CHAPTER 11

Financial Reporting and Analysis

E 11-1
1.
2.
3.
4.
5.

a
c
d
a
-c

6.
7.
8.
9.
10.

a
f
b
a
f

11.
12.
13.
14.
15.

A
F
H
B
E

16.
17.
18.
19.
20.

c
d
g
h
g

E 11-2
1.

Cash
Inventories
Accounts receivable
Total current assets

P 320,000
500,000
220,000
P1,040,000

2.

Accounts payable
Interest payable
Wages payable
Total current liabilities

P 280,000
60,000
180,000
P 520,000

3.

Total current assets

Equipment
Total assets

P1,040,000
1,700,000
P2,740,000

4.

Total assets
Less Total liabilities
(CL of P520,000 + NCL of P600,000)
Total shareholders equity
Less Ordinary shares
Retained earnings

P2,740,000
1,520,000
P1,220,000
1,000,000
P 220,000

E 11-3
1.
2.
3.
4.
5.

Investing
Operating
Operating
Operating
Investing

6.
7.
8.
9.
10.

Operating
Operating
Financing
Financing
None

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E 11-4
Reported profit
Add (deduct):
Loss on sale of equipment
Depreciation expense
Profit before working capital changes
Decrease in accounts receivable
Decrease in accounts payable
Cash provided by operating activities

P500,000

Dividends received on stock dvidiends

Proceeds from sale of investment
Cash provided by financing activities

P120,000
720,000
P840,000

10,000
50,000
P560,000
70,000
(60,000)
P570,000

E 11-5

E 11-6
1.

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

2.

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

E 11-7
1. a Receivable turnover
2008 = 7,000,000 / [(650,000 +720,000) /2] = 7,000,000 / 685,000
2009 = 7,800,000 / [(720,000 + 745,000 /2] = 7,800,000 / 732,500

10.22
10.65

b. Average collection period

2008 = 365 days / 10.22 days
2009 = 365 days / 10.65 days

36 days
34 days

c. Inventory turnover
2008 = 4,450,000/925,000
2009 = 4,650,000 / 1,050,000

4.81
4.43

d. No. of days sales in inventory

2008 = 365 days / 4.81 days
2009 = 365 days / 4,43

76 days
83 days

2. Receivables are collected within the discount 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
employees 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.

Chapter 11-Suggested Answers (APC-2011)

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E 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

5.

Gross profit ratio

P1,800,000 / P6,000,000

30%

6.

Receivable turnover ratio

P6,000,000 / P67,250

89.22

7.

Average collection period

365 days / 89.22

4 days

13.13%

P 11-1
NOP Corporation
Statement of Financial Position
December 31, 20__
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses
Noncurrent assets:
Noncurrent receivables
Property, plant and equipment

P2,400,000
3,500,000
5,000,000
4,970,00
0
80,000 P15,950,000
P1,105,000
6,205,00
0

Total assets

Liabilities and Shareholders Equity

Current liabilities:
Notes payable and other short-term obligations
Accounts payable
Accrued liabilities
Other current liabilities

7,310,000
P23,260,00
0

P 312,500
589,500
4,218,000
1,815,000

P 6,935,000

Noncurrent liabilities and deferred taxes

2,625,00
0

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Total liabilities

P 9,560,000

Total shareholders equity

Total liabilities and shareholders equity

13,700,000
P23,260,000

P 11-2

a.
b.
c.
d.
e.
f.
g.
h.
i.

Acquired an equipment for cash

Paid salaries of employees
Recorded depreciation on plant assets
Issued ordinary shares
Paid dividends to ordinary shareholders
Paid bank loan
Purchased merchandise on account
Sold merchandise on account
Realized a gain on sale of plant assets

j. Purchased securities classified as held-to-maturity

Where
reported
I
O
O
F
F
F
NC
NC
O
I

Cash inflow, outflow

or no effect
Cash outflow
Cash outflow
Addition to profit
Cash inflow
Cash outflow
Cash outflow
No effect
No effect
Deduction from
profit
Cash outflow

P 11-3
RST Company
Statement of Cash Flows
For the Year Ended December 31, 20__
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation
Interest expense
Operating profit before working capital changes
Increase in accounts receivable
Increase in merchandise inventory
Increase in accounts payable
Cash generated from operations
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities

P 800,000
310,000
60,000
P1,170,000
( 480,000)
( 140,000)
280,000
P 830,000
( 60,000)
( 140,000)
P 630,000

Cash flows from investing activities

Proceeds from sale of equipment
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Retirement of bonds payable
Payment of dividends
Net cash provided by (used in) financing activities

170,000
P 80,000
( 120,000)
( 540,000)
( 580,000)

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Net increase in cash

Cash balance, beginning
Cash balance, end

P 220,000
400,000
P 620,000

P 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

7.

Inventory turnover ratio

P20,110,000 / 2,585,000

8.

Number of days in inventory

365 days / 7.78

9.

Number of times interest was

earned

P8,140,000 / P500,000

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

20 days
7.78
47 days
16.28 times

P 11-5
GHI

JKL

1.06:1

1.08:1

10.05

10.06

36 days

36 days

d. Inventory turnover

6.10

8.99

e. Days in inventory

60 days

41 days

42

32

1. LIQUIDITY RATIOS
a. Current ratio
b. Receivable turnover
c. Average collection period

f. Current cash debt coverage r

2. SOLVENCY RATIOS

Chapter 11-Suggested Answers (APC-2011)

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a. Debt to total assets ratio

.48:1

.53:1

31.87 times

31.63 times

21%

13%

.77

1.06

c. Return on assets

16.80%

14.62%

d. Return on ordinary SE

33.58%

33.31%

b. Times interest earned

c. Cash debt coverage ratio
3. PROFITABILITY RATIOS
a. Profit margin
b. Asset turnover

MC
1.
2.
3.
4.

C
B
A
A

5.
6.
7.
8.

A
A
C
P272,900

9.
10.
11.
12.

B
C
D
C