Question 1

The operating cycle describes how a product:

Accepted Answer

A)   Is priced.
B)   Is sold.
C)   Moves through the current asset accounts.
D)   Moves through the production process.
E)   Generates a profit.F) B) and D)
G) B) and C)

Question 2

Why is it important for firms to maintain a minimum cash balance when the cost of doing so is greater than the return generated by the funds held in reserve?

Accepted Answer

The primary reason for maintaining a min...

Question 3

Year Average  Credit Sales = $180,000
COGS = $135,000
How many days are in the accounts receivable period?

Accepted Answer

A)   28 days
B)   31 days
C)   59 days
D)   62 days
E)   90 daysF) B) and E)
G) A) and B)

Question 4

Ned's Co. has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash balance for the first quarter of $20. Beginning receivables for the quarter amount to $35. Sales for the first and second quarters are expected to be $110 and $125, respectively, while purchases amount to 80% of the next quarter's forecast sales. The accounts payable period is 90 days.

What is the value of the payables account at the end of the first quarter?

Accepted Answer

A)   $88
B)   $100
C)   $110
D)   $112E) All of the above
F) B) and C)

Question 5

A decrease in accounts payable is a source of cash.

Accepted Answer

A) True 
 B)False

Question 6

The production manager does not have a direct influence on the firm's accounts receivable balance.

Accepted Answer

A) True 
 B)False

Question 7

ALPHA, Inc. sells all of its products on credit. Purchases are 60% of the sales for the following quarter. The firm uses a 365-day year and account averages where applicable in its computations.

The financial manager of the firm provides the following relevant information:
  What is the amount of the cash collections in Quarter 4?

Accepted Answer

A)   $8,000
B)   $8,411
C)   $8,537
D)   $8,589
E)   $8,608F) A) and C)
G) B) and E)

Question 8

A short-term loan where the lender holds the borrower's receivables as security is called:

Accepted Answer

A)   A banker's acceptance.
B)   Accounts receivable financing.
C)   A letter of credit.
D)   Factored receivables financing.
E)   A bond.F) None of the above
G) A) and D)

Question 9

A firm which successfully employs a ___________ short-term financial policy will probably _______________ its risk of default and/or inventory stock-outs.

Accepted Answer

A)   flexible; increase
B)   restrictive; increase
C)   neutral; increase
D)   flexible; not change
E)   restrictive; decreaseF) B) and D)
G) C) and D)

Question 10

Merc Express has a $50,000 line of credit with Crossroads Bank. The loan agreement requires that 3.5% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. The interest rate on the borrowed funds is 2.4% per quarter. Merc Express' short-term investments are paying 1.75% per quarter. What is the effective annual interest rate on the line of credit if Merc Express borrows the entire $50,000 for one year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)   9.84%
B)   9.95%
C)   10.05%
D)   10.11%
E)   10.37%F) B) and C)
G) A) and B)

Question 11

Fulton Corporation had sales of $60,000 in January; $80,000 in February; $95,000 in March; $115,000 in April and $145,000 in May. Cost of goods sold has consistently been at 70% of sales. Additionally, Fulton had $15,000 worth of merchandise at the start of January and plans on having inventory on hand worth 35% of next month's cost of goods sold. If all inventory purchases are purchased and paid for in the current month, calculate the amount of inventory purchased and paid for in January.

Accepted Answer

A)   $31,715
B)   $34,825
C)   $49,875
D)   $65,100
E)   $93,500F) B) and E)
G) A) and B)

Question 12

Paying suppliers slower will shorten the cash cycle.

Accepted Answer

A) True 
 B)False

Question 13

Increasing the discount for early payment by credit customers will tend to decrease the accounts receivable period.

Accepted Answer

A) True 
 B)False

Question 14

A decrease in accounts receivable is a source of cash.

Accepted Answer

A) True 
 B)False

Question 15

ALPHA, Inc. sells all of its products on credit. Purchases are 60% of the sales for the following quarter. The firm uses a 365-day year and account averages where applicable in its computations.

The financial manager of the firm provides the following relevant information:
  What is the amount of purchases in Quarter 2?

Accepted Answer

A)   $3,600
B)   $4,000
C)   $4,800
D)   $5,400
E)   $6,000F) All of the above
G) None of the above

Question 16

A floor plan can also be called a(n) :

Accepted Answer

A)   Unsecured accounts receivable financing.
B)   Banker's acceptance arrangement.
C)   Secured inventory loan.
D)   Revolving credit arrangement.
E)   Non-committed line of credit.F) B) and C)
G) B) and D)

Question 17

Which of the following would result in an increase in cash?

Accepted Answer

A)   Inventory is purchased using funds from a new equity issue.
B)   A long-term bank loan is obtained.
C)   Existing accounts receivable are written off, that is, considered uncollectible.
D)   A firm reduces its inventory loan at the bank in order to free up a trust receipt.
E)   Accrued liabilities decrease.F) A) and C)
G) C) and D)

Question 18

The controller does not have a direct influence on the firm's accounts receivable balance.

Accepted Answer

A) True 
 B)False

Question 19

When marketable securities are sold, then it is considered a use of cash.

Accepted Answer

A) True 
 B)False

Question 20

A firm which employs a restrictive short-term financial policy will have a relatively __________.

Accepted Answer

A)   High ratio of current assets to sales.
B)   High amount of marketable securities.
C)   High amount of short-term debt relative to long-term debt.
D)   Low amount of long-term debt.
E)   Low amount of accounts payable.F) A) and D)
G) A) and C)

Exam 18: Short-Term Finance and Planning

Correct Answer
verified

Why is it important for firms to maintain a minimum cash balance when the cost of doing so is greater than the return generated by the funds held in reserve?

Correct Answer
verified
The primary reason for maintaining a min...
View Answer

Year Average Credit Sales = $180,000 COGS = $135,000 How many days are in the accounts receivable period?

Correct Answer
verified

A decrease in accounts payable is a source of cash.

Correct Answer
verified

Increasing the discount for early payment by credit customers will tend to decrease the accounts receivable period.

Correct Answer
verified

Correct Answer
verified

The controller does not have a direct influence on the firm's accounts receivable balance.

Correct Answer
verified

Correct Answer
verified

The production manager does not have a direct influence on the firm's accounts receivable balance.

Correct Answer
verified

Paying suppliers slower will shorten the cash cycle.

Correct Answer
verified

Correct Answer
verified

Which of the following would result in an increase in cash?

Correct Answer
verified

A firm which successfully employs a _ short-term financial policy will probably _____ its risk of default and/or inventory stock-outs.

Correct Answer
verified

A floor plan can also be called a(n) :

Correct Answer
verified

When marketable securities are sold, then it is considered a use of cash.

Correct Answer
verified

Correct Answer
verified

A firm which employs a restrictive short-term financial policy will have a relatively __________.

Correct Answer
verified

A decrease in accounts receivable is a source of cash.

Correct Answer
verified

A short-term loan where the lender holds the borrower's receivables as security is called:

Correct Answer
verified

The operating cycle describes how a product:

Correct Answer
verified

Exam 18: Short-Term Finance and Planning

Correct AnswerverifiedShow Answer

Why is it important for firms to maintain a minimum cash balance when the cost of doing so is greater than the return generated by the funds held in reserve?

Correct AnswerverifiedThe primary reason for maintaining a min...View AnswerShow Answer

Year Average Credit Sales = $180,000 COGS = $135,000 How many days are in the accounts receivable period?

Correct AnswerverifiedShow Answer

A decrease in accounts payable is a source of cash.

Correct AnswerverifiedShow Answer

Increasing the discount for early payment by credit customers will tend to decrease the accounts receivable period.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The controller does not have a direct influence on the firm's accounts receivable balance.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The production manager does not have a direct influence on the firm's accounts receivable balance.

Correct AnswerverifiedShow Answer

Paying suppliers slower will shorten the cash cycle.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would result in an increase in cash?

Correct AnswerverifiedShow Answer

A firm which successfully employs a ___________ short-term financial policy will probably _______________ its risk of default and/or inventory stock-outs.

Correct AnswerverifiedShow Answer

A floor plan can also be called a(n) :

Correct AnswerverifiedShow Answer

When marketable securities are sold, then it is considered a use of cash.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm which employs a restrictive short-term financial policy will have a relatively __________.

Correct AnswerverifiedShow Answer

A decrease in accounts receivable is a source of cash.

Correct AnswerverifiedShow Answer

A short-term loan where the lender holds the borrower's receivables as security is called:

Correct AnswerverifiedShow Answer

The operating cycle describes how a product:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The primary reason for maintaining a min...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A firm which successfully employs a _ short-term financial policy will probably _____ its risk of default and/or inventory stock-outs.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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