Management Advisory

Services

1. I-Can-Do-It Co. is operating at full capacity with a sales level of P14,000,000 and fixed
assets of P7,000,000. What is the required addition to fixed assets if sales are to increase
by 10 percent?

Answer: P700,000
If sales is to increase by 10
Solution: Asset Turnover = Sales percent:
Assets
14,000,00 15,400,00
2 = 0 2 = 0
7,000,000 Asset
7,700,000 = Asset

Required Addition to Fixed Asset = 7,700,000 - 7,000,000 = 700,000

Regulatory Framework for Business Transactions

2. Anastacia entered into a contract with Moana by which Anastacia promised to deliver at
price stipulated in the contract. Such delivery is made on February 14, 2019 with penalty in
case of default. In this case, no further demand by Moana on Anastacia is necessary to
consider A in delay because:
a. time is of the essence of the contract
b. the obligation expressly so provides
c. the demand would be useless
d. answer not given

Answer: b. the obligation expressly so provides

Management Advisory Services

3. Which of the following statements is incorrect?

a. Management consultancy services are provided not only to big business enterprises but
also to medium-size and small companies
b. CPAs have historically been business consultants to their clients
c. Management consultants are licensed and regulated by laws
d. The primary purpose of management consultancy is to improve the firm's use of its
capabilities and resource to achieve its objectives.

Answer: c. Management consultants are licensed and regulated by laws

Taxatio
n

4. True or False
i. Tax laws have been held to be political in nature but not penal.
ii. Tax laws have been held to be penal in nature but not political.
iii. Tax laws are both penal and political in nature

Answer: False, False, False

Financial Accounting and Reporting

5. Believe Inc. paid P14,400 to renew its only insurance policy for three years on March 1,
2019, the effective date of the policy. At March 31, 2019, Believe's unadjusted trial balance
showed a balance of P600 for prepaid insurance and P14,400 for insurance expense.
What amounts should be reported for prepaid insurance and insurance expense in
Believe's financial statements for the three months ended March 31, 2019?

Prepaid Insurance = ?
Insurance Expense = ?

Answer:
Prepaid Insurance = P14,000
Insurance Expense = P1,000

Solutions:
Insurance Expense:
Beg. Prepaid = 600
14,400/36 months = 400 per
Expired Portion (March) 400 * month
Total Insurance Expense 1,000

Prepaid Insurance=
14,400 - 400 = 14,000