Candle Factory indicate the following:
Bonds payable, 10% (issued 1998 due 2022)
P1,000,000
Preferred 5% stock, P100 par (no change during year)
300,000
Common stock, P50 par (no change during year)
2,000,000
Income before income tax for year
350,000
Income tax for year
80,000
Common dividends paid
50,000
Preferred dividends paid
15,000
Based on the data presented above, what is the number of times bond interest charges were earned
(round to one decimal point)?
a. 3.7
c 4.5
b. 4.4
d. 3.5
81. The following data were abstracted from the records of Johnson Corporation for the year:
Sales
P1,800,000
Bond interest expense
60,000
Income taxes
300,000
Net income
400,000
How many times was bond interest earned?
a. 7.67
c. 12.67
b. 11.67
d. 13.67
82. The times interest earned ratio of Mikoto Company is 4.5 times. The interest expense for the year
was P20,000, and the companys tax rate is 40%. The companys net income is:
a. P22,000
c. P54,000
b. P42,000
d. P66,000
83. Selected information for Ivano Company as of December 31 is as follows:

Preferred stock, 8%, par P100,

nonconvertible, noncumulative
Common stock
Retained earnings
Dividends paid on preferred stock for
the year
Net income for the year

2013
P250,000

2014
P250,000

600,000
150,000
20,000

800,000
370,000
20,000

120,000

240,000

Ivanos return on common stockholders equity, rounded to the nearest percentage point, for 2014 is
a. 17%
b. 19%

c. 21%
d. 23%

84. Selected information from the accounting records of the Blackwood Co. is as follows:
Net A/R at December 31, 2013
P 900,000
Net A/R at December 31, 2014
P1,000,000
Accounts receivable turnover
5 to 1
Inventories at December 31, 2013
P1,100,000
Inventories at December 31, 2014
P1,200,000
Inventory turnover
4 to 1
What was the gross margin for 2014?
a. 150,000
c. 300,000
b. 200,000
d. 400,000
85. Recto Co. has a price earnings ratio of 10, earnings per share of P2.20, and a pay out ratio of
75%. The dividend yield is
a. 25.0%
b. 22.0%

c. 7.5%
d. 10.0%

Items no. 86 to 96 are based on the following information. The following data pertains to Cerveza
Corporation
CERVEZA CORPORATION
Comparative Income Statement

Sales (all on account)

Cost of goods sold
Gross Margin
Operating Expenses
Net Operating Income
Interest Expense
Net income before taxes
Income Taxes 30%
Net income

This year
452,000
260,000
192,000
104,000
88,000
8,000
80,000
24,000
56,000

Last year
388,000
221,000
167,000
89,000
78,000
8,000
70,000
21,000
49,000

CERVEZA CORPORATION
Comparative Balance Sheet

This year
ASSETS
Current Assets
Cash
Marketable Securities
A/R, net
Inventory
Prepaid Expenses
Total Current Assets
Plant and Equipment, net
TOTAL ASSETS
LIABILITIES
Current Liabilities
Bonds Payable, 10%
TOTAL LIABILITIES
SHAREHOLDERS EQUITY
Preferred Stock, P100
par, 7%
Common Stock, P5 par
Retained Earnings
TOTAL STOCKHOLDERS
EQUITY
TOTAL LIABILITIES AND
EQUITY

Last year

42,000
32,000
84,000
96,000
11,000
265,000

21,000
28,000
102,000
70,000
9,000
230,000

410,000
675,000

380,000
610,000

115,000
80,000
195,000

90,000
80,000
170,000

100,000

100,000

300,000
80,000
480,000

300,000
40,000
440,000

675,000

610,000

*In addition to the preferred dividends, dividend of P0.15 per share were declared and paid on the
common stock this year

86. Using vertical analysis, what percent would be shown for retained earnings at the end of this year
a.
9.3%
b. 11.9%
c. 16.7%
d. 17.7%
87. Dividend pay-out ratio for this year is:
a. 18,4%
b. 3.0%
c. 11.2%
d. 16.1%
88. Return on total asset for this year is:
a. 7.3%
b. 7.6%
c. 8,7%
d. 9.6%
89. Return on common stockholders equity for this year is:
a. 12.9%
b. 13.6%
c. 15.6%
c. 16.2%
90. Book Value per share at the end of this year is:
a. 6.00
b. 6.33
c. 7.67
d. 8.00
91. Current ratio at the end of this year is:
a. 1.36
b. 1.77
c. 2.30
d. 2.41
92. Acid-test ratio at the end of this year is:
a. 0.64
b. 0.77
c. 0.81
d. 1.37
93. Cervezas accounts receivable turnover for this year is:
a. 67.8 days
b. 75.1 days
c. 80.8 days
d. 117.9 days
94. Cervezas inventory turnover is:
a. 67.0 days
b. 116.5 days
c. 126.0 days
d. 134.8 days
95. Cervezas times interest earned for this year is:
a. 6.125
b. 7
c. 10
d. 11
96. Cervezas debt-to-equity ratio at the end of this year is:
a. 0.24
b. 0.29
b. 0.41
d. 0.51

Items no. 93 to 96 are based on the following information. The following data pertains to Parsons
Company

Sales
Cash
Accounts
Receivable
Inventory
Prepaid
Expenses
Total
Current
Assets

Year 4
800,000
35,000
75,000

Year 3
700,000
30,000
50,000

Year 2
600,000
24,000
58,000

Year 1
570,000
18,000
45,000

78,000
47,000

75,000
39,000

80,000
11,000

75,000
25,000

235,000

194,000

173,000

163,000

97. Using Year 2 as the base year, Cash for the year 3 expressed as a trend percentage would be closest
to:
a. 167%
b. 133%
c. 120%
d. 125%
98. Using Year 1 as the base year, Sales for the year 4 expressed as a trend percentage would be
closest to:
a. 140%
b. 114%
c. 71%
d. 133%
99. Using Year 2 as the base year, Inventory for the year 3 expressed as a trend percentage would be
closest to:
a. 40%
b. 94%
c. 100%
d. 107%
100.
Using common size statements to analyze changes in current assets. The increase
or decrease in the Prepaid Expenses account with Year 4 when compared to Year 3 would be closest
to:
a. 254% increase
b. 20.5% decrease c. 20.5% increase
d. 254% decrease

The surest way not to fail is to be determined to succeed.