Short-Term Financial Planning Test Questions & Answers Ch.16

Chapter 16

Short-Term Financial Planning

Test Bank - Static Key

1. Which one of the following commences on the day inventory is purchased and ends on the day the payment for the sale of that inventory is collected? Assume all sales and purchases are on credit.

A. Inventory period

B. Accounts receivable period

C. Accounts payable period

D. Operating cycle

E. Cash cycle

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

2. The amount of time a firm holds inventory in stock is referred to as the:

A. inventory period.

B. accounts receivable period.

C. accounts payable period.

D. operating cycle.

E. cash cycle.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

3. The accounts receivable period is the time that elapses between the _____ and the ____.

A. purchase of inventory; payment to the supplier

B. purchase of inventory; collection of the receivable

C. sale of inventory; payment to supplier

D. sale of inventory; collection of the receivable

E. sale of inventory; billing to customer

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

4. The length of time a retailer owes its supplier for an inventory purchase is called the:

A. inventory period.

B. accounts receivable period.

C. accounts payable period.

D. operating cycle.

E. cash cycle.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

5. The cash cycle equals the:

A. inventory period plus the accounts receivable period.

B. inventory period plus the accounts payable period.

C. operating cycle minus the inventory period.

D. operating cycle minus the accounts payable period.

E. operating cycle minus the accounts receivable period.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

6. Which one of the following is a graphical representation of the operating and cash cycles?

A. Operations line

B. Production period

C. Cash flow time line

D. Inventory flow chart

E. Customer service line

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

7. Which one of the following is directly related to increases in a firm's current assets?

A. Reorder costs

B. Shortage costs

C. Restocking costs

D. Out-of-stock events

E. Carrying costs

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Carrying and shortage costs

8. Which of the following are inversely related to increases in a firm's current assets?

I. Reorder costs

II. Shortage costs

III. Restocking costs

IV. Carrying costs

A. I and III only

B. II and IV only

C. I, II, and III only

D. II, III, and IV only

E. I, III, and IV only

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Carrying and shortage costs

9. Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called?

A. Operating projection

B. Receivables schedule

C. Balance sheet

D. Cash budget

E. Compromise policy

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash budget

10. Which of these best describes a line of credit?

A. Long-term, prearranged, committed bank loan

B. Short-term loan secured by accounts receivable

C. Short-term loan secured by inventory

D. Long-term, prearranged, non committed bank loan

E. Short-term prearranged bank loan that can be either committed or noncommitted

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

11. Accounts receivable financing is the term used to describe which one of the following types of loans that involve either the assignment or the factoring of a firm's accounts receivable?

A. Secured short-term loan

B. Unsecured short-term loan

C. Secured long-term loan

D. Unsecured long-term loan

E. Trust receipt loan

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

12. By definition, an inventory loan is which one of the following types of loan?

A. Secured short-term loan

B. Unsecured short-term loan

C. Secured long-term loan

D. Unsecured long-term loan

E. Trust receipt loan

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

13. Which of these activities is a source of cash?

A. Decreasing long-term debt

B. Increasing inventory

C. Repurchasing shares of stock

D. Increasing fixed assets

E. Decreasing accounts receivable

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.1 Tracing Cash and Net Working Capital

Topic: Sources and uses of cash

14. Which of these is a use of cash?

A. Issuing new shares of stock

B. Decreasing accounts receivable

C. Decreasing inventory

D. Decreasing fixed assets

E. Decreasing accounts payable

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.1 Tracing Cash and Net Working Capital

Topic: Sources and uses of cash

15. Which one of the following is a use of cash?

A. Selling inventory at cost

B. Paying a supplier for inventory you purchased last month

C. Borrowing money from a local bank

D. Collecting payment from a customer

E. Selling a fixed asset such as a piece of machinery

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.1 Tracing Cash and Net Working Capital

Topic: Sources and uses of cash

16. Which of the following are sources of cash?

I. Decreasing accounts receivable

II. Increasing inventory

III. Increasing accounts payable

IV. Increasing common stock

A. I and III only

B. II and IV only

C. II and III only

D. I and IV only

E. I, III, and IV only

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.1 Tracing Cash and Net Working Capital

Topic: Sources and uses of cash

17. Which one of these will increase the operating cycle?

A. Decreasing the days' sales in inventory

B. Decreasing the accounts payable period

C. Increasing the accounts receivable turnover rate

D. Decreasing the inventory turnover rate

E. Decreasing the accounts payable turnover rate

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

18. Which one of the following will increase the operating cycle?

A. Decreasing the accounts payable period

B. Increasing the accounts payable turnover rate

C. Increasing the cash cycle

D. Decreasing the accounts receivable turnover rate

E. Decreasing the inventory period

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

19. Which one of the following actions will decrease the operating cycle?

A. Increasing inventory

B. Paying suppliers faster

C. Paying for more inventory with cash rather than credit

D. Granting customers more time to pay for their credit purchases

E. Lessening the production time needed to manufacture a good for sale

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

20. The operating cycle is equal to the:

A. inventory period plus the accounts payable period.

B. accounts receivable period plus the cash cycle.

C. inventory period minus the accounts payable period plus the accounts receivable period.

D. accounts receivable period plus the inventory period.

E. inventory period plus the cash cycle.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

21. Which one of the following can occur if the operating cycle decreases while both the accounts receivable and the accounts payable periods remain constant?

A. Inventory period remains constant

B. Cash cycle increases

C. Inventory turnover rate increases

D. Accounts receivable turnover rate increases

E. Cash cycle remains constant

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

22. The operating cycle:

A. illustrates the sources and uses of cash.

B. is equal to the cash cycle plus the accounts receivable period.

C. begins when a product is sold to a customer.

D. is based on a 360-day year.

E. describes how a product moves through the current asset accounts.

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

23. Which statement is true?

A. A decrease in the accounts receivable turnover rate decreases the cash cycle.

B. Paying a supplier within the discount period rather than waiting until the end of the normal credit period will decrease the cash cycle.

C. The number of days in the cash cycle can be positive, negative, or equal to zero.

D. An increase in the inventory turnover rate must increase the cash cycle.

E. The payables period must be shorter than the receivables period.

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

24. The cash cycle is equal to the:

A. inventory period minus the accounts payable period.

B. operating cycle plus the accounts payable period.

C. operating cycle minus the accounts receivable period.

D. accounts receivable period minus the accounts payable period plus the inventory period.

E. inventory period minus the accounts receivable period minus the accounts payable period.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

25. Which industry is most apt to have the shortest operating cycle?

A. Toy store

B. Car manufacturer

C. Local restaurant

D. Furniture store

E. Plastics manufacturer

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

26. Which of these is most apt to decrease the cash cycle?

A. Decreasing the credit period granted to a customer

B. Decreasing the inventory turnover rate

C. Decreasing the accounts payable period

D. Decreasing the accounts receivable turnover rate

E. Increasing the receivables period

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

27. Which statement is true?

A. The inventory period increases as the inventory turnover rate increases.

B. The length of the inventory period depends on the length of the cash cycle.

C. The inventory period is the average number of days a firm holds inventory on its shelves.

D. The inventory period is equal to the operating cycle minus the accounts payable period.

E. The inventory period has no effect on the cash cycle.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

28. Which firm is most apt to have the shortest inventory period?

A. General merchandise retail store

B. Hardware store

C. Furniture store

D. Locomotive manufacturer

E. Delicatessen

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

29. Which activity is most apt to reduce the inventory period for a grocery store?

A. Replacing slow-moving items with faster-selling products

B. Replacing fresh foods with canned goods

C. Decreasing the amount of discounts offered to customers

D. Increasing the amount of inventory on hand

E. Decreasing the number of times the inventory turns over per year

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

30. Which of these is most apt to decrease the accounts receivable period for a store that has both cash and credit sales?

A. Increasing the time granted to customers to pay for purchases

B. Lengthening the cash cycle

C. Increasing customer discounts for cash payment

D. Selling inventory slower

E. Paying suppliers faster

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

31. An increase in the accounts receivable period is most apt to:

A. lengthen the accounts payable period.

B. shorten the inventory period.

C. shorten the operating cycle.

D. lengthen the cash cycle.

E. shorten the accounts payable period.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

32. Suppose MMP changes its policy and starts requiring all of its customers to pay within 20 days rather than the 30 days that it currently allows. Which one of the following will result from this change?

A. Increase in receivables period

B. Increase in inventory period

C. Decrease in cash cycle

D. Increase in operating cycle

E. Increase in accounts payable period

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

33. All else held constant, which of these statements is correct concerning the accounts payable period?

A. The accounts payable period is equal to 360/(Sales/Average accounts payable).

B. A decrease in the accounts payable period will increase the operating cycle.

C. An increase in the accounts payable period will decrease the cash cycle.

D. A decrease in the accounts payable period will decrease the operating cycle.

E. An increase in the accounts payable turnover rate decreases the cash cycle.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

34. Which statement is true?

A. If a firm decreases its inventory period, its accounts receivable period will also decrease.

B. The longer the cash cycle, the more cash a firm typically has available to invest.

C. A firm would prefer a negative cash cycle over a positive cash cycle.

D. Decreasing the inventory period will automatically decrease the payables period.

E. Both the operating cycle and the cash cycle must be positive values.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

35. Tri-City Grocers is a chain of grocery stores that just hired a new CFO. Which of the following actions would you expect this CFO to adopt given her statement that she wants to implement a more flexible financing policy for the firm?

I. Easing the credit terms given to customers

II. Increasing the amount of inventory carried by each grocery store

III. Borrowing funds to keep more cash available for store operations

IV. Decreasing the firms' investments in marketable securities

A. I and III only

B. II and IV only

C. I, II, and III only

D. II, III, and IV only

E. I, II, III, and IV

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Flexible financial policy

36. Which of these is the most indicative of a flexible short-term financial policy?

A. High ratio of short-term debt to long-term debt

B. Relatively small investment in current assets

C. High ratio of current assets to sales

D. Low level of net working capital

E. Relatively low level of liquidity

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Flexible financial policy

37. Which of these actions is indicative of a restrictive short-term financial policy?

A. Granting increasing amounts of credit to customers

B. Expanding the number of inventory items carried

C. Increasing the firm's investment in the current accounts

D. Minimizing the cash balances held by the firm

E. Investing relatively large amounts in marketable securities

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Restrictive financial policy

38. A flexible short-term financial policy will tend to have more of which of the following than a restrictive short-term financial policy will?



I. Uncollectable accounts receivable

II. Work stoppages for lack of raw materials

III. Carrying costs

IV. Obsolete or out-of-date inventory

A. I and II only

B. III and IV only

C. II and III only

D. I, II, and III only

E. I, III, and IV only

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Flexible financial policy

39. Which of the following costs will tend to increase if a firm switches to a restrictive short-term financial policy from a flexible short-term policy?

I. Lost sales due to out-of-stock items

II. Inventory warehousing costs

III. Cash-outs

IV. Total annual order costs

A. I and III only

B. II and IV only

C. I, III, and IV only

D. I, II, and IV only

E. I, II, III, and IV

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Restrictive financial policy

40. Which of the following tend to rise when a firm switches to a flexible financial policy from a restrictive financial policy?

I. Restocking costs

II. Price reductions to offset limited selection

III. Storage costs

IV. Current asset opportunity costs

A. I and II only

B. III and IV only

C. I, III, and IV only

D. I, II, and III only

E. II, III, and IV only

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Flexible financial policy

41. The High Water Mark is operating at its optimal point. Which one of the following conditions exists given this firm's operating status?

A. Carrying costs exceed shortage costs

B. Carrying costs are equal to zero

C. Both carrying costs and shortage costs are at their minimum levels

D. Shortage costs are equal to zero

E. Shortage costs equal carrying costs

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Carrying and shortage costs

42. Generally speaking, which of the following situations will occur if a seasonal company adopts a compromise financial policy?



I. Periods where short-term financing is required

II. Less long-term debt than if the firm followed a restrictive financial policy

III. Periods of excess funds which can be invested in short-term marketable securities

IV. Lower investment in fixed assets than if the firm adopted a flexible financial policy

A. I only

B. II only

C. I and III only

D. II and IV only

E. I, III, and IV only

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Compromise financial policy

43. Which statement is correct?

A. Firms should generally finance all of their assets with long-term debt.

B. Firms that follow restrictive financial policies can generally avoid short-term debt financing.

C. Short-term borrowing is generally more expensive than long-term borrowing.

D. Long-term interest rates tend to be more volatile than short-term rates.

E. A firm is less apt to face financial distress if it adopts a flexible financial policy rather than a restrictive policy.

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Learning Objective: 16-02 Differentiate between the types of short-term financial policies.

Section: 16.3 Some Aspects of Short-Term Financial Policy

Topic: Flexible financial policy

44. Which statement related to a cash budget is correct?

A. Capital expenditures are treated as a cash inflow on a cash budget.

B. The cumulative surplus is computed prior to adjusting for the minimum cash balance.

C. A positive net cash inflow for a period indicates the cash disbursements exceed the cash collections for the period.

D. Financially healthy firms can have a negative quarterly net cash inflow.

E. Firms generally set the minimum cash balance at zero for planning purposes.

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash budget

45. Alderson Metals is compiling a cash balance projection by quarter for next year. Which one of the following adjustments to this projection will decrease the cumulative surplus?

A. Reducing payroll costs from its current projection amount

B. Decreasing the accounts receivable period by changing the firm's credit policy effective the first of next year

C. Receiving more favorable credit terms from the firm's suppliers

D. Increasing the dividend per share on the firm's outstanding common stock

E. Refinancing the firm's long-term debt at a lower interest rate

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash budget

46. To ensure an unsecured line of credit is used solely for short-term purposes, the loan arrangement frequently includes which one of the following?

A. Cleanup period

B. Grace period

C. Revolver

D. Factoring arrangement

E. Lien on the borrower's inventory

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

47. A committed line of credit:

A. guarantees that a set amount of funds will be available to a firm for a stated period of time regardless of events that might occur during that time period.

B. is a guarantee that a bank will purchase a firm's accounts receivable at full value.

C. provides greater assurance than a noncommitted credit line that funds will be available when needed by a firm.

D. guarantees that any funds borrowed during a stated period of time will be charged the lowest rate of interest the lending bank offers to any of its customers.

E. is a loan arrangement for a stated period of time which is free of all costs and fees other than the actual interest paid on the funds borrowed.

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

48. Which type of financing is generally used by new car dealers to finance their inventories?

A. Blanket inventory lien arrangement

B. Trust receipt loans

C. Committed line of credit

D. Trade credit financing

E. Field warehousing financing

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

49. The Corner Store is a small-sized, general store that stocks a minimal level of basic supplies and offers gasoline to a rural community. Which type of credit is probably best-suited for financing this store's inventory?

A. Trust receipt financing

B. Receivables factoring

C. Field warehousing

D. Blanket inventory lien

E. Receivables assignment

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

50. Which characteristic applies to commercial paper?

A. Maturities of 270 days or more

B. Offerings registered with the SEC

C. Interest rates higher than comparable bank loans

D. Issued directly by large-sized firms

E. Issued primarily by low-rated firms

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

51. Dexter Companies has a conventional factoring arrangement with its local bank. Which of these would be a common characteristic of that type of financing arrangement?

A. Dexter Companies will receive the full amount of the accounts receivable included in this arrangement on an agreed upon date sometime in the future.

B. The responsibility for collecting the covered receivables lies with Dexter Companies.

C. Any bad debt that results from an account receivable included in this arrangement will be a cost to the bank.

D. Dexter Companies will pay a monthly fee to the bank and in turn will receive payment for the full amount of its accounts receivable.

E. The arrangement keeps the receivables as an asset of Dexter Companies but places a lien on those accounts in favor of the lending bank.

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Short-term finance and planning

52. Dover Wholesalers sells products exclusively to Benn Retailer. Benn Retailer buys exclusively from Dover Wholesalers. Dover Wholesalers has a receivables period of 44 days, an inventory period of 8 days, and a payables period of 63 days. Benn Retailer has an inventory period of 15 days, a receivables period of 22 days, and a payables period of 44 days. Which statement is correct given this information?

A. Dover Wholesalers has a shorter operating cycle than does Benn Retailer.

B. Benn Retailer has an operating cycle of 81 days.

C. It takes Benn Retailer less time to collect payment on a sale than it does for the firm to sell its inventory.

D. Dover Wholesalers is financing 100 percent of Benn Retailer's operating cycle.

E. Dover Wholesalers has a cash cycle of 11 days.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

53. Birdview Construction has the following current account values. These accounts represent a net _____ of cash for the period in the amount of ____.

A. source; $3,100

B. source; $100

C. use; $100

D. source; $3,200

E. use; $3,200

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Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.1 Tracing Cash and Net Working Capital

Topic: Sources and uses of cash

54. A company has the following account balances. Which statement is correct concerning these balances?

A. Accounts receivable is a $1,400 source of cash.

B. Common stock is a $3,500 use of cash.

C. Net working capital, excluding cash, is a $6,100 use of cash.

D. Long-term debt is a $1,700 source of cash.

E. Total debt is a $2,400 source of cash.

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.1 Tracing Cash and Net Working Capital

Topic: Sources and uses of cash

55. Pablano’s has sales for the year of $163,500 and cost of goods sold of $97,850. The firm carries an average inventory of $15,730 and has an average accounts payable balance of $15,900. What is the inventory period?

A. 89.02 days

B. 58.68 days

C. 31.29 days

D. 60.20 days

E. 81.36 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

56. Wrecker Automotive has sales for the year of $356,450, cost of goods sold equal to 59 percent of sales, and an average inventory of $42,500. The profit margin is 6 percent and the tax rate is 21 percent. How many days on average does it take the firm to sell an inventory item?

A. 75.68 days

B. 81.46 days

C. 73.76 days

D. 78.74 days

E. 82.03 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

57. Gaming Station has to restock a popular electronic game every five days as it completely sells out in that period of time. What is the inventory turnover rate for this game?

A. 115 times

B. 105 times

C. 99 times

D. 118 times

E. 73 times

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

58. The Appliance Giant has annual credit sales of $2,846,334 and cost of goods sold of $2,112,882. The average accounts receivable balance is $47,280. How many days on average does it take the firm to collect its accounts receivable?

A. 5.64 days

B. 7.97 days

C. 8.94 days

D. 8.17 days

E. 6.06 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

59. The HOT Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions. The company has annual sales of $489,500. Cost of goods sold average 59 percent of sales and the profit margin is 6.1 percent. The average accounts receivable balance is $41,700. On average, how long does it take this food truck to collect payment for its services?

A. 27.84 days

B. 28.17 days

C. 31.09 days

D. 38.33 days

E. 41.90 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

60. The accounts receivable turnover rate for Tough Pants Clothing has gone from an average of 12.6 times to 14.1 times per year. How has this change affected the firm's accounts receivable period?

A. Decrease of 1.98 days

B. Decrease of 3.08 days

C. Decrease of 3.28 days

D. Increase of 3.28 days

E. Increase of 3.08 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

61. The Happy Flapjack Diner increased its operating cycle from 72 days to 74 days while the cash cycle decreased by 3 days. How have these changes affected the accounts payable period?

A. Decreased by 5 days

B. Decreased by 4 days

C. Decreased by 2 days

D. Increased by 2 days

E. Increased by 5 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

62. The Cash and Grab Market has annual sales of $913,200 and cost of goods sold of $681,600. The profit margin is 3.8 percent and the accounts payable period is 24 days. What is the average accounts payable balance?

A. $64,818

B. $55,488

C. $44,818

D. $60,211

E. $60,046

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

63. AW Jones has annual sales of $2.438 million. The cost of goods sold is equal to 81 percent of sales. The average accounts receivable balance is $197,800 and the average accounts payable balance is $205,735. How many days on average does it take the firm to pay its suppliers?

A. 30.83days

B. 45.22 days

C. 41.31 days

D. 38.03 days

E. 29.61days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

64. Furniture Outlet has an accounts receivable period of 63 days and an accounts payable period of 87 days. The company turns over its inventory 4.3 times per year and marks up the inventory an average of 38 percent over its wholesale cost. What is the length of the firm's operating cycle?

A. 125.36 days

B. 147.88 days

C. 89.22 days

D. 60.88 days

E. 125.68 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

65. Kar’s currently has a 208-day operating cycle. The company is concentrating on increasing its inventory turnover rate from 7.9 to 8.2 times. What will the firm's new operating cycle be if it can effectively make this change?

A. 206.31 days

B. 209.69 days

C. 207.14 days

D. 208.86 days

E. 207.64 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

66. Geoff’s Entertainment has a receivables turnover rate of 17.8 a payables turnover rate of 12.5 and an inventory turnover rate of 24.9. What is the length of the firm's operating cycle?

A. 34.89 days

B. 39.80 days

C. 35.61 days

D. 43.86 days

E. 49.71 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

67. The Shoe Tree currently has an operating cycle of 199 days and a cash cycle of 54 days. The company is implementing some changes that will reduce the inventory period by 11 days, decrease the receivables period by 6 days, and decrease the accounts payable period by 4 days. How many days will be in the new cash cycle once all of these changes become effective?

A. 35 days

B. 45 days

C. 41 days

D. 33 days

E. 38 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

68. Metropolitan Realty currently has 54 days in its cash cycle and 98 days in its operating cycle. The firm purchases its entire inventory from one supplier. This supplier has offered a 2.5 percent discount on all purchases if Metropolitan will pay in 7 days. If the market opts to take advantage of the discount offered, its new operating cycle will be _____ days and its new cash cycle will be _____ days.

A. 98; 105

B. 88; 81

C. 98; 81

D. 98; 91

E. 95;81

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

69. Bee’s Honey currently has an inventory turnover of 28.6, a payables turnover of 10.8, and a receivables turnover of 14.4. How many days are in the cash cycle?

A. 4.31 days

B. 2.70 days

C. 16.51 days

D. 24.39 days

E. 32.20 days

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Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

70. Robert’s Cards and Gifts has estimated quarterly sales for next year, starting with Quarter 1, of $43,930, $47,495, $37,835, and $91,655.The accounts receivable period is 13 days. What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

A. $6,068.39

B. $13,239.06

C. $6,860.39

D. $6,345.44

E. $5,465.06

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

71. The Green Pickle has estimated quarterly sales for next year, starting with Quarter I, of $18,600, $21,300, $24,500, and $19,600.The accounts receivable period is 18 days. What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.

A. $4,333

B. $4,900

C. $4,500

D. $4,667

E. $4,600

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

72. Coolman Outdoor has estimated monthly sales for February through May of $12,480, $13,260, $13,910, and $14,820, respectively. If the accounts receivable period is 45 days, how much will be collected in May? Assume each month has 30 days.

A. $12,800

B. $12,870

C. $14,365

D. $13,585

E. $12,850

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

73. A company has expected sales for January through April of $9,800, $9,500, $13,800, and $9,500, respectively. Assume each month has 30 days and the accounts receivable period is 38 days. How much does the company expect to collect in the month of May?

A. $10,646.67

B. $15,880.00

C. $9,720.00

D. $12,213.33

E. $15,406.00

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

74. The Brown Squirrel has estimated sales for January through May of $14,700, $16,900, $23,500, $36,700, and $42,300, respectively. Assume there are 30 days in each month and the accounts receivable period is 45 days. How much should the firm expect to collect in May?

A. $36,700

B. $20,200

C. $30,100

D. $28,450

E. $39,500

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

75. The Lumber Yard has projected sales for April through July of $152,400, $161,800, $189,700, and $196,400, respectively. The firm collects 52 percent of its sales in the month of sale, 46 percent in the month following the month of sale, and the remainder in the second month following the month of sale. What is the amount of the July collections?

A. $189,819

B. $181,508

C. $122,852

D. $175,500

E. $192,626

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

76. The Warehouse has projected sales for June through September of $56,700, $68,900, $70,200, and $54,300.The company collects 46 percent of its sales in the month of sale, 51 percent in the month following the month of sale, and 2 percent in the second month following the month of sale. The remaining sales are never collected. What is the amount of the August collections?

A. $65,863

B. $68,565

C. $62,158

D. $67,288

E. $65,516

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

77. AC Sales has estimated quarterly sales for next year, starting with Quarter 1, of $16,200, $17,300, $18,700, and $20,400. If purchases are equal to 72 percent of the following quarter's sales, what is the estimated amount of purchases for Quarter 2?

A. $12,960

B. $14,688

C. $12,456

D. $13,464

E. $13,720

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

78. Brilliant J Company has estimated quarterly sales for next year, starting with Quarter 1, of $16,974, $18,696, $21,279, and $20,295. Purchases are equal to 60 percent of the following quarter's sales. What is the cash outlay for accounts payable for Quarter 3 if the firm has a 30-day accounts payable period? Assume each month has 30 days.

A. $12,250.80

B. $12,373.80

C. $12,486.67

D. $12,966.67

E. $12,503.33

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

79. Show Place Decor has estimated quarterly sales for next year, starting with Quarter 1, of $38,600, $53,400, $48,900, and $69,800. Purchases are equal to 62 percent of the following quarter's sales and the accounts payable period is 30 days. Assume each month has 30 days. What is the estimated accounts payable balance at the end of Quarter 2?

A. $10,106

B. $9,520

C. $11,624

D. $14,425

E. $14,200

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

80. NuParts, Inc., has estimated quarterly sales for next year, starting with Quarter 1, of $15,900, $16,800, $17,500, and $16,400. Purchases are equal to 67 percent of the following quarter's sales and the accounts payable period is 60 days. Assume 30 days in each month. How much will the firm owe its suppliers at the end of Quarter 3?

A. $7,066.67

B. $7,816.67

C. $7,506.67

D. $7,325.33

E. $6,933.33

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

81. Candy Supplies purchases are equal to 68 percent of the following quarter's sales. Assume each month has 30 days, the accounts receivable period is 30 days, and the accounts payable period is 45 days. The estimated quarterly sales for next year, starting with Quarter 1, are $38,900, $40,600, $58,900, and $69,200, respectively. How much will the firm pay its suppliers in the third quarter?

A. $41,379

B. $46,811

C. $44,514

D. $40,947

E. $43,554

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

82. The Grain and Feed Store purchases are equal to 68 percent of the following quarter's sales. The accounts receivable period is 15 days and the accounts payable period is 30 days. Assume there are 30 days in each month. The store has estimated quarterly sales for the next year, starting with Quarter 1, of $16,750, $18,220, $17,560, and $19,710, respectively. How much will the store owe its suppliers at the end of Quarter 3?

A. $3,992.20

B. $3,807.40

C. $4,467.60

D. $4,508.10

E. $4,300.27

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

83. Theo's has estimated quarterly sales, starting with Quarter 1, of $9,800, $10,700, $12,400, and $14,600.Purchases are equal to 66 percent of the following quarter's sales and are payable in 90 days. Assume there are 30 days in each month. How much will Theo’s pay its suppliers in the third quarter?

A. $9,636

B. $7,656

C. $8,184

D. $8,420

E. $9,860

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

84. Red Barn has estimated quarterly sales, starting with Quarter 1, of $42,600, $45,300, $44,800, and $42,700. Purchases are equal to 71 percent of the following quarter’s sales. The accounts receivable period is 30 days and the accounts payable period is 45 days. Assume there are 30 days in each month. By how much will the firm’s collections exceed its payments for Quarter 3?

A. $14,088.86

B. $11,884.33

C. $13,904.17

D. $12,925.86

E. $12,211.17

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash budget

85. Diva Donuts purchases are equal to 79 percent of the following month's sales. The accounts payable period for purchases is 30 days while all other expenditures are paid in the month in which they are incurred. Assume each month has 30 days. The company has compiled the following information.







What is the total amount of the firm's disbursements for the month of June?

A. $10,500

B. $ 8,795

C. $10,795

D. $13,500

E. $11,190

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Difficulty: 1 Easy

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

86. D’s Hardware’s monthly purchases are equal to 72 percent of the following month's sales. The accounts payable period for purchases is 45 days. All other expenses are paid when incurred. Assume each month has 30 days. The company has compiled the following information:







What is the projected amount of disbursements for the month of September?

A. $16,910

B. $19,708

C. $19,490

D. $17,356

E. $20,311

AACSB: Analytical Thinking

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

87. Industrial Supply has projected Q1 sales at $38,200, Q2 sales at $44,900, and Q3 sales at $42,300. Purchasesequal69 percent of the next quarter's sales. The accounts receivable period is 30 days and the accounts payable period is 60 days. At the beginning of Q1, the firm has an accounts receivable balance of $11,800 and an accounts payable balance of $23,300. The firm pays $1,600 a month in cash expenses and $800 a month in interest and taxes. At the beginning of the Q1, the cash balance is $500 and the short-term loan balance is zero. During Q1, capital spending will be $2,100. The firm maintains a minimum cash balance of $200. Assume each month has 30 days. What is the cumulative cash surplus (deficit) at the end of Q1, prior to any short-term borrowing?

A. -$560

B. -$983

C. -$91

D. $109

E. $360

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Short-term financial plan

88. Juno's has projected its Q1 sales at $46,000 and its Q2 sales at $48,000. Purchases equal 71 percent of the next quarter's sales. The accounts receivable period is 30 days and the accounts payable period is 45 days. At the beginning of Q1, the accounts receivable balance is $12,200 and the accounts payable balance is $14,800. The firm pays $1,500 a month in cash expenses and $400 a month in taxes. At the beginning Q1, the cash balance is $280 and the short-term loan balance is zero. The firm maintains a minimum cash balance of $250. Assume each month has 30 days. What is the cumulative cash surplus (deficit) at the end of the Q1, prior to any short-term borrowing?

A. $9,210

B. $9,684

C. $8,633

D. $8,880

E. $9,157

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Short-term financial plan

89. H&H Companies has an average collection period of 43 days and factors all of its receivables immediately at a discount of 1.1 percent. Assume all accounts are collected in full. What is the firm's effective cost of borrowing?

A. 9.68 percent

B. 9.73 percent

C. 9.97 percent

D. 9.84 percent

E. 10.07 percent

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

90. A firm has an average collection period of 37 days and factors all of its receivables immediately at a discount of .98 percent. Assume all accounts are collected in full. What is the firm's effective cost of borrowing?

A. 9.98 percent

B. 10.13 percent

C. 10.24 percent

D. 10.38 percent

E. 10.20 percent

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

91. QT Stores has an average collection period of 28 days and factors all of its receivables immediately at a discount of 1.12 percent. What is the firm's effective cost of borrowing assuming all accounts are collected in full?

A. 16.28 percent

B. 15.81 percent

C. 15.57 percent

D. 16.33 percent

E. 15.88 percent

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

92. Palm Beach Yachts has a line of credit with a local bank that permits it to borrow up to $1.8 million at any time. The interest rate is .78 percent per month. The bank charges compound interest and also requires that 5 percent of the amount borrowed be deposited into a non-interest-bearing account. What is the effective annual interest rate on this loan?

A. 10.68 percent

B. 10.43 percent

C. 9.74 percent

D. 10.29 percent

E. 9.91 percent

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

93. Kurt's Music has a line of credit with a local bank that permits it to borrow up to $650,000 at any time. The interest rate is .64 percent per month. The bank charges compound interest and also requires that 2 percent of the amount borrowed be deposited into a non-interest-bearing account. How much interest will the firm pay if it needs $200,000 of cash for three months to pay its operating expenses?

A. $3,943.50

B. $3,949.21

C. $4,017.02

D. $3,864.63

E. $3,902.11

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Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

94. Holiday Tree Farm has a cash balance of $34 and a short-term loan balance of $180 at the beginning of Q1. The net cash inflow for the first quarter is $36 and for the second quarter there is a net cash outflow of $48. All cash shortfalls are funded with short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter. The minimum cash balance is $20. What is the short-term loan balance at the end of Q2?

A. $184.3

B. $179.2

C. $138.6

D. $128.4

E. $193.1

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Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.6 A Short-Term Financial Plan

Topic: Short-term financial plan

95. Steep Mountain Oil has a cash balance of $15and a short-term loan balance of $53 at the beginning of Q1. The net cash outflow for Q1of $39and for Q2 there is a net cash inflow of $23. All cash shortfalls are funded with short-term debt. The firm pays 1.1 percent of its prior quarter's ending loan balance as interest each quarter. The minimum cash balance is $15. What is the short-term loan balance at the end of the Q2?

A. $70.6

B. $81.3

C. $65.9

D. $67.7

E. $76.8

AACSB: Analytical Thinking

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.6 A Short-Term Financial Plan

Topic: Short-term financial plan

96. Northern Beef has estimated quarterly sales for the coming year, starting with Quarter 1, of $680, $725, $740, and $720, respectively. The accounts receivable balance at the beginning of Q1 is $330 and the collection period is 60 days. How much cash will the firm collect in Q1, Q2, and Q3, respectively?

A. $695.00; $498.03; $730.00

B. $695.00; $466.67; $626.67

C. $556.67; $695.00; $730.00

D. $556.67; $367.33; $626.67

E. $647.33; $626.67; $730.00

AACSB: Analytical Thinking

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Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

97. Consider the following financial statement information:







Assume all sales and purchases are on credit. How long is the cash cycle? (Use average balance sheet account balances.)

A. 80.21 days

B. 116.09 days

C. 101.03 days

D. 113.58 days

E. 73.57 days

AACSB: Analytical Thinking

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

98. P&M Industries has projected quarterly sales for the coming year, starting with Quarter 1, of $6,200, $6,500, $6,300, and $6,700, respectively. Sales in the year following this one are projected to be 4 percent greater in each quarter. Assume the company places orders during each quarter equal to 74 percent of projected sales for the next quarter. How much will the firm pay its suppliers in Q3 if the firm has a 30-day payables period?

A. $4,859.33

B. $4,826.67

C. $4,603.18

D. $4,890.22

E. $4,711.46

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

99. Big Red’s purchases from suppliers in a quarter are equal to 71 percent of the next quarter's forecast sales. The payables period is 60 days; other expenses are paid when incurred Wages, taxes, and other expenses are 24 percent of sales, and interest and dividends are $40 per quarter. No capital expenditures are planned. Projected quarterly sales, starting with Q1, are $1,520, $1,580, $1,630, and $1,590, respectively. Sales for the first quarter of the following year are projected at $1,540. What is the amount of the total disbursements for Q2?

A. $1,564

B. $1,520

C. $1,601

D. $1,538

E. $1,553

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash disbursements

100. Kacie’s has an average collection period of 23 days and factors all receivables immediately at a discount of .95percent. What is the effective cost of borrowing? Assume that default is extremely unlikely.

A. 16.32 percent

B. 16.28 percent

C. 16.36 percent

D. 16.52 percent

E. 16.49 percent

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

101. Kelso’s has projected sales for January through April of $136,000, $148,000, $144,000, and $146,000, respectively. The firm collects 59 percent of sales in the month of sale, 36 percent in the month following the sale, and the remainder in the second month following the sale. Assume all sales are collected. The accounts receivable balance at the end of the beginning of January was $56,050 ($47,643 of which was uncollected December sales). How much did the firm collect in the month of February?

A. $138,539

B. $141,220

C. $140,208

D. $138,615

E. $142,090

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections

102. Here are some important figures from the budget of Global Enterprises for the second quarter:







The company predicts that 2 percent of its credit sales will never be collected, 45 percent of its sales will be collected in the month of sale, and the remaining 53 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase. March credit sales were $487,900 and credit purchases were $349,500. What is the ending cash balance for April if the beginning cash balance was $39,500?

A. $67,410

B. $67,457

C. $68,800

D. $64,440

E. $69,230

AACSB: Analytical Thinking

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash budget

103. You've worked out a line of credit arrangement that allows you to borrow up to $2.1 million at any time. The interest rate is .72 percent per month. In addition, 3 percent of the amount you borrow must be deposited in a non-interest-bearing account. Assume your lender uses compound interest and that you need $1.3 million today which you will repay in five months. How much interest will you pay?

A. $79,069

B. $48,947

C. $42,103

D. $47,479

E. $48,886

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.5 Short-Term Borrowing

Topic: Loan interest and rates

104. Fido’s Markets has a cash cycle of 24 days, an operating cycle of 39 days, and an inventory period of 2.3 days. The company reported cost of goods sold in the amount of $465,250, and credit sales were $600,000. What is the company's average balance in accounts payable?

A. $19,120

B. $18,414

C. $20,203

D. $22,344

E. $23,515

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

NEW

105. Pepito’s has sales for the year of $166,569 and cost of goods sold of $94,600. The firm carries an average inventory of $21,100 and has an average accounts payable balance of $19,600. What is the inventory period?

A. 89.02 days

B. 81.41 days

C. 31.29 days

D. 60.20 days

E. 81.06 days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

106. French Vertical Systems has sales for the year of $425,860, cost of goods sold equal to 64 percent of sales, and an average inventory of $53,600. The profit margin is 6 percent and the tax rate is 21 percent. How many days on average does it take the firm to sell an inventory item?

A. 75.68 days

B. 81.46 days

C. 71.78 days

D. 78.74 days

E. 82.03 days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

107. Second Chance Gaming has to restock a popular electronic game every 2.5 days as it completely sells out in that period of time. What is the inventory turnover rate for this game?

A. 115 times

B. 105 times

C. 99 times

D. 118 times

E. 146 times

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

108. Kitchen and Laundry and More has annual credit sales of $2,473,701 and cost of goods sold of $1,838,207. The average accounts receivable balance is $56,736. How many days on average does it take the firm to collect its accounts receivable?

A. 8.94days

B. 9.27 days

C. 11.24 days

D. 10.47 days

E. 8.37 days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

109. The accounts receivable turnover rate for Tiger Uniform has gone from an average of 14.1 times to 15.6 times per year. How has this change affected the firm's accounts receivable period?

A. Decrease of 1.98 days

B. Decrease of 2.49 days

C. Decrease of 3.28 days

D. Increase of 2.49 days

E. Increase of 3.08 days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

110. Organic Foods Mart increased its operating cycle from 63 days to 68 days while the cash cycle decreased by 2 days. How have these changes affected the accounts payable period?

A. Decreased by 7 days

B. Decreased by 4 days

C. Decreased by 3 days

D. Increased by 3 days

E. Increased by 7 days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

111. Corner Store Industries has annual sales of $662,070 and cost of goods sold of $494,160. The profit margin is 4.4 percent and the accounts payable period is 29 days. What is the average accounts payable balance?

A. $52,603

B. $55,488

C. $39,262

D. $40,616

E. $38,046

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

112. DA West has annual sales of $2.8 million. The cost of goods sold is equal to 71 percent of sales. The average accounts receivable balance is $227,470 and the average accounts payable balance is $236,595. How many days on average does it take the firm to pay its suppliers?

A. 30.84 days

B. 45.22 days

C. 30.94 days

D. 43.44 days

E. 29.61days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

113. Gerald Promotions has a receivables turnover rate of 21.4 a payables turnover rate of 15 and an inventory turnover rate of 27.4. What is the length of the firm's operating cycle?

A. 42.52 days

B. 39.80 days

C. 30.38 days

D. 43.86 days

E. 49.71 days

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-01 Discuss operating and cash cycles and why they are important.

Section: 16.2 The Operating Cycle and The Cash Cycle

Topic: Operating and cash cycles

114. Midwest Candles has estimated quarterly sales for next year, starting with Quarter 1, of $50.020, $54,619, $105,403, and $46,510.The accounts receivable period is 15 days. What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

A. $8,419.92

B. $17,567.21

C. $9,103.21

D. $7,251.71

E. $6,465.06

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 16-03 Identify the essentials of short-term financial planning.

Section: 16.4 The Cash Budget

Topic: Cash collections