University of Perpetual Help System laguna – Isabela Campus

Minante 1, Cauayan City, Isabela

College of Business and Accountancy

Strategic Management
2 nd
Semester, A.Y. 2017 - 2018

Name: ________________________________________ Date: ___________

Course Year & Section: _____________________ Score: __________
Midterm Quiz 2

(Erasure/Alteration means wrong)

I. MULTIPLE CHOICE. Choose the best answer. Encircle the letter of your choice. Show
you solutions for questions 11 to 20.

1. Short-term creditors are usually most interested in assessing (1 POINT)

A. leverage.
B. liquidity.
C. marketability.
D. profitability.

2. The current ratio is a (1 POINT)

A. liquidity ratio.
B. profitability ratio.
C. leverage ratio.
D. cash flow ratio.

3. A high accounts receivable turnover ratio indicates (1 POINT)

A. customers are making payments quickly.

B. a large portion of the company's sales are on credit.
C. many customers are not paying their receivables.
D. the company's sales have increased.

4. If equal amounts are added to the numerator and the denominator of a current ratio
equal to one, the ratio will (1 POINT)

A. increase.
B. decrease.
C. remain the same.
D. equal zero.

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5. The quick ratio (1 POINT)

A. is used to quickly determine a company's leverage and long-term debt-paying

ability.
B. relates cash, marketable securities, 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.

6. A successful grocery store would probably have (1 POINT)

A. a low inventory turnover.

B. a high inventory turnover.
C. zero profit margin.
D. low volume.

7. Which of the following is an example of liquidity analysis? (1 POINT)

A. Bonds payable are divided by total liabilities and stockholders' equity.

B. Current assets are divided by current liabilities.
C. Net income is divided by the number of shares of stock outstanding.
D. Net income is divided by total assets.

8. The quick ratio differs from the current ratio in that it (1 POINT)

A. represents the amount of cash on hand instead of the amount of working

capital.
B. is a stricter test of a company's ability to pay its current debts as they are due.
C. excludes inventories and accounts receivable from the numerator of the
fraction because of obsolescence and possible default on payment.
D. is more difficult to calculate.

9. Which of the following formulas would be used to determine the inventory turnover
ratio? (1 POINT)

A. Net credit sales/Average inventory

B. Average inventory/Net credit sales
C. Cost of goods sold/Average inventory
D. Average inventory/Cost of goods sold

10. The Gift Shoppe's inventory turned over five times during the year. Similar gift shops
have an inventory turnover equal to ten times per year. What explains the Gift
Shoppe's inventory management? (1 POINT)

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 A. The Gift Shoppe sold too much inventory during the year.
B. The Gift Shoppe needs to increase sales and decrease the amount of goods on
hand.
C. The Gift Shoppe is performing twice as well as it competitors.
D. The Gift Shoppe should increase the amount of goods on hand to
accommodate the additional inventory demand.

11. ABC Store had net credit sales of P6,000,000 and cost of goods sold of P2,000,000
for the year. The Accounts Receivable balances at the beginning and end of the year
were P350,000 and P250,000, respectively. The accounts receivable turnover ratio
was (2 POINTS)

A. 17.1 times.
B. 10.0 times.
C. 13.3 times.
D. 20.0 times.

12. A company has an account receivable turnover ratio of 6. The average accounts
receivable during the period are P350,000. What is the amount of net sales for the
period? (2 POINTS)

A. P350,000
B. P2,100,000
C. P58,333
D. Cannot be determined from the information given.

13. DEF Company, a retailer, had cost of goods sold of P1,400,000 last year. The
beginning inventory balance was P125,000 and the ending inventory balance was
P142,000. The company's inventory turnover ratio was closest to (2 POINTS)

A. 10.49.
B. 5.24.
C. 11.20.
D. 9.86.

14. A company has an average inventory on hand of P100,000 and the days in inventory
are 73 days. What is the cost of goods sold? (2 POINTS)

A. P500,000
B. P7,300,000
C. P1,000,000
D. P3,650,000

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15. The following information pertains to GHI Company.:

Merchandise purchased P1,800,000

Cost of goods sold P2,000,000
Inventory at the end of the year P 400,000

The inventory turnover ratio for the year was (2 POINTS)

A. 10.
B. 5.
C. 4.
D. 3.6.

16. JKLCompany reported the following on its income statement:

Income before income taxes P420,000

Income tax expense 120,000
Net income P300,000

An analysis of the income statement revealed that interest expense was P60,000.
JKL Company's times-interest-earned ratio was (2 POINTS)

A. 8.
B. 7.
C. 6.
D. 5.

17. MNO Company has total assets of P475,000 and total liabilities of P130,000. The
company's debt-to-equity ratio is closest to (2 POINTS)

A. 0.32.
B. 0.21.
C. 0.38.
D. 0.27.

18. Presented below are selected data from the financial statements of PQR Corp. for
2017 and 2016.

2017 2016
Net income P100,000 P123,000
Cash dividends paid on preferred stock P12,000 P15,000
Cash dividends paid on common stock P42,000 P38,000
Weighted average number of common shares P105,000 P95,000
outstanding

Earnings per share is reported on the 2017 income statement as (2 POINTS)

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 A. P 0.44.
B. P 0.55.
C. P 0.84.
D. P 0.95.

19. Presented below are selected data from the financial statements of STU Corp. for
2017 and 2016.
2017 2016
Net income P100,000 P123,000
Weighted average number of common shares outstanding 105,000 95,000
Market price per share of common stock at the end of the P12.00 P10.00
year
Earnings per share P 2.00 P 1.83

The price-earnings ratio for 2017 is (2 POINTS)

A. 1.09.
B. 5.46.
C. 6.0.
D. 11.0.

20. Last year the return on total assets in XYZ Company was 8.5%. The total assets were
P2,900,000 at the beginning of the year and P3,100,000 at the end of the year. The tax
rate was 30%, interest expense totaled P110,000, and sales were P5,200,000. Net
income for the year was (2 POINTS)

A. P145,000.
B. P222,000.
C. P332,000.
D. P178,000.

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