CHAPTER 11

Financial Reporting and Analysis

Exercise 11-1

1. A 6. A 11. A 16. C
2. C 7. F 12. F 17. D
3. D 8. B 13. H 18. G
4. A 9. A 14. B 19. H
5. -C 10. F 15. E 20. G

Exercise 11-2

1. Cash P 320,000
Inventories 500,000
Accounts receivable 220,000
Total current assets P1,040,000

2. Accounts payable P 280,000

Interest payable 60,000
Wages payable 180,000
Total current liabilities P 520,000

3. Total current assets P1,040,000

Equipment 1,700,000
Total assets P2,740,000

4. Total assets P2,740,000

Less Total liabilities
(CL of P520,000 + NCL of P600,000) 1,520,000
Total shareholders equity P1,220,000
Less Ordinary shares 1,000,000
Retained earnings P 220,000

Exercise 11-3

1. Investing 6. Operating
2. Operating 7. Operating
3. Operating 8. Financing
4. Operating 9. Financing
5. Investing 10. None

Exercise 11-4

Reported profit P500,000

Add (deduct):
Loss on sale of equipment 10,000
Depreciation expense 50,000
Profit before working capital changes P560,000
Decrease in accounts receivable 70,000
Decrease in accounts payable (60,000)
Cash provided by operating activities P570,000
Chapter 11 APC (2014 edition) page 2

Exercise 11-5

Proceeds from issuance of bonds P4,000,000

Payment of dividends (1,000,000)
Cash provided by financing activities P3,000,000

Exercise 11-6

1. Current ratio = P1,040,000/P600,000 = 1.73:1

2. Acid-test ratio = P590,000/P600,000 = .98:1

Exercise 11-7

1. a Receivable turnover
2013 = 7,000,000 / [(650,000 +720,000) /2] = 7,000,000 / 685,000 10.22
2014 = 7,800,000 / [(720,000 + 745,000 /2] = 7,800,000 / 732,500 10.65

b. Average collection period

2013 = 365 days / 10.22 days 36 days
2014 = 365 days / 10.65 days 34 days

c. Inventory turnover
2013 = 4,450,000/925,000 4.81
2014 = 4,650,000 / 1,050,000 4.43

d. No. of days sales in inventory

2013 = 365 days / 4.81 days 76 days
2014 = 365 days / 4,43 83 days

2. Receivables are collected within the credit period of 45 days but not within the discount period of
10 days. There is efficient collection of receivables; however, the company may review further its
discount rate and discount period so as to encourage or motivate customers to avail of such.

The movement of inventories is slow it takes between 76 and 83 days for the company to sell its
inventories. Though receivables are collected within the credit period, the company may still face a
problem in the payment of its payable because of the long period it takes for inventories to be sold.

Exercise 11-8

1. Profit margin on sales P150,000 / P6,000,000 2.5%

2. Rate of return on total assets P150,000 / P3,250,000 4.6%

3. Asset turnover ratio P6,000,000 / P3,250,000 1.85

4. Rate of return on ordinary SE P150,000 / P1,142,500 13.13%

5. Gross profit ratio P1,800,000 / P6,000,000 30%

6. Receivable turnover ratio P6,000,000 / P67,250 89.22

Chapter 11 APC (2014 edition) page 3

7. Average collection period 365 days / 89.22 4 days

Problem 11-1

NOP Corporation
Statement of Financial Position
December 31, 2014

Assets

Current assets:
Cash and cash equivalents P2,400,000
Short-term investments 3,500,000
Accounts receivable, net 5,000,000
Inventories 4,970,000
Prepaid expenses 80,000 P15,950,000

Noncurrent assets:
Noncurrent receivables P1,105,000
Property, plant and equipment 6,205,000 7,310,000

Total assets P23,260,00

0

Liabilities and Shareholders Equity

Current liabilities:
Notes payable and other short-term obligations P 312,500
Accounts payable 589,500
Accrued liabilities 4,218,000
Other current liabilities 1,815,000 P 6,935,000

Noncurrent liabilities and deferred taxes 2,625,000

Total liabilities P 9,560,000

Total shareholders equity 13,700,000

Total liabilities and shareholders equity P23,260,000

Problem 11-2

Where Cash inflow, outflow

reported or no effect
a. Acquired an equipment for cash I Cash outflow
b. Paid salaries of employees O Cash outflow
c. Recorded depreciation on plant assets O Addition to profit
d. Issued ordinary shares F Cash inflow
e. Paid dividends to ordinary shareholders F Cash outflow
f. Paid bank loan F Cash outflow
g. Purchased merchandise on account NC No effect
h. Sold merchandise on account NC No effect
i. Realized a gain on sale of plant assets O Deduction from profit
j. Purchased securities classified as held-to-maturity I Cash outflow
Chapter 11 APC (2014 edition) page 4

Problem 11-3

RST Company
Statement of Cash Flows
For the Year Ended December 31, 2014

Cash flows from operating activities

Profit before tax P 800,000
Adjustments for:
Depreciation 310,000
Interest expense 60,000
Operating profit before working capital changes P1,170,000
Increase in accounts receivable ( 480,000)
Increase in merchandise inventory ( 140,000)
Increase in accounts payable 280,000
Cash generated from operations P 830,000
Interest paid ( 60,000)
Income taxes paid ( 140,000)
Net cash provided by (used in) operating activities P 630,000

Cash flows from investing activities

Proceeds from sale of equipment 170,000

Cash flows from financing activities

Proceeds from issuance of ordinary shares P 80,000
Retirement of bonds payable ( 120,000)
Payment of dividends ( 540,000)
Net cash provided by (used in) financing activities ( 580,000)

Net increase in cash P 220,000

Cash balance, beginning 400,000
Cash balance, end P 620,000

NOTE: 2012 should be 2013

Problem 11-4

1. Earnings per share P5,352,000 / 56,000 shares P95.57

2. Return on ordinary SE P5,352,000 / P10,321,000 51.86%

3. Return on assets P5,352,000 / 18,430,000 29.04%

4. Current ratio P7,928,000 / P4,270,000 1.71:1

5. Receivable turnover ratio P38,730,000 / 2,106,000 18.22

6. Average collection period 365 days / 18.22 20 days

7. Inventory turnover ratio P20,110,000 / 2,585,000 7.78

8. Number of days in inventory 365 days / 7.78 47 days

Chapter 11 APC (2014 edition) page 5

9. Number of times interest was earned P8,140,000 / P500,000 16.28 times

10. Asset turnover ratio P38,370,000 / P18,430,000 2.08

11. Debt to total assets ratio P8,470,000 / P19,804,000 .43:1

12. Debt to equity ratio P8,470,000 / P11,334,000 .75:1

13. Cash debt coverage ratio P6,040,000 / P8,109,000 .74:1

Problem 11-5

GHI JKL
1. LIQUIDITY RATIOS
a. Current ratio 1.06:1 1.08:1

b. Receivable turnover 10.05 10.06

c. Average collection period 36 days 36 days

d. Inventory turnover 6.10 8.99

e. Days in inventory 60 days 41 days

f. Current cash debt coverage r 42 32

2. SOLVENCY RATIOS
a. Debt to total assets ratio .48:1 .53:1

b. Times interest earned 31.87 times 31.63 times

c. Cash debt coverage ratio

3. PROFITABILITY RATIOS
a. Profit margin 21% 13%

b. Asset turnover .77 1.06

c. Return on assets 16.80% 14.62%

d. Return on ordinary SE 33.58% 33.31%

MULTIPLE CHOICE

1. C 5. A 9. B
2. B 6. D 10. C
3. A 7. C 11. D
4. A 8. D 12. C