Accounting 16

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   Working Capital, Quality Management, cash flow Charlie obtained a short-term bank loan for P1M at an annual interest of 12%. As a condition of the loan, the company is required to maintain a compensating balance of P200,000 in its savings account which earns interest at an annual rate of 6%. The company would otherwise maintain only P100,000 on the savings account for transactional purposes. The effective cost of the loan is? Answer: 12.67%   A company obtained a short-term bank loan of P500,000 at an annual interest of 6%. As a condition of the loan, the company is required to maintain a compensating balance of P100,000 in its checking account. The company’s checking account earns interest at an annual rate of 2%. Ordi narily, the company maintains a  balance of P50,000 in its checking account for transaction purposes. What is the effective interest rate of the loan? Answer: 6.44%  Belle Corporation is planning to change its credit policy. The proposed change is expected to: *shorten the collection period from 75 days to 50 days *increase the ratio of cash sales total sales from 30% to 40% * decrease total sales by 5% If projected sales for the coming year is P50M, what is the peso impact on the average accounts receivable  balance of the proposed change in credit policy? (Use 360 days in a year)  Answer: P3,333,334 decrease    Anne Company’s average monthly cash receipts is P1,500,000. Its average collection period is 10 days. A collection agency has offered to be the com pany’s collector and shorten collection period to 4 days for a monthly fee of P2,500. The company can invest its excess funds in money market placements at a rate of 8%. If the collection agency’s offer is accepted, Anne Company’s net annual benefit (los s) is  Answer: (P6,000)  Daisy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3% cash discount for payment within 10 days. The firm’s current average collection period us 90 days, sales are 400 films per year, selling P25,000 per film, variable cost per film is P18,750, and the average cost per film is P21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per  year, that 75% of the sales will take the discount, and the average collection period will drop to 30 days. The firm’s bad debts expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm’s required return on eq ual-risk investments is 20%.  What is the net result of granting the cash discount? Answer: +128,750  B Company had the following data from its records for the year ended December 31, 2013: Net credit sales P576,000 Average finished goods inventory P12,000 Net credit purchases 120,000 Average accounts receivable 80,000 Raw materials used 96,000 Average accounts payable 12,000  Ave. materials inventory 8,000 Gross profit rate 25% Compute the average number of days in B’s operating cash conv  ersion cycle, using a 360-day year.  Answer: 54 days The Good Company plans to have P4M in steady cash outlay for next year. The company believes that it will face an opportunity interest rate of 10% and will incur a cost of P40 each time it borrows. The ECQ is P56, 570.  What is the total cost for one year of holding the optimal cash balance. Answer: P5,669  Martin Company sells on terms of 5/10, net 20 days. Gross sales for the year are P2.4M and one-third avail the discount. What is the average collection period?  Answer: 17 days The costs that follow appeared on Omaha’s quality cost report:   Warranty cost P15,000 Quality training 31,000 Raw materials inspection 10,000 Cost of processing complaints 5,500 Cost of market research 18000 Rework of defective units 12,800 Cost of scrap and waste 7,000 Customer returns 6,000 Cost of test equipment 3,000 The sum of appraisal and internal failure costs is: P32,800 pero P46,300 sa answer key The costs that follow appeared on Marie ’s quality cost report: Design reviews P275,000 Finished goods returned due to failure 55,000 Freight on replacement of finished goods 27,000 Labor inspection during manufacturing 75,000 Labor inspection raw materials 32,000 Manufacturing product-testing labor 63,000 Manufacturing rework labor and overhead 150,000 Materials used in warranty repairs 68,000 Process engineering 180,000 Product liability claim 145,000 Product test equipment 35,000 Repairs equipment maintenance 22,000 Schedule equipment maintenance 90,000 Scrap 125,000 Training 156,000 The preventive cost is Answer: P701,000 G Company provided the ff data for the preparation of the statement of cash flows for the current year: Net income P81,000 Decrease in accounts payable 35,000 Increase in AR 102,000 Gain on sale 47,000 Decrease in mdse inventory 18,000 Depreciation expense 32,000 How much should be reported as net cash flow from operating activities? Answer: ( P53,000)  Which of the following costs would be classified as an external failure cost on a quality report? a.   Reliability engineering c. Rework  b.   Materials inspection d.  Warranty repairs  Fair Value Measurements, NCA Held for sale, Related party The fair value of an asset should be based upon a.   The replacement cost of an asset  b.   The price that would be received to sell the asset at the measurement date c.   The srcinal cost of the asset plus an adjustment for obsolescence d.   The price that would be paid to acquire the asset The fair value of an asset at initial recognition is a.   The price paid to acquire the asset  b.   The price paid to acquire the asset less transaction costs c.   The price paid to transfer or sell the asset d.   The book value of the asset acquired  A change in valuation techniques used to measure fair value should be reported as a.    A change in accounting principle with retrospective restatement  b.    An error correction with restatement of the FS of previous periods. c.    A change in accounting estimate reported on a prospective basis d.    An extraordinary item on the current year’s income statement   When measuring fair value, which level has the highest priority for valuation inputs? a.   Level 1  b. Level 2 c. Level 3 d. Level 4 Non-adjusting events after reporting period which require disclosure include all of the ff, except: a.   Plan to discontinue an operation  b.   Expropriation of assets by government after end of reporting period c.   Destruction of a major production plant by a fire at the end of reporting period d.    A business combination after end of reporting period Disclosures of related party transactions include all of the ff, except a.   Nonmonetary exchange by affiliates  b.   Sales of inventory by a subsidiary to its parent c.   Expense allowances for executives which exceed normal business practice d.    An entity’s agreement to act as surety for a loan to its CEO   Which of the ff is accounted for as a change in accounting policy? a.    A change in the estimated useful life of plant assets  b.    A change from the cash basis of accounting to the accrual basis of accounting c.    A change from expensing immaterial expenditures to deferring and amortizing them as they become material d.    A change in inventory valuation from average cost to FIFO   A company using a perpetual inventory system neglected to record a purchase of merchandise on account at  year end. This merchandise was omitted from the year-end physical count. How will these errors affect assets, liabilities, and shareholders’ equity at year end and net income for the year?   Assets Liabilities Shareholders’ equity   Net income a.   No effect understate overstate overstate  b.   No effect overstate understate understate c.   Understate understate No effect No effect d.   Understate No effect understate understate Sun Company acquired 100% of Shine Company prior to 2013. During 2013, the individual entities included in their FS the ff: Sun Shine Officers’ salaries  P7,500,000 P5,000,000 Officers’ expenses  2,000,000 1,000,000 Loans to officers 12,500,000 5,000,000 Intercompany sales 1,500,000  What total amount should be reported as related party disclosures in the notes to Sun’s 2013 consolidated FS?   Answer: P30M Early Inc. is a calendar-year corporation whose FS for 2013 and 2014 included errors as follows:  Year Ending inventory Depreciation expense 2013 P162,000 overstated P135,000 overstated 2014 54,000 understated 45,000 understated  Assume that purchases were recorded correctly and no correcting entries were made at December 31, 2013 or at December 31, 2014. Ign oring income taxes, by how much should Early’s retained earnings be retroactively adjusted at January 1, 2015?  Answer: P144,000 increase Black Company is a calendar-year company. Its FS for 2013 and 2014 contained errors as follows: December 31, 2013 inventory overstated P262,500 December 31, 2014 inventory understated 750,000 Depreciation for 2013 overstated 187,500 Depreciation for 2014 understated 60,000 December 31, 2013 prepaid insurance understated 37,500 December 31, 2014 unearned rent overstated 30,000 December 31, 2014 accrued salaries 150,000  What is the effect of the errors on net income for 2014? Answer: P795,000 understated   CVP and responsibility accounting Sandy Corporation operates 2 stores: J and K. The following information relates to store J: Sales revenue P1,300,000  Variable operating expenses 600,000 Fixed expenses: Traceable to J and controllable by J 275,000 Traceable to J and controllable by others 80,000 J’s segment contribution margin is:  Answer: P700,000
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