Question 1

Under which type of credit arrangement does a public warehouse act as a control agent?

Accepted Answer

Under field warehouse financing, the public warehouse acts as a control agent by monitoring the movement of goods in and out of the warehouse and ensuring that the loaned inventory is always present in the warehouse.

Question 2

Martinique's Boutique has a 45-day collection period.Sales for the next four quarters are estimated at $1,500,$1,600,$2,100,and $1,900,respectively,starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a 360-day year.

Accepted Answer

Accounts receivable balance at year end = $1,900 × 45 / 90 = $950

Question 3

Bruceton Farms currently has an operating cycle of 76.3 days.The firm is analyzing some operational changes that are expected to decrease the accounts receivable period by 2.8 days and decrease the inventory period by 3.1 days.The accounts payable turnover rate is expected to increase from seven to eight times per year.If all of these changes are adopted,what will be the firm's new operating cycle?

Accepted Answer

New operating cycle = 76.3 − 2.8 − 3.1 = 70.4 days

Question 4

Smiley and Sons has an inventory period of 42 days,an accounts payable period of 33 days,and an accounts receivable period of 38 days.Management is considering offering a 2 percent discount if its credit customers pay for their purchases within 10 days.If the new discount is offered,the accounts receivable period is expected to decline by 19 days.If the new discount is offered,the cash cycle will change from ________ days to ________ days.

Accepted Answer

The answer of Smiley and Sons has an inventory period...

Question 5

A firm has an inventory turnover rate of 15.2,a receivables turnover rate of 16.8,and a payables turnover rate of 12.7.How long is the operating cycle?

Accepted Answer

Operating cycle = 365 / 15.2 + 365 / 16.8 = 45.74 days

Question 6

Brooke Industries has sales of $938,000 and cost of goods sold of $468,000.The firm had a beginning inventory of $124,600 and an ending inventory of $132,900.What is the length of the inventory period?

Accepted Answer

Inventory period = 365 / {$468,000 / [($124,600 + $132,900)/ 2]} = 100.41 days

Question 7

Blackwell Co.has credit sales of $317,428,costs of goods sold of $151,217,and average accounts receivable of $28,744.How long on average does it take the firm's credit customers to pay for their purchases?

Accepted Answer

Receivables period = 365 / ($317,428 / $28,744)= 33.05 days

Question 8

Candy Corner has an inventory turnover rate of 14.6,an accounts payable period of 43.7 days,and an accounts receivable period of 32.4 days.What is the length of the cash cycle?

Accepted Answer

Cash cycle = (365 / 14.6)+ 32.4 − 43.7 = 13.7 days

Question 9

Pat's Place has sales of $613,700 and cost of goods sold of $338,514.At the beginning of the year,inventory was $56,509.At the end of the year,the inventory balance was $52,411.What is the inventory turnover rate?

Accepted Answer

Inventory turnover = $338,514 / [($56,509 + $52,411)/ 2] = 6.22 times

Question 10

A supplier offers credit terms of 2/15,net 45.This means that

Accepted Answer

The credit terms of 2/15, net 45 mean that a 2% discount can be taken if the invoice is paid within 15 days, but the full amount is due within 45 days. Option A is incorrect as it suggests a surcharge, not a discount. Option B is incorrect as it does not reflect the 2/15, net 45 terms. Option C is incorrect as it suggests a monthly interest rate, which is not stated in the credit terms. Option E is incorrect as it is not consistent with the discount offered in the credit terms.

Question 11

Assume you are completing a short-term financial plan spreadsheet.The cumulative surplus will be equal to the

Accepted Answer

The cumulative surplus is calculated as the ending cash balance minus the minimum cash balance, indicating the excess cash available over the required minimum.

Question 12

Dwyer Metals has an inventory turnover of 16 and an accounts receivable turnover of 10.The accounts payable period is 51 days.What is the length of the operating cycle?

Accepted Answer

Cash cycle = (365 / 16)+ (365 / 10)= 59.31 days

Question 13

HM Industries has a beginning receivables balance on January 1^st of $484.Sales for January through April are $420,$364,$390,and $433,respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a 360-day year.

Accepted Answer

In April,the firm would collect February sales of $364.

Question 14

The Down Towner has sales of $748,320 and average accounts payable of $128,209.The cost of goods sold is equivalent to 62 percent of sales.How long does it take the company to pay its suppliers?

Accepted Answer

Payables period = 365 / [(0.62 × $748,320)/ $128,209] = 100.86 days

Question 15

A firm has sales of $914,700.The cost of goods sold is equal to 61 percent of sales.The firm has an average inventory of $108,200.How many days on average does inventory sit on the shelf prior to being sold?

Accepted Answer

Inventory period = 365 / [(0.61 × $914,700)/ $108,200] = 70.78 days

Question 16

A firm currently has a 29.3-day cash cycle.Assume the firm changes its operations such that it decreases its receivables period by 2.7 days,increases its inventory period by 1.4 days,and decreases its payables period by 2.4 days.What will the length of the cash cycle be after these changes?

Accepted Answer

Cash cycle = 29.3 − 2.7 + 1.4 + 2.4 = 30.4 days

Question 17

Super Mart has sales of $542,300.The cost of goods sold is equal to 59 percent of sales.The beginning accounts receivable balance is $86,534,and the ending accounts receivable balance is $84,209.How long on average does it take the firm to collect its receivables?

Accepted Answer

Receivables period = 365 / {$542,300 / [($86,534 + $84,209)/ 2]} = 57.46 days

Question 18

Smith and Johnson have expected sales of $427,$489,$626,and $738 for the months of January through April,respectively.The accounts receivable period is 15 days.How much did the firm collect in the month of April? Assume a 360-day year.

Accepted Answer

April collections = 15 / 30($626)+ 15 / 30($738)= $682

Question 19

D&M sells its inventory in 67 days on average.Their customers generally charge their purchases on a credit card with payment being received in 2 days.The company takes 61 days on average to pay for its purchases.Given this information,what is the length of the company's cash cycle?

Accepted Answer

Cash cycle = 67 + 2 − 61 = 8 days

Question 20

True Blue Stores had a beginning accounts payable balance of $87,300 and an ending accounts payable balance of $79,460.Sales for the period were $702,000,and costs of goods sold were $423,600.What is the payables turnover rate?

Accepted Answer

Payables turnover = $423,600 / [($87,300 + $79,460)/ 2)] = 5.08 times

Quiz 18: Short-Term Finance and Planning