Deck 7: Working Capital Management

Question 1

Sam's Discount Appliance Company just received a shipment of 30 washing machines.The invoice list price for each washing machine is $365.The manufacturer's catalogue indicates that Sam can take the following discounts: 30/15/10 with 30 percent being the normal mark up,15 percent for free delivery and hook up,and 10 percent for local advertising and point- of- sale displays.If Sam provides free delivery and hook up,advertises these washers in the Sunday paper and has a prominent display in his store,he will pay the vendor for each washing machine.

A)$200.75
B)$195.46
C)$255.50
D)$229.95

Answer 1

$195.46

Question 2

The practice of selling a firm's accounts receivable to another firm at a discount is known as

A)factoring.
B)crediting.
C)exporting.
D)excising.

Answer 2

factoring.

Question 3

Credit departments are normally found in

A)most retail firms.
B)most manufacturing firms.
C)most wholesale firms.
D)A and B above.
E)B and C above.

Answer 3

B and C above.

Question 4

Sarah just received an invoice for $12,000 with terms of 2/10,n/30.The invoice date was June 1.Her contract with the vendor indicates a charge of 1.5 percent per month on late payments.If Sarah pays this bill on June 5 she will send the vendor a check for

A)$12,000.
B)$12,180.
C)$11,760.
D)Cannot answer without more information.

Question 5

Sarah just received an invoice for $12,000 with terms of 2/10,n/30.The invoice date was June 1.Her contract with the vendor indicates a charge of 1.5 percent per month on late payments.If Sarah pays this bill on June 30 she will pay effective annual interest on this account of approximately

A)30%.
B)18%.
C)24%.
D)36.7%.

Question 6

If a fast food restaurant has a box of toilet tissue with 100 rolls stored on the same shelf as its paper cups,the box of toilet tissue would be classified as inventory.

A)maintenance,repair and operating
B)raw materials
C)work in progress
D)finished goods.

Question 7

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.Sarah's vendor said that if she purchased 1,000 boxes at a time,she would receive a 10 percent discount.The total cost formula is TC = DP + ^QIP + ^DS .
2 Q
What is Sarah's annual ordering cost if she takes advantage of the discount?

A)$433
B)$250
C)$578
D)$675

Question 8

If a fast food restaurant has hamburger patties on the grill,these would be classified as inventory.

A)work in progress
B)maintenance,repair and operating
C)raw materials
D)finished goods

Question 9

The primary concern in current liabilities management is to pay obligations

A)when they are due.
B)before they are due.
C)after they are due.
D)All of the above are concerns.

Question 10

If a firm has $400,000 in credit sales and $80,000 in average accounts receivable,accounts receivable turnover is

A)32.
B)5)
C)0)20.
D)48.

Question 11

A bank loan that only incurs finance charges and payment obligations when used for a business is a

A)promissory note.
B)note payable.
C)line of credit.
D)all of the above.

Question 12

If a firm has $400,000 in credit sales and $80,000 in average accounts receivable,what will happen to average days collections if accounts receivable increases?

A)Average days collections will stay the same.
B)Average days collections will increase.
C)Average days collections will decrease.
D)Cannot tell with the information provided.

Question 13

If we borrowed $10,000 on a line of credit September 1,and the bank charges 12 percent per annum,compounded daily,the daily interest due on the line of credit is approximately

A)$0.03
B)$3.28.
C)$4.00.
D)$10.00.

Question 14

Randy Jones decided to run an ABC analysis of his 500 stock keeping inventory items.He found that his average inventory was $200,000 and that there were 50 items out of the 500 that cost him $23,000.These 50 items would be classified as items.

A)A
B)B
C)C
D)D

Question 15

All of the following are part of working capital except

A)accounts receivable.
B)mortgage.
C)inventory.
D)cash.
E)none of the above.

Question 16

When using an ABC inventory analysis,the inventory items that make up approximately percent but account for approximately _ percent of total costs are classified as B items.

A)75- 80;75- 80
B)75- 80;10- 15
C)10- 15;10- 15
D)10- 15;75

Question 17

Which of the following is a method used to speed up cash receipts?

A)lock box
B)electronic funds transfer
C)writing a check
D)A and B above
E)B and C above

Question 18

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.Sarah's vendor said that if she purchased 1,000 boxes at a time,she would receive a 10 percent discount.What quantity should Sarah order if the total cost formula is TC = DP + ^QIP + ^DS ?
2 Q

A)578
B)5,000
C)500
D)1,000

Question 19

Which of the following is true about disbursement float?

A)Funds are collected and credited to an account.
B)Funds are deposited to a checking account immediately when a check is written.
C)Funds are removed from the checking account immediately when the check clears the checking account.
D)Funds are collected and debited to an account.
E)none of the above

Question 20

Trade discounts are provided to our firm

A)because we trade with the vendor.
B)because we provided specific services for our vendor as specified by the vendor.
C)because we are smart enough to calculate the discount and take advantage of it.
D)because we provided specific services for our vendor as specified by us.

Question 21

Randy Jones decided to run an ABC analysis of his 500 stock keeping inventory items.He found that his average inventory was $200,000 and that there were 50 items out of the 500 that cost him $153,000.These 50 items would be classified as items.

A)A
B)B
C)C
D)D

Question 22

The best way to pay the minimum price to a vendor is to take advantage of

A)cash discounts,but not trade discounts.
B)trade discounts,but not cash discounts.
C)both trade discounts and cash discounts.
D)neither discount,but to pay the invoice price on the due date.

Question 23

Proper management of accounts payable will guarantee that a firm

A)pays the maximum due to each vendor.
B)pays each bill early to avoid penalties and interest.
C)pays some bills early and some late to obtain an average payment of on time.
D)pays the minimum due to each vendor.

Question 24

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.Sarah's vendor said that if she purchased 1,000 boxes at a time,she would receive a 10 percent discount.What is her total cost with the discount if the formula for total cost is TC = DP + ^QIP + ^DS ?
2 Q

A)$30,866
B)$27,925
C)$28,000
D)$27,866

Question 25

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.Sarah's vendor said that if she purchased 1,000 boxes at a time,she would receive a 10 percent discount.The total cost formula is TC = DP + ^QIP + ^DS.
2 Q
What is Sarah's annual carrying cost if she does not take advantage of the discount?

A)$250
B)$675
C)$433
D)$578

Question 26

If a firm has $400,000 in credit sales and $50,000 in average account receivable,average days collection is approximately

A)29.2.
B)5)563.
C)292.
D)45.63.

Question 27

Which of the following is true about disbursement float?

A)Funds are collected and credited to an account.
B)Funds are removed from the checking account immediately when the check is written.
C)Funds are deposited to a checking account immediately when a check is written.
D)Funds are collected and debited to an account.
E)none of the above

Question 28

Collection float is the amount of time that elapses between a check in an account and the check's ,at which point the funds are actually placed in the account.

A)depositing;clearing
B)issuing;clearing
C)writing;being deposited
D)receiving;being deposited
E)A and B above

Question 29

Which of the following would not be used in an aging schedule of accounts receivable?

A)customer
B)percentage of cash sales
C)outstanding balance
D)percentage outstanding
E)days outstanding

Question 30

When using an ABC inventory analysis,the inventory items that make up approximately percent but account for approximately _ percent of total costs are classified as A items.

A)10- 15;10- 15
B)75- 80;75- 80
C)10- 15;75
D)75- 80;10- 15

Question 31

When evaluating credit,a customer who has paid all bills on time and has favorable credit references from other creditors is said to have

A)collateral.
B)capacity.
C)creditworthiness.
D)character.

Question 32

Sam's Discount Appliance Company just received a shipment of 30 washing machines.The invoice list price for each washing machine is $365.The manufacturer's catalogue indicates that Sam can take the following discounts: 30/15/10 with 30 percent being the normal mark up,15 percent for free delivery and hook up,and 10 percent for local advertising and point- of- sale displays.If Sam advertises these washers in the Sunday paper and has a prominent display in his store,but charges $50 for delivery and set up,he will pay the vendor for each washing machine.

A)$229.95
B)$219.00
C)$217.18
D)$255.50

Question 33

If a fast food restaurant has hamburger patties on a serving tray at the cash register,these would be classified as inventory.

A)raw materials
B)work in progress
C)finished goods
D)maintenance,repair and operating

Question 34

If a fast food restaurant has a box of toilet tissue with 100 rolls stored with its paper cups,the box of toilet tissue would be classified as inventory and the paper cups would be classified as inventory.

A)finished goods;work in progress
B)maintenance;repair and operating;raw materials
C)finished goods;raw material
D)maintenance;repair and operating;work in progress

Question 35

Which of the following are similar?

A)credit card
B)line of credit
C)short- term loan
D)A and B above
E)B and C above.

Question 36

Sam's Discount Appliance Company just received a shipment of 30 washing machines.The invoice list price for each washing machine is $365.The manufacturer's catalogue indicates that Sam can take the following discounts: 30/15/10 with 30 percent being the normal mark up,15 percent for free delivery and hook up,and 10 percent for local advertising and point- of- sale displays.If Sam performs all services required by the vendor,his single equivalent discount will be

A)45.00%.
B)55.00%.
C)53.55%.
D)46.45%.

Question 37

Which of the following would not be counted as part of working capital?

A)cash
B)accounts payable
C)equipment
D)accounts receivable
E)inventory

Question 38

John assembles computers for the Computer Systems to Go Company.His company purchases Pentium MMX chips from Intel.When John is installing the chip it is inventory,but for Intel it is inventory.

A)work in process;finished goods
B)raw material;work in process
C)raw material;finished goods
D)finished goods;raw material

Question 39

Sam's Discount Appliance Company just received a shipment of 30 washing machines.The invoice list price for each washing machine is $365.The manufacturer's catalogue indicates that Sam can take the following discounts: 30/15/10 with 30 percent being the normal mark up,15 percent for free delivery and hook up,and 10 percent for local advertising and point- of- sale displays.If Sam performs all services required by the vendor,his net cost rate factor will be

A)55.00%.
B)53.55%.
C)45.00%.
D)46.45%.

Question 40

The obligations of a business that are accumulated during the normal course of a business are

A)short- term debt.
B)actual liabilities.
C)long- term debt.
D)accrued liabilities.

Question 41

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.Sarah's vendor said that if she purchased 1,000 boxes at a time,she would receive a 10 percent discount.What is her total cost if she orders her Economic Order Quantity without the discount if the formula for total cost is TC = DP + ^QIP + ^DS ?
2 Q

A)$30,866
B)$28,000
C)$27,925
D)$27,866

Question 42

Factoring is the process of selling accounts receivable to another firm at

A)the prime lending rate.
B)a price equal to the sales price.
C)a discount off of the original sales price.
D)a premium above the original sales price.

Question 43

The total cost formula is TC = DP + ^QIP + ^DS .Which of the following is true at the Economic Order Quantity?

A)EOQ = ^DS 2 Q
B)QIP ₌ DS
C)EOQ = ^QIP
D)DP = ^QIP
Q 2 Q 2 2

Question 44

If a firm has $400,000 in credit sales and $100,000 in average accounts receivable,accounts receivable turnover is

A)25 percent.
B)4)
C)14.
D)5)

Question 45

If a fast food restaurant has hamburger patties in the freezer,these would be classified as inventory.

A)maintenance,repair and operating
B)finished goods
C)raw materials
D)work in progress

Question 46

Sarah just received an invoice for $12,000 with terms of 2/10,n/30.The invoice date was June 1.Her contract with the vendor indicates a charge of 1.5 percent per month on late payments.If Sarah pays this bill on July 15 she will send the vendor a check for

A)$12,000.
B)$11,760.
C)$12,180.
D)Cannot answer without more information.

Question 47

The primary difference between a line of credit and a short- term loan is

A)we borrow the entire amount with the short- term loan,but borrow only what we need with the line of credit.
B)we borrow only what we need for the current month with both the short- term loan and the line of credit.
C)we borrow the entire amount with both the short- term loan and the line of credit.
D)we make payments on the line of credit every month to insure that we will have good credit.

Question 48

Sam's Discount Appliance Company just received a shipment of 30 washing machines.The invoice list price for each washing machine is $365.The manufacturer's catalogue indicates that Sam can take the following discounts: 30/15/10 with 30 percent being the normal mark up,15 percent for free delivery and hook up,and 10 percent for local advertising and point- of- sale displays.If Sam does not advertise this brand of washer and charges $50 for delivery and set up,he will pay the vendor _ for each washing machine.

A)$255.50
B)$217.18
C)$219.00
D)$229.95

Question 49

Which of the following is true when calculating Economic Order Quantity?

A)Ordering cost is less than carrying cost.
B)Ordering cost is greater than carrying cost.
C)Ordering cost is equal to carrying cost.
D)Total cost is equal to price times quantity.

Question 50

Sarah just received an invoice for $12,000 with terms of 2/10,n/30.The invoice date was June 1.Her contract with the vendor indicates a charge of 1.5 percent per month on late payments.If Sarah pays this bill on June 15 she will send the vendor a check for

A)$12,000.
B)$11,760.
C)$12,180.
D)Cannot answer without more information.

Question 51

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.What is her approximate total carrying cost?

A)$216.75
B)$306.75
C)$432.75
D)2,167.50
E)$4,327.50

Question 52

Trade discounts are offered and cash discounts are offered .

A)for specific services performed for the vendor;to speed up collection of credit sales
B)to speed up collection of credit sales;for specific services performed for the vendor
C)speed up collection of credit accounts;to speed up collection of trade accounts
D)for specific services performed by credit customers;for specific services performed by cash customers

Question 53

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.What is her approximate economic order quantity?

A)5,770 boxes
B)289 boxes
C)2,890 boxes
D)409 boxes
E)577 boxes

Question 54

Which of the following typically is not classified as an accrued liability?

A)state employment taxes
B)monthly sales tax owed to the city
C)monthly mortgage payments
D)federal employment taxes

Question 55

The largest part of business accounts payable are normally

A)the monthly payroll owed to employees.
B)obligations of our firm that were obtained by purchasing inventory on credit.
C)the monthly obligations that were contracted for,like mortgage payments,insurance,and utilities.
D)obligations of a firm that were accumulated and are owed to governmental agencies.

Question 56

Prior to making a credit decision we should always check the applicant's

A)character,capacity,and collateral.
B)collateral,credit,and cash.
C)capacity,cash,and collateral.
D)collateral,character,and current assets.

Question 57

When evaluating credit,a customer who has sufficient disposable income and cash flow to pay off a loan is said to have

A)creditworthiness.
B)capacity.
C)character.
D)collateral.

Question 58

Randy Jones decided to run an ABC analysis of his 500 stock keeping inventory items.He found that his average inventory was $200,000 and that there were 378 items out of the 500 that cost him $24,000.These 378 items would be classified as items.

A)A
B)B
C)C
D)D

Question 59

Net working capital can be found by subtracting

A)current assets from total liabilities.
B)current liabilities from total assets.
C)total liabilities from total assets.
D)current liabilities from current assets.
E)current assets from current liabilities.

Question 60

Marketable securities

A)never offer any risk.
B)never require an investment strategy.
C)normally pay a higher rate of interest than checking accounts.
D)consist of government securities only.

Question 61

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.What is her approximate total ordering cost?

A)$865
B)$43
C)$87
D)$433
E)$611

Question 62

If credit sales remain the same and accounts receivable increase,accounts receivable turnover will increase.

Question 63

Raw materials inventory is made up of those items that are actually sold by the business.

Question 64

Finished goods inventory is made up of those items that are actually sold by the business.

Question 65

When using an ABC inventory,A items are those 75 percent of the items that make up 5 to 10 percent of the total cost.

Question 66

The goal of accounts receivable management is to

A)increase sales by offering credit to customers.
B)collect money as fast as possible.
C)give credit to every customer.
D)have a department of its own in a company.

Question 67

The credit decision involves

A)granting credit to all applicants.
B)looking at the borrower's collateral.
C)investigating the customer.
D)making sure that the customer is a good credit risk.
E)all of the above.

Question 68

When evaluating credit,a customer who could sell assets to pay off a loan is said to have

A)collateral.
B)creditworthiness.
C)character.
D)capacity.

Question 69

Sarah's Computer City sells 5,000 boxes of CD- RW compact discs per year.She determined that she pays $50 to process an order for discs.Her purchase price is $6 for each box of discs and she has determined that storage costs for one year are 25 percent of the purchase price.Sarah's vendor said that if she purchased 1,000 boxes at a time,she would receive a 10 percent discount.The total cost formula is TC = DP + ^QIP + ^DS.What is Sarah's annual ordering cost if she does not take
2 Q
Advantage of the discount?

A)$578
B)$250
C)$675
D)$433

Question 70

If credit sales remain the same and accounts receivable decrease,accounts receivable turnover will increase.

Question 71

The three C's of credit are character,capacity,and collateral.

Question 72

If a firm has $400,000 in credit sales and $80,000 in average accounts receivable,average days collections is approximately

A)73.
B)8)
C)182.
D)11.

Question 73

Business obligations that are normally paid within one year are

A)long- term debt.
B)short- term debt.
C)mortgages.
D)equipment loans.

Question 74

Working Capital consists of the total assets and total liabilities of a company.

Question 75

All of the following accounts are part of cash management except

A)petty cash.
B)cash in a savings account.
C)cash invested in a stock mutual fund.
D)cash in a checking account.
E)cash on hand.

Question 76

If we borrowed $10,000 on a line of credit September 1,and the bank charges 12 percent per annum,compounded daily,the interest due on October 1 is approximately

A)$33.80.
B)$40.00.
C)$98.63.
D)$100.00.

Question 77

Working Capital consists of the current assets and current liabilities of a company.

Question 78

When using an ABC inventory analysis,the inventory items that make up approximately percent but account for approximately _ percent of total costs are classified as C items.

A)75- 80;10- 15
B)10- 15;75
C)75- 80;75- 80
D)10- 15;10- 15

Question 79

Short term debt management consists of obligations that will be paid within the current accounting period.

Question 80

Pledging is the process of putting up accounts receivable as collateral to obtain cash.