FAR EASTERN UNIVERSITY

ACCOUNTANCY DEPARTMENT

PRACTICE SET ON FINANCIAL STATEMENTS ANALYSIS

Directions: Answer each of the requirements correctly. Show your computations in good form.

Questions 1 thru 4 are based on the following information.

You are requested to reconstruct the accounts of Marlkina Trading for analysis. Toe following data were made
available to you:

Gross margin for 2013 P472,500

Ending balance of merchandise inventory P300,000
Total stockholders' equity as of December 31, 2013 P750,000
Gross margin ratio 35%
Debt to equity ratio 0.8;1
Times interest earned 10
Quick ratio 1.3:1
Ratio of operating expenses to sales 18%
Long-term liabilities consisted of bonds payable with Interest rate of 20%

Based on the above information,

1. What was the operating income for 2013?
a. P472,500 b. P243,S0O c. P205,550 d. P229,500

2. How much was the bonds payable?

a. P400,000 b. P200,750 c. P114,750 d. P370,500

3. Total current liabilities would amount to

a. P600,000 b. P714,750 c. P485,250 d. PSS0,00

4. Total current assets would amount to

a. P630,825 b. P780,000 c. P580,000 d. P930,825

Questions 5 through 7 are based on the following information.

The condensed balance sheet as of December 31, 2013 of Honesto Company is given below. Figures shown by a
question mark(?) may be computed from the additional information given:

ASSETS UAB. & STOCKHOLDERS' EQUITY

cash P 60,000 Accounts payable P?
Trade receivable-net ? Current notes payable 40,000
Inventory ? Long-term payable ?
Fixed assets-net 252,000 Common stock 140,000
Retained earnings ?
Total Assets P 480,000 Total L & SHE P 480,000

Additional information:
Current ratio (as of Dec. 31, 2013) 1.9 to 1
Ratio of total liabilities to total stockholders' equity 1.4
Inventory turnover based on sales and ending Inventory 15 times
Inventory turnover based on cost of goods sold and ending inventory 10 times
Gross margin for 2013 PS00,000

5. The balance of accounts payable of Honesto as of December 31, 2013 is

a. P40,000 b. PS0,000 c. P95,000 d. P280,000

6. The balance of retained earnings of Honesto as of December 31, 2013 Is

a. P60,000 b. P140,000 c. P200,000 d. P360,000

7. The balance of inventory of Honesto as of December 31, 2013 is

a. P68,000 b. Pl00,000 c. P168,000 d. P228,000

8. A firm has total assets of Pl,000,000 and a debt ratio of 30 percent. Currently, it has sales of P2,S0O,000,
total fixed costs of Pl,000,000, and EBIT of PS0,000. If the firm's before-tax cost of debt is 10 percent and
 FAR EASTERN UNIVERSITY
ACCOUNTANCY DEPARTMENT

the firm's tax rate is 40 percent, what is the firm's ROE?

a. 1.7% b. 2.5% c. 6.0% d. 8.3%

9. Selected information from the accounting records of the Norwin Co. is as follows:
Net A/Rat December 31, 2012 P900,000
Net A/Rat December 31, 2013 Pl,000,000
Accounts receivable turnover 5 to 1
Inventories at December 31, 2012 Pl 100 ooo
Inventories at December 31, 2013 P1:200:ooo
Inventory turnover 4 to 1

What was the gross margin for 2013?

a. $150,000 b. $200,000 c. $300,000 d. $400,000

10. Toe following information pertains to Alladin Corporation as of and for the year-ended Decemb.er 31r 2013.
Liabilities p 60,000
Stockholders' equity p 500,000
Shares of common stock issued and outstanding 10 000
Net income p '30 000
During 2013, Alladin officers exerc1sea stock options for 1,000 shares of stock at an option price of PB per
share. What was the effect of exercising the stock option?
a. No ratios were affected. c. Debt to equity ratio decreased to 12%.
b. Asset turnover increased to 50.4% d. Earnings per share increased by P0.33

11. The Mermaid Corporation's common stock is currently selling at PlO0 per share, which represents a P/E ratio
of 10. If the firm has 100 shares of common stock outstanding, a return on equity of 20 percent, and a debt
ratio of 60 percent, what is its return on total assets (ROA)?
a. 8.0% b. 10.0% c. 12.0% d. 16.7%

12. Selected data from the year-end financial statements of Kurro International. are presented below. The
difference between average and ending inventories Is immaterial.
Current ratio 2.0
Quick ratio 1.5
Current liabilities P600,000
Inventory turnover (based on cost of sales) 8 times
Gross profit margin 40%
Kurro International net sales for the year were
a. P2.4 million b. P4.0 million c. Pl.2 million d. P6.0 million

13. Mercury Corporation computed the following items from its financial records for the year just ended:
Price-earnings ratio 12
Payout ratio .6
Asset turnover .9

The dividend yield on Mercury's common stock is

A. 5.0% B. 7.2% C. 7.5% D. 10.8%

14. Vincent Company has the following data:

Assets: Pl0,000 Interest rate: 10.0%
Debt ratio: 60.0% Total assets turnover: 2.0
Profit margin: 3.0% Tax rate: 40%

What is Vincent's TIE ratio?

a. 0.95 b. 1.75 C. 2.10 d. 2.67

15. Raissa Oats pays dividends of P0.62 per quarter, and has annual earnings per share of P2.80. What is Raissa
Oats's dividend yield and dividend payout ratio for 2013, respectively, if its recent market price is P30.00 and
Its average market price was P8.00?
A. 8.27% and 88.6%. C. 8.86% and 88.6%.
B. 8.27% and 22.1%. D. 8.86% and 22.1 % .

16. Assume Nissa Corporation is 100 percent equity financed. Calculate the return on equity, given the following
information:
(1) Earnings before taxes= Pl,500 and Sales= PS,000
=
(3) Dividend payout ratio 60% and Total assets turnover 2.0 =
FAR EASTERN UNIVERSITY
ACCOUNTANCY DEPARTMENT

Tax rate = 30%

a. 25% b. 30% c. 35% d. 42%

17. Bradley Company has a current ratio of 2.5 and a quick ratio of 2.0, If the firm experienced P2 million in sales-
and sustains an inventory turnover of 8.0, what are the firm's current assets?
A. Pl,000,000 B. PS00,000 C. Pl,500,000 D. Pl,250,000

18. Preston Corporation's present year ROE remained at last year's 14% level, while the profit margin was
reduced from 8% to 4% and the leverage ratio increased from 1.2 to 1.5. The effects on asset turnover were
to
A. Remain constant. C. Decease from 14.58 to 2.33.
B. Increase from 1.46 to 2.33. D. Increase from 4.76 to 9.60.

19. Milan Retailers has annual sales of P365 million. The company's days sales outstanding (calculated on a 365-
day basis) is SO, which is well above the industry average of 35. The company has P200 million in current
assets, PlSO million in current liabilities, and P75 million in inventories. The company's goal is to reduce its
D50 to the industry average without reducing sales, Cash freed up would be used to repurchase common
stock) What will be the current ratio if the company accomplishes its goal? ·
a. 1.23 b. 1.33 c. 1.43 d. 0.73

20. Kansas Office Supply had $24,000,000 in sales last year. The company's net income was $400,000, its total
assets turnover was 6.0, and the company's ROE was 15 percent. The company is financed entirely with
debt and common equity. What is the company's debt ratio?
a. 0.20 b. 0.30 c. 0.33 d. 0.60

21. The net sales of Prix Manufacturing Co. in 2013 is total, P580,600. The cost of goods manufactured is
P480,000. The beginning inventories of goods in process and finished goods are P82,000 and P65,000,
respectively. The ending inventories are, goods in process, P75,000, finished goods, P55,000. The selling
expenses is 5%, general and administrative expenses 2.5% of cost of sales, respectively. The net profit in
the year 2013 is
a. P90,000 b. P45,725 c. P53,850 d. P83,000

22. In 2012, Merfox Corporation's net income was PB00,000 and in 2013 it was P200,000. What percentage
increase in net income must Merlox achieve in 2014 to offset the 2013 decline in net income?
a. 60% b. 600% c. 400% d. 300%

23. Baxter Co. has total debt of P420,000 and shareholders' equity of P700,000. Baxter is seeking capital to fund
an expansion. Baxter is planning to issue an additional P300,000 in common stock, and is negotiating with a
bank to borrow additional funds. The bank is requiring a debt-to-equity rate of 0.75. What is the maximum
additional amount Baxter will be able to borrow?
A. P225,000 B. P330,000 C. PS25,000 D. P750,000

24. Platypus Technologies Inc. had the following financial Information for the past year:
Sales P860,000 Inventory turnover Bx
Quick ratio 1.5 Current ratio 1.75

What were Platypus' current liabilities?

a. P430,000 b. PS00,000 c. P107,500 d. P 61,429

25. A service company's working capital at the beginning of January of the current year was P70,000. The
following transactions occurred during January:
Performed services on account P30,000
Purchased supplies on account 5,000
Consumed supplies 4,000
Purchased office equipment for cash 2,000
Paid short-term bank loan 6,500
Paid salaries 10,000
Accrued salaries 3,500

What is the amount of working capital at the end of January?

A. P90,000 B. PB0,500 C. PS0,500 D. P47,500