Question 1

Painting, Inc. has sales of $400,000 and cost of goods sold of $275,000. The firm had a beginning inventory of $42,000 and an ending inventory of $38,000. What is the length of the days' sales in inventory?

Accepted Answer

The answer of Painting, Inc. has sales of $400,000 and...

Question 2

If a firm has a cash cycle of 25 days and an operating cycle of 80 days, what is its average payment period?

Accepted Answer

The average payment period is calculated by subtracting the cash cycle from the operating cycle, which is 80 days - 25 days = 55 days.

Question 3

If a firm has a cash cycle of 25 days and an operating cycle of 80 days, what is its payables turnover?

Accepted Answer

The payables turnover is calculated by subtracting the cash cycle from the operating cycle. Operating cycle (80 days) - Cash cycle (25 days) = 55 days. However, the question asks for the payables turnover, which is typically expressed in terms of how many times a company pays its suppliers over a period, not in days. The provided options do not directly relate to the typical calculation of payables turnover from the given information, suggesting a misunderstanding in the question's formulation. The correct calculation should involve annual purchases and average accounts payable, which is not possible with the given data. The answer provided as "C) 6.64" seems to be a misinterpretation of the question's intent.

Question 4

Scribble, Inc. has sales of $80,000 and cost of goods sold of $64,000. The firm had a beginning inventory of $10,000 and an ending inventory of $12,000. What is the length of the days' sales in inventory?

Accepted Answer

The answer of Scribble, Inc. has sales of $80,000 and...

Question 5

Scribble, Inc. has sales of $100,000 and cost of goods sold of $75,000. The firm had a beginning inventory of $20,000 and an ending inventory of $22,000. What is the length of the days' sales in inventory?

Accepted Answer

The answer of Scribble, Inc. has sales of $100,000 and...

Question 6

Which of these is the period of time after a check has been written, but not yet cleared and deposited?

Accepted Answer

The period after a check has been written but not yet cleared and deposited is known as the "float." This term describes the time during which the check amount is still being processed and is not yet deducted from the payer's account or added to the payee's account.

Question 7

If a firm has a cash cycle of 10 days and an operating cycle of 43 days, what is its average payment period?

Accepted Answer

The average payment period is calculated by subtracting the cash cycle from the operating cycle. Therefore, 43 days (operating cycle) - 10 days (cash cycle) = 33 days.

Question 8

If a firm has a cash cycle of 47 days and an operating cycle of 92 days, what is its average payment period?

Accepted Answer

45The average payment period is calculated by subtracting the cash cycle from the operating cycle. Therefore, 92 days (operating cycle) - 47 days (cash cycle) = 45 days.

Question 9

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

Accepted Answer

A zero-balance account is designed for companies to maintain a balance of zero by automatically transferring funds from a master account in an amount exactly enough to cover checks presented. This allows the company to optimize the use of their cash by keeping it in interest-bearing accounts until needed.

Question 10

Which of the following is NOT one of the "five C's" of credit analysis?

Accepted Answer

The "five C's" of credit analysis include Capacity, Character, Collateral, Capital, and Conditions. Collectability is not one of the five C's.

Question 11

Daisy D Industries has a cash balance of $75,000; accounts payable of $140,000; inventory of $300,000; accounts receivable of $350,000; notes payable of $145,000; and accrued wages and taxes of $80,000. How much net working capital does the firm need to fund?

Accepted Answer

The answer of Daisy D Industries has a cash balance...

Question 12

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Accepted Answer

The target cash balance models do not typically account for compensating balances required by banks as part of borrowing agreements, as these are specific to individual firm-bank relationships rather than general cash management strategies.

Question 13

Which of the following is the technique for reducing collection float by having funds sent to several geographically situated regional banks and then transferring to a main concentration account in another bank?

Accepted Answer

Concentration banking involves funds being sent to regional banks and then transferred to a main concentration account, reducing collection float.

Question 14

Which of the following resemble checks, but differ in that they are payable by the firm issuing them rather than payable by a bank?

Accepted Answer

Drafts are financial instruments that are similar to checks but are payable by the firm issuing them, not by a bank. They are used in various transactions, including trade and finance, to facilitate payments between parties.

Question 15

Which of the following describes the place over which the bank-to-bank transfers are conducted within the United States?

Accepted Answer

Fedwire is the real-time gross settlement system of the United States, facilitating the transfer of funds between banks on behalf of the banks' customers.

Question 16

Which of these is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand?

Accepted Answer

Safety stock is the term used to describe the additional quantity of an item held in inventory in order to reduce the risk that the item will be out of stock. It acts as a buffer against unexpected increases in demand or delays in supply delivery.

Question 17

Team Sports Industries has a cash balance of $60,000; accounts payable of $40,000; inventory of $100,000; accounts receivable of $110,000; notes payable of $80,000; and accrued wages and taxes of $10,000. How much net working capital does the firm need to fund?

Accepted Answer

Net working capital = Current assets - Current liabilitiesCurrent assets = Cash + Accounts receivable + Inventory = $60,000 + $110,000 + $100,000 = $270,000Current liabilities = Accounts payable + Notes payable + Accrued wages and taxes = $40,000 + $80,000 + $10,000 = $130,000Net working capital = $270,000 - $130,000 = $140,000

Question 18

Drawing, Inc. has sales of $860,000 and cost of goods sold of $450,000. The firm had a beginning inventory of $50,000 and an ending inventory of $59,000. What is the length of the days' sales in inventory?

Accepted Answer

The days' sales in inventory is calculated by dividing the average inventory by the cost of goods sold (COGS) and then multiplying by 365 days. First, find the average inventory: (Beginning Inventory + Ending Inventory) / 2 = ($50,000 + $59,000) / 2 = $54,500. Then, divide this by the COGS and multiply by 365: ($54,500 / $450,000) * 365 = 47.86 days.

Question 19

Elle Mae Industries has a cash balance of $50,000, accounts payable of $150,000; inventory of $190,000; accounts receivable of $250,000; notes payable of $210,000; and accrued wages and taxes of $40,000. How much net working capital does the firm need to fund?

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. Here, current assets are $50,000 (cash) + $190,000 (inventory) + $250,000 (accounts receivable) = $490,000. Current liabilities are $150,000 (accounts payable) + $210,000 (notes payable) + $40,000 (accrued wages and taxes) = $400,000. Therefore, net working capital needed is $490,000 - $400,000 = $90,000.

Question 20

Which of the following approaches for determining the target cash balance assumes that the distribution of daily net cash flows is normally distributed, and allows for both cash inflows and outflows?

Accepted Answer

The Miller-Orr model assumes that the distribution of daily net cash flows is normally distributed and allows for both cash inflows and outflows. It provides a method to determine the target cash balance by setting upper and lower limits on cash balances, adjusting the cash balance within these limits as necessary.

Quiz 14: Working Capital Management and Policies