Question 1

Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will:

Accepted Answer

A)  increase the operating cycle.
B)  lengthen the accounts receivable period.
C)  shorten the accounts payable period.
D)  decrease the cash cycle.
E)  decrease the inventory turnover rate.F) A) and E)
G) A) and B)

Question 2

Interior Designs has an inventory period of 46 days, an accounts payable period of 38 days, and an accounts receivable period of 32 days. Management is considering an offer from their suppliers to pay within 10 days and receive a 2 percent discount. If the new discount is taken, the accounts payable period is expected to decline by 26 days. If the new discount is taken, the operating cycle will be _____ days.

Accepted Answer

A)  52
B)  62
C)  71
D)  78
E)  91F) C) and D)
G) None of the above

Question 3

Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $41,000 and an ending inventory of $47,000. What is the length of the inventory period?

Accepted Answer

A)  19.21 days
B)  20.89 days
C)  26.72 days
D)  30.53 days
E)  33.69 daysF) B) and D)
G) C) and E)

Question 4

Davis and Davis have expected sales of $490, $465, $450, and $570 for the months of January through April, respectively. The accounts receivable period is 28 days. What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Accepted Answer

A)  $420
B)  $426
C)  $440
D)  $450
E)  $482F) B) and C)
G) B) and E)

Question 5

Assume each month has 30 days and a firm has a 60-day accounts receivable period. During the second calendar quarter of the year, that firm will collect payment for the sales it made during which of the following months?

Accepted Answer

A)  October, November, and December
B)  November, December, and January
C)  December, January, and February
D)  January, February, and March
E)  February, March, and AprilF) B) and E)
G) C) and E)

Question 6

A compensating balance:
I. is required when a firm acquires any bank financing other than a line of credit.
II. increases the cost of short-term bank financing.
III. may be required even if a firm never borrows funds.
IV. is often used as a means of paying for banking services received.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  II and III only
D)  I and IV only
E)  II, III, and IV onlyF) B) and D)
G) A) and B)

Question 7

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

Accepted Answer

A)  operating cycle.
B)  inventory period.
C)  accounts receivable period.
D)  accounts payable period.
E)  cash cycle.F) A) and D)
G) A) and B)

Question 8

On May 1, your firm had a beginning cash balance of $175. Your sales for April were $430 and your May sales were $480. During May, you had cash expenses of $110 and payments on your accounts payable of $290. Your accounts receivable period is 30 days. What is your firm's beginning cash balance on June 1?

Accepted Answer

A)  $145
B)  $155
C)  $205
D)  $215
E)  $265F) A) and E)
G) B) and C)

Question 9

Which of the following statements are correct?
I. An increase in the accounts payable period shortens the cash cycle.
II. The cash cycle is equal to the operating cycle minus the inventory period.
III. A negative cash cycle is preferable to a positive cash cycle.
IV. The cash cycle plus the accounts receivable period is equal to the operating cycle.

Accepted Answer

A)  I only
B)  III and IV only
C)  I and III only
D)  I and IV only
E)  I, II, and III onlyF) C) and D)
G) B) and E)

Question 10

Costs that increase as a firm acquires additional current assets are called _____ costs.

Accepted Answer

A)  carrying
B)  shortage
C)  order
D)  safety
E)  tradingF) B) and D)
G) All of the above

Question 11

High Point Hotel (HPH)  has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?

Accepted Answer

A)  HPH will immediately receive $165,000 and will have no further obligation related to these receivables.
B)  HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables.
C)  Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables.
D)  Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed.
E)  HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account.F) C) and D)
G) A) and B)

Question 12

Peterson's Antiquities currently has a 31 day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, decreases its inventory period by 3 days, and decreases its payables period by 4 days. What will the length of the cash cycle be after these changes?

Accepted Answer

A)  22 days
B)  23 days
C)  29 days
D)  30 days
E)  31 daysF) A) and E)
G) B) and D)

Question 13

Josie's Craft Shack has a beginning cash balance for the quarter of $1,126. The store has a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow funds as needed to maintain that balance. Currently, the firm has a loan balance of $480. How much will the store borrow or repay if the net cash flow for the quarter is -$280?

Accepted Answer

A)  $0
B)  $28
C)  $126
D)  $154
E)  $280F) A) and B)
G) None of the above D

Question 14

Which one of the following will increase the accounts payable period, all else constant?

Accepted Answer

A)  an increase in the cost of goods sold account value
B)  an increase in the ending accounts payable balance
C)  an increase in the cash cycle
D)  a decrease in the operating cycle
E)  an increase in the accounts payable turnover rateF) B) and C)
G) D) and E) B

Question 15

Your bank offers you a $40,000 line of credit with an interest rate of 1.75 percent per quarter. The loan agreement also requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 0.20 percent per month. What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)  2.00 percent
B)  2.43 percent
C)  3.18 percent
D)  7.00 percent
E)  7.19 percentF) C) and E)
G) A) and C)

Question 16

The Thunder Dan's Corporation's purchases from suppliers in a quarter are equal to 65 percent of the next quarter's forecasted sales. The payables period is 60 days. Wages, taxes, and other expenses are 16 percent of sales, and interest and dividends are $60 per quarter. No capital expenditures are planned. Sales for the first quarter of the following year are projected at $720. The projected quarterly sales are:  What is the amount of the total disbursements for Quarter 2?

Accepted Answer

A)  $564.27
B)  $579.43
C)  $582.15
D)  $585.30
E)  $590.67F) A) and B)
G) All of the above

Question 17

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

Accepted Answer

A)  operating cycle.
B)  inventory period.
C)  accounts receivable period.
D)  accounts payable period.
E)  cash cycle.F) D) and E)
G) B) and C)

Question 18

List and describe the three basic types of secured inventory loans. Compare the advantages and disadvantages of these loans.

Accepted Answer

The three types are blanket lien, trust ...

Question 19

Compensating balances are frequently a part of revolving lending arrangements with banks, yet they add to the cost of financing for the borrower. Why, then, would borrowers agree to such terms?
 What other types of alternative financing are available?

Accepted Answer

Revolvers are flexible lending arrangeme...

Question 20

Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18. What is the length of the cash cycle?

Accepted Answer

A)  3.00 days
B)  5.28 days
C)  26.28 days
D)  71.00 days
E)  73.28 daysF) A) and B)
G) A) and C) B

Exam 18: Short-Term Finance and Planning

Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will:

Correct Answer
verified

Correct Answer
verified

Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $41,000 and an ending inventory of $47,000. What is the length of the inventory period?

Correct Answer
verified

Davis and Davis have expected sales of $490, $465, $450, and $570 for the months of January through April, respectively. The accounts receivable period is 28 days. What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Correct Answer
verified

Assume each month has 30 days and a firm has a 60-day accounts receivable period. During the second calendar quarter of the year, that firm will collect payment for the sales it made during which of the following months?

Correct Answer
verified

A compensating balance: I. is required when a firm acquires any bank financing other than a line of credit. II. increases the cost of short-term bank financing. III. may be required even if a firm never borrows funds. IV. is often used as a means of paying for banking services received.

Correct Answer
verified

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Costs that increase as a firm acquires additional current assets are called _____ costs.

Correct Answer
verified

High Point Hotel (HPH) has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Which one of the following will increase the accounts payable period, all else constant?

Correct Answer
verified
B

Correct Answer
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Correct Answer
verified

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

Correct Answer
verified

List and describe the three basic types of secured inventory loans. Compare the advantages and disadvantages of these loans.

Correct Answer
verified
The three types are blanket lien, trust ...
View Answer

Compensating balances are frequently a part of revolving lending arrangements with banks, yet they add to the cost of financing for the borrower. Why, then, would borrowers agree to such terms? What other types of alternative financing are available?

Correct Answer
verified
Revolvers are flexible lending arrangeme...
View Answer

Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18. What is the length of the cash cycle?

Correct Answer
verified
B

Exam 18: Short-Term Finance and Planning

Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $41,000 and an ending inventory of $47,000. What is the length of the inventory period?

Correct AnswerverifiedShow Answer

Davis and Davis have expected sales of $490, $465, $450, and $570 for the months of January through April, respectively. The accounts receivable period is 28 days. What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Correct AnswerverifiedShow Answer

Assume each month has 30 days and a firm has a 60-day accounts receivable period. During the second calendar quarter of the year, that firm will collect payment for the sales it made during which of the following months?

Correct AnswerverifiedShow Answer

A compensating balance: I. is required when a firm acquires any bank financing other than a line of credit. II. increases the cost of short-term bank financing. III. may be required even if a firm never borrows funds. IV. is often used as a means of paying for banking services received.

Correct AnswerverifiedShow Answer

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Costs that increase as a firm acquires additional current assets are called _____ costs.

Correct AnswerverifiedShow Answer

High Point Hotel (HPH) has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

Which one of the following will increase the accounts payable period, all else constant?

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

Correct AnswerverifiedShow Answer

List and describe the three basic types of secured inventory loans. Compare the advantages and disadvantages of these loans.

Correct AnswerverifiedThe three types are blanket lien, trust ...View AnswerShow Answer

Compensating balances are frequently a part of revolving lending arrangements with banks, yet they add to the cost of financing for the borrower. Why, then, would borrowers agree to such terms? What other types of alternative financing are available?

Correct AnswerverifiedRevolvers are flexible lending arrangeme...View AnswerShow Answer

Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18. What is the length of the cash cycle?

Correct AnswerverifiedB

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D

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B

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Correct Answer
verified

Correct Answer
verified
The three types are blanket lien, trust ...
View Answer

Correct Answer
verified
Revolvers are flexible lending arrangeme...
View Answer

Correct Answer
verified
B