Knox Internationale Technological Institute Inc.

Looban St., Manatal, Pandi, Bulacan

Name:________________________________________________ Date:____________________
Course:_______________________________________________ Score:____________________
Fundamentals of Accounting, Business and Management 2

I. Identify whether each of the following would be reported as an operating, investing,

or financing activity in the statement of cash flows. (15%)

Investing 1. Purchase of patent

Financing 2. Payment of cash dividend
Investing 3. Disposal of equipment
Operating 4. Cash sales
Financing 5. Purchase of treasury stock
Operating 6. Payment of wages expense
Operating 7. Payment of accounts payable
Operating 8. Payment for administrative expenses
Investing 9. Purchase of land
Operating 10. Cash received from customers
Investing 11. Purchase of investment
Operating 12. Payment for selling expenses
Operating 13. Collection of accounts receivable
Financing 14. Issuance of bonds payable
Financing 15. Retirement of common stock

II.A. Adjustments to Net Income – Indirect Method

Omni Corporation accumulated depreciation increased by $12,000, while $3,400 of patent amortization was
recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible
assets during the year. In addition, the income statement showed a gain of $4,100 from the sale of land.
Reconcile Omni’s net income of $50,000 to net cash flow from operating activities. (12%)

Net Income $ 50,000

Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation 12,000
Amortization of Patent 3,400
Gain from the sale of land (4,100)
Net cash flow from operating activities $ 61,300
II.B. Cash Payments for Merchandise – Direct Method
The cost of merchandised sold reported on the income statement was $145,000. The accounts payable
balance increased by $4,000, and the inventory balance increased by $9,000 over the year. Determine the
amount of cash paid for merchandise. (7%)

Cost of merchandise sold $ 145,000

Add increase in inventories 9,000
Deduct increase in accounts payable (4,000)
Cash paid for merchandise _$ 150,000

II.C. Free Cash Flow

Omega, Inc. reported the following on the company’s cash flow statement in 2018 and 2017:
2018 2017
Net cash flow from operating activities $140,000 $120,000
Net cash flow used for investing activities (120,000) (80,000)
Net cash flow used for financing activities (20,000) (32,000)
Seventy-five percent of the net cash flow used for investing activities was used to replace
existing capacity.
a. Determine Omega’s free cash flow. (8%)
b. Has Omega’s free cash flow improved or declined from 2017 to 2018? (6%)
a. 2018 2017
Net Cash flow from operating activities $ 140,000 $ 120,000
Less: Investments in fixed assets to maintain current production 90,000 60,000
Free cash flow $ 50,000 $ 60,000

b. The change from $ 60,000 to $ 50,000 indicates an unfavorable trend.

III.A. Horizontal Analysis (6%)

The comparative cash and accounts receivable balances for a company are provided below.
Dec. 31, 2018 Dec. 31, 2017
Cash $62,500 $50,000
Accounts receivable (net) 74,700 80,000
Based on this information, what is the amount of and percentage of increase or decrease that would be
shown on a balance sheet with horizontal analysis.
 Particulars Amount Increase / Decrease Percentage
Cash $ 12,500 Increase 25%
Accounts Receivable $ 5,600 Decrease 7%

III.B. Vertical Analysis (6%)

Income statement information for Shark Corporation is provided below.
Sales $100,000
Cost of goods sold 65,000
Gross profit $ 35,000
Prepare a vertical analysis of the income statement for Shark Corporation.
Amount Percentage
Sales $ 100,000 100%
Cost of goods sold 65,000 65
Gross profit $ 35,000 35%

IV. Analytical Measures (30%)

Multiple Choice Questions: Write your answer on the space provided.

B 1. It is used to indicate the rate of return to common stockholders in terms of dividends.

a. Dividends per share c. Dividends ratio

b. Dividends yield d. Dividends share

A 2. It is used to indicate the extent to which earnings are being distributed to common stockholders.

a. Dividends per share c. Dividends ratio

b. Dividends yield d. Dividends share

A 3. It is used to indicate future earnings prospects, based on the relationship between market value
of common stock and earnings.

a. P/E Ratio c. E/P Ratio

b. C/E Ratio d. E/C Ratio

A 4. It is used to assess the profitability of the investment by common stockholders.

a. EPS on Common Stock c. PSE on Common Stock

b. PES on Common Stock d. SEP on Common Stock

C 5. It is used to assess the profitability of the assets.

a. Ratio earned on net assets c. Ratio earned on total assets

b. Ratio earned on gross assets d. Ratio earned on ending assets

A 6. It is used to assess the effectiveness of the use of assets.

a. Ratio of net sales to assets c. Ratio of total sales to assets

 b. Ratio of gross sales to assets d. Ratio of ending sales to assets

A 7. It is used to assess the risk to preferred stockholders in terms of the number of times preferred
dividends were earned.

a. Number of times preferred dividends are earned

b. Number of times dividends are earned

c. Number of times preferred dividend interest are earned

d. Number of times risk of preferred dividends are earned

A 8. It is used to assess the risk to debt holders in terms of number of times interest charges were
earned.

a. Number of times interest charges are earned

b. Number of times charges are earned

c. Number of times dividend interest are earned

d. number of times risk of interest charges were earned

B 9. It is used to indicate the margin of safety to creditors.

a. Ratio of liabilities to stockholder’s equity

b. Ratio of liabilities to stockholders’ equity

c. Ratio of assets to stockholder’s equity

d. Ratio of assets to stockholders’ equity

A 10. It is used to indicate the margin of safety to long-term creditors. (measures solvency)

a. Ratio of fixed assets to long-term liabilities

b. Ratio of fixed liabilities to long-term assets

c. Ratio of long-term fixed assets to liabilities

d. Ratio of long-term liabilities to fixed assets

C 11. It is used to assess the efficiency in the management of inventory.

a. Number of Turnover in Inventory

b. Number of Sales of Inventory Turnover

c. Number of Days’ Sales in Inventory

d. Number of Day’s Sales in Inventory

D 12. It is used to assess the efficiency in collecting receivables and in the management of credit.

a. Number of Turnover in Accounts Receivable

b. Number of Sales in Accounts Receivable Turnover

c. Number of Day’s Sales in Receivables

d. Number of Days’ Sales in Receivables

A 13. It is used to indicate the ability to meet currently maturing obligations.

a. Working Capital

b. Quick Ratio

c. Free Cash Flow

d. None of the above

B 14. It is used to indicate instant debt-paying ability.

a. Working Capital

b. Quick Ratio

c. Free Cash Flow

d. None of the above

D 15. Commission on Audit is ________________________.

a. Komisyon ng Ebalwasyon

b. Komisyon ng Pagsuri

c. Komisyon ng Paglitis

d. None of the above

V. Enumeration (10%)

1. What are the types of cash flow activities?

a. operating activities b. investing activities c. financing activities

2. Give 5 analytical measures that pertain to solvency. (any of the following)

a. working capital

b. current ratio

c. quick ratio

d. ratio of fixed assets to long-term liabilities

e. ratio of liabilities to stockholders’ equity

f. number of times interest charges are earned

g. number of times preferred dividends are earned

3. Give 2 analytical measures that pertain to liquidity. (any of the following)

a. accounts receivable turnover

b. mumber of days’ sales in receivables

c. inventory turnover

d. number of days’ sales in inventory

VI. Bonus Question (5%)

I am an English word with three consecutive double letters. What am I?

BOOKKEEPER / BOOKKEEPING