Question 1

Which of the following will tend to increase the credit period? I. increase in the buyer's inventory period
II)  decrease in the buyer's inventory period
III)  increase in the buyer's operating cycle
IV)  decrease in the buyer's operating cycle

Accepted Answer

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

Question 2

For which one of the following instruments does a bank guarantee payment by the buyer?

Accepted Answer

A)   Money market preferred stock
B)   Commercial paper
C)   Banker's acceptance
D)   Invoice
E)   Time draftF) A) and E)
G) A) and B)

Question 3

Which one of the following is true concerning a controlled disbursement account?

Accepted Answer

A)   The number of checks that can be disbursed on any one day is limited.
B)   The bank will inform the firm of the amount that needs to be transferred on a daily basis.
C)   The amount that can be disbursed on any given day is limited to the balance in the account when the bank opens in the morning.
D)   The total number of checks that can be written in any one month is limited.
E)   The amount of the disbursements is limited to the amount the firm has available on its bank line of credit.F) C) and D)
G) None of the above

Question 4

Which one of the following is the process of determining the probability that customers will not pay?

Accepted Answer

A)   Credit analysis
B)   Collection policy
C)   Account aging
D)   Credit terms
E)   Customer invoicingF) C) and D)
G) A) and E)

Question 5

Smelly Perfumes sells 3,500 units of its perfume collection each year at a price per unit of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by 40 percent of the customers. What is the amount of the company's accounts receivable?

Accepted Answer

A)   $54,849
B)   $58,246
C)   $61,003
D)   $64,815
E)   $67,778F) A) and C)
G) B) and D)

Question 6

On June 22, Roy's Welding Shop purchased $3,300 worth of goods. The terms of the sale were 1/7, net 21. What is the effective annual rate of interest for the credit period for this sale?

Accepted Answer

A)   29.96 percent
B)   31.38 percent
C)   34.42 percent
D)   37.73 percent
E)   38.63 percentF) A) and E)
G) A) and B)

Question 7

Which one of the following is the set of procedures used to determine the inventory levels for demand-dependent inventory?

Accepted Answer

A)   Inventory flow log
B)   Materials requirements planning
C)   Just-in-time inventory system
D)   Kanban
E)   KeiretsuF) A) and B)
G) All of the above

Question 8

Draw a basic flowchart that depicts the components of collection time. Be sure to label all key points and explain the various components. In addition, offer one suggestion for decreasing the time required for each component.

Accepted Answer

Students should replicate the time line ...

Question 9

Which one of the following reports will tell me the percentage of accounts receivables that are delinquent by 90 days or more?

Accepted Answer

A)   Cash budget
B)   5Cs of credit
C)   Credit analysis
D)   Aging schedule
E)   Credit scoring reportF) A) and E)
G) B) and E)

Question 10

What is the key difference between an ordinary preferred stock and a money market preferred stock?

Accepted Answer

A)   Issuer
B)   Maturity
C)   Fixed versus floating dividend
D)   Voting rights
E)   Absence of any dividendF) B) and C)
G) A) and C)

Question 11

Which of the following characteristics apply to U. S. Treasury bills? I. income taxed at both the federal and state level
II)  minimal, if any, default risk
III)  marketable, but not liquid
IV)  short maturities

Accepted Answer

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

Question 12

Which one of the following best defines the term 'collection policy'?

Accepted Answer

A)   Process of determining which customers will be granted credit
B)   Process of determining the probability customers will not pay
C)   Set of guidelines used by a firm to determine the cost of offering credit to its customers
D)   Daily process of handling cash inflows and outflows of cash
E)   Set of procedures a firm follows in collecting accounts receivableF) C) and D)
G) None of the above

Question 13

Which one of the following best states the primary goal of inventory management?

Accepted Answer

A)   Minimize the number of orders per year
B)   Minimize the average inventory level
C)   Minimize total inventory costs
D)   Minimize the level of inventory for the most expensive items
E)   Minimize opportunity costsF) D) and E)
G) A) and D)

Question 14

Which one of the following will tend to increase the length of the credit period?

Accepted Answer

A)   Decrease in product cost
B)   Decrease in consumer demand
C)   Decrease in collateral value
D)   Increase in credit risk
E)   Increase in product standardizationF) A) and B)
G) A) and C)

Question 15

Miller & Miller sells earnings forecasts for Chinese securities. Its credit terms are 1/5, net 15. Based on experience, 75 percent of all customers take the discount. What is the average collection period?

Accepted Answer

A)   6.0 days
B)   6.5 days
C)   7.0 day
D)   7.5 days
E)   8.0 daysF) A) and C)
G) B) and D)

Question 16

Which one of the following terms refers to the length of time a firm grants its customers to pay for their purchases?

Accepted Answer

A)   Lockbox period
B)   Discount period
C)   Credit period
D)   Cash cycle
E)   Receivables turnover periodF) A) and B)
G) A) and E)

Question 17

Faith wrote a check for $22 on Friday, May 6. The check cleared the bank on Wednesday, May 11. There were no other checks or deposits outstanding during the month. Given this, which one of the following statements is correct?

Accepted Answer

A)   On May 6, the available balance decreased by $22.
B)   On May 11, the available balance was $22 less than the ledger balance.
C)   On May 12, the ledger balance was $22 less than the available balance.
D)   On May 14, the available balance increased by $22.
E)   On May 10, the ledger balance was $22 less than the available balance.F) C) and D)
G) C) and E)

Question 18

Which one of the following best defines cash concentration?

Accepted Answer

A)   Combining all of a firm's receipts into one bank deposit
B)   Combining a week's worth of cash receipts into one bank deposit
C)   Combining cash from multiple banks into a firm's main bank accounts
D)   Using multiple lockboxes for collecting cash payments
E)   Combining a firm's bills so that disbursement checks are only mailed monthlyF) B) and D)
G) C) and D)

Question 19

Which one of the following is most apt to delay the collection of cash?

Accepted Answer

A)   Having customers mail checks to a local lockbox rather than the home office
B)   Depositing checks throughout the day
C)   Posting payments to accounts receivable prior to making deposits
D)   Collecting mail twice daily
E)   Supplying customers with bar coded payment slipsF) B) and D)
G) C) and D)

Question 20

Oil Town Marina has annual credit sales of $17 million. The average collection period is 38 days. What is the average investment in accounts receivable as shown on the balance sheet?

Accepted Answer

A)   $646,000
B)   $824,000
C)   $1,408,888
D)   $1,769,863
E)   $1,824,509F) D) and E)
G) C) and D)

Exam 17: Working Capital Management

Oil Town Marina has annual credit sales of $17 million. The average collection period is 38 days. What is the average investment in accounts receivable as shown on the balance sheet?

Correct AnswerverifiedShow Answer

For which one of the following instruments does a bank guarantee payment by the buyer?

Correct AnswerverifiedShow Answer

Which one of the following is most apt to delay the collection of cash?

Correct AnswerverifiedShow Answer

Draw a basic flowchart that depicts the components of collection time. Be sure to label all key points and explain the various components. In addition, offer one suggestion for decreasing the time required for each component.

Correct AnswerverifiedStudents should replicate the time line ...View AnswerShow Answer

Which one of the following best defines the term 'collection policy'?

Correct AnswerverifiedShow Answer

Miller & Miller sells earnings forecasts for Chinese securities. Its credit terms are 1/5, net 15. Based on experience, 75 percent of all customers take the discount. What is the average collection period?

Correct AnswerverifiedShow Answer

Which of the following characteristics apply to U. S. Treasury bills? I. income taxed at both the federal and state level II) minimal, if any, default risk III) marketable, but not liquid IV) short maturities

Correct AnswerverifiedShow Answer

Which one of the following will tend to increase the length of the credit period?

Correct AnswerverifiedShow Answer

Which one of the following best states the primary goal of inventory management?

Correct AnswerverifiedShow Answer

Which one of the following best defines cash concentration?

Correct AnswerverifiedShow Answer

On June 22, Roy's Welding Shop purchased $3,300 worth of goods. The terms of the sale were 1/7, net 21. What is the effective annual rate of interest for the credit period for this sale?

Correct AnswerverifiedShow Answer

Which one of the following is the set of procedures used to determine the inventory levels for demand-dependent inventory?

Correct AnswerverifiedShow Answer

Which one of the following is the process of determining the probability that customers will not pay?

Correct AnswerverifiedShow Answer

Faith wrote a check for $22 on Friday, May 6. The check cleared the bank on Wednesday, May 11. There were no other checks or deposits outstanding during the month. Given this, which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following will tend to increase the credit period? I. increase in the buyer's inventory period II) decrease in the buyer's inventory period III) increase in the buyer's operating cycle IV) decrease in the buyer's operating cycle

Correct AnswerverifiedShow Answer

Which one of the following reports will tell me the percentage of accounts receivables that are delinquent by 90 days or more?

Correct AnswerverifiedShow Answer

Which one of the following terms refers to the length of time a firm grants its customers to pay for their purchases?

Correct AnswerverifiedShow Answer

What is the key difference between an ordinary preferred stock and a money market preferred stock?

Correct AnswerverifiedShow Answer

Which one of the following is true concerning a controlled disbursement account?

Correct AnswerverifiedShow Answer

Smelly Perfumes sells 3,500 units of its perfume collection each year at a price per unit of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by 40 percent of the customers. What is the amount of the company's accounts receivable?

Correct AnswerverifiedShow Answer

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Students should replicate the time line ...
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