Question 1

Al's Bakery has a checkbook balance of $1,650.A $700 deposit was made today and will be added to the available balance tomorrow.There are two outstanding checks that total to $623 that should clear tomorrow.There are no other outstanding items.Which one of the following statements accurately reflects this situation?
A)The disbursement float is $1,650.
B)The firm's current available balance is equal to $1,650 plus $700 minus $623.
C)The firm's collection float exceeds its disbursement float.
D)The firm's available balance is greater than its book balance.
E)The firm has a net disbursement float.

Accepted Answer

The answer of Al's Bakery has a checkbook balance of...

Question 2

The economic order quantity (EOQ) is best defined as the:
A)minimum size of an order needed to qualify for free shipping.
B)minimum amount that must be ordered to obtain the quantity discount.
C)number of items that are sold on average each month.
D)restocking quantity that minimizes the total cost of inventory.
E)minimal amount of inventory that must be purchased to receive a cash discount.

Accepted Answer

EOQ is a formula used to determine the optimal order quantity that minimizes the total cost of inventory, including ordering and holding costs.

Question 3

Alicia wrote a check for $18 on Friday, May 6.The check cleared the bank on Wednesday, May 11.There were no other checks or deposits outstanding during the month.Given this, which one of the following statements is correct?
A)On May 6, the available balance decreased by $18.
B)On May 11, the available balance was $18 less than the ledger balance.
C)On May 12, the ledger balance was $18 less than the available balance.
D)On May 14, the available balance increased by $18.
E)On May 10, the ledger balance was $18 less than the available balance.

Accepted Answer

The answer of Alicia wrote a check for $18 on...

Question 4

Which of these is most likely the fastest method of collecting cash?
A)Requiring customers to submit all payments to a lockbox
B)Requiring customers to submit all payments to the home office
C)Initiating a financial electronic data interchange at the time of sale
D)Offering customers credit terms of 1/5, net 15
E)Eliminating all disbursement float

Accepted Answer

Initiating a financial electronic data interchange (EDI) at the time of sale is the fastest method as it allows for immediate electronic transfer of funds, reducing the time it takes to receive payment.

Question 5

The set of procedures used to determine the inventory levels for demand-dependent inventories is called:
A)the inventory flow log.
B)materials requirements planning.
C)a just-in-time inventory system.
D)the kanban.
E)the keiretsu.

Accepted Answer

Materials requirements planning (MRP) is a system used to manage demand-dependent inventories by determining the necessary inventory levels and scheduling production and purchasing activities.

Question 6

Which of these is a speculative motive for holding cash?
A)Buying extra inventory because a key supplier offered a special one-time discount
B)Paying a $100 bonus to all employees at year-end
C)Paying the annual insurance premium on the firm's assets
D)Needing to purchase a new delivery truck because the old one was totally destroyed in an accident
E)Contributing $1,000 to help fund medical care for an uninsured neighbor

Accepted Answer

The speculative motive for holding cash involves keeping cash on hand to take advantage of unexpected opportunities, such as buying extra inventory at a discount.

Question 7

Which one of the following is a system for managing demand-dependent inventories that minimizes the amount of inventory on hand?
A)Inventory flow log
B)Materials requirements planning
C)Just-in-time inventory system
D)Kanban
E)Keiretsu

Accepted Answer

The Just-in-time (JIT) inventory system is designed to minimize inventory levels by aligning production schedules closely with demand, reducing the amount of inventory on hand.

Question 8

Which of these is most apt to delay the collection of cash?
A)Having customers mail checks to a local lockbox rather than the home office
B)Depositing checks throughout the day
C)Posting payments to accounts receivable prior to making deposits
D)Collecting mail more frequently
E)Supplying customers with bar coded payment slips

Accepted Answer

Posting payments to accounts receivable prior to making deposits can delay the actual collection of cash because it prioritizes accounting records over the physical deposit of funds into the bank.

Question 9

The Check Clearing Act for the 21^st Century has caused: A)increased check kiting. B)zero-balance accounts to disappear. C)the elimination of all lockboxes. D)a reduction in collection float, but not disbursement float. E)a reduction in both collection and disbursement float.

Accepted Answer

The Check Clearing for the 21st Century Act, also known as Check 21, allows banks to handle checks electronically, which speeds up the check clearing process and reduces both collection and disbursement float times.

Question 10

Which statement is correct? A)Firms cannot use lockboxes if they use cash concentration accounts. B)Firms prefer to increase processing delay on disbursements. C)Firms prefer to eliminate all types of float. D)Firms open regional offices so their employees can pick up lockbox payments throughout the day. E)The Check Clearing Act for the 21^st Century is designed to reduce total collection time to one day.

Accepted Answer

Firms prefer to increase processing delay on disbursements to slow down the outflow of cash, which helps in managing cash flow more effectively.

Question 11

Which statement is correct? A)Disbursement float is the period of time between a firm making a bank deposit and the funds from that deposit being available to the firm. B)Disbursement float decreases when a check is delayed in the mail due to an extended holiday weekend. C)Disbursement float causes the available balance to exceed the ledger balance. D)Disbursement float is being totally eliminated by the Check Clearing Act for the 21^st Century. E)Disbursement float exists when the available balance is less than the book balance.

Accepted Answer

The answer of Which statement is correct?
A)Disbursement float is the...

Question 12

BJ's just reconciled its bank account and has $10,800 in outstanding deposits, $26,300 in checks outstanding, and a positive checkbook balance.The firm sells on a cash-only basis and deposits its receipts at the bank daily.The deposited funds are available to the firm the following day.The firm writes and mails checks on a daily basis also.These checks generally clear the bank in three days.What do you know about the firm's float given this information?
A)The firm has disbursements float but no collection float.
B)The collection float generally exceeds the disbursement float.
C)The firm has a net collection float.
D)The disbursement float generally exceeds the collection float.
E)Since transactions occur daily, the firm has no float.

Accepted Answer

The firm has a disbursement float of $26,300 and a collection float of $10,800. Since the disbursement float is larger, the firm has a net disbursement float.

Question 13

How quickly can a bank receive payment once it transmits a copy of a check to the bank on which the check was drawn?
A)Immediately
B)In one day
C)Between one and two days
D)In two days
E)Between two and three days

Accepted Answer

The bank can receive payment immediately because the copy of the check is a legal document that can be used to withdraw funds from the account on which the check was drawn.

Question 14

A firm's float management policy is most apt to include which one of the following statements? A)All invoices are to be paid the same day they are received. B)All outgoing checks are to be delivered by the fastest means possible. C)The depository bank needs to process all deposits in accordance with the Check Clearing Act for the 21^st Century. D)Any check received is to be held until the customer's account has been updated to record the payment. E)Accounts payable processing should be given priority over accounts receivable processing.

Accepted Answer

The Check Clearing Act for the 21st Century (Check 21) allows banks to handle checks electronically, which can speed up the processing of deposits and reduce float time.

Question 15

Laurie's Ice Rink keeps an extra $1,000 in its checking account simply in case an emergency arises.Which type of motive for holding cash does this represent?
A)Speculative
B)Float requirement
C)Transaction
D)Precautionary
E)Availability

Accepted Answer

The precautionary motive for holding cash refers to keeping extra funds on hand to cover unexpected expenses or emergencies.

Question 16

Which of these represents a transaction motive for holding cash?
A)Buying extra inventory in response to an unexpected sale offered by a supplier
B)Distributing the weekly paychecks
C)Increasing the minimum cash balance for the firm's main bank account
D)Unexpectedly purchasing a competitor's firm
E)Holding cash in anticipation that the firm may need to close for a few days if floodwaters keep rising

Accepted Answer

The transaction motive for holding cash refers to the need to have cash on hand to meet routine, predictable expenses such as payroll, which is represented by distributing weekly paychecks.

Question 17

To minimize collection float, a firm should do which of the following?
I.Deposit its collections at least daily
II.Make sure all checks it receives at the sales counter are properly dated and signed
III.Pay its bills in a more timely manner
IV.Eliminate its regional lockboxes and have only one central lockbox located near the firm's home office
A)I and II only
B)III and IV only
C)II, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Accepted Answer

Depositing collections daily and ensuring checks are properly dated and signed help minimize collection float by speeding up the process of funds becoming available.

Question 18

Which of these practices will reduce a firm's collection float?
I.Installing a lockbox system
II.Utilizing zero-balance accounts
III.Depositing checks daily rather than weekly
IV.Reducing the processing delay by one day
A)I and III only
B)II and IV only
C)I, II, and III only
D)I, III, and IV only
E)I, II, III, and IV

Accepted Answer

Installing a lockbox system, depositing checks daily, and reducing processing delay all help in reducing the time it takes for a firm to collect payments, thus reducing the collection float. Zero-balance accounts do not directly reduce collection float.

Question 19

Which one of the following will reduce the disbursement float of a firm?
A)Mailing a check from a very remote location
B)Mailing an unsigned check so that it must be returned for a signature
C)Paying a loan payment at the bank rather than mailing a check to the bank
D)Requiring that all checks be held one day before mailing so they can be reviewed by a manager
E)Writing checks on a zero-balance account rather than on the master account

Accepted Answer

Paying a loan payment at the bank rather than mailing a check to the bank reduces disbursement float because it eliminates the time delay associated with mailing and processing the check.

Question 20

Taylor's Market received five checks today and went to the bank to deposit all of them.Unfortunately, the bank was closed for the day due to a robbery.How does the bank closure affect the firm's float assuming these five checks are the only outstanding bank items?
A)Collection float increased
B)Collection float decreased
C)Disbursement float increased
D)Disbursement float decreased
E)Net float remained unchanged

Accepted Answer

The collection float increased because the checks could not be deposited, delaying the firm's ability to collect funds.

Quiz 17: Working Capital Management

The economic order quantity (EOQ) is best defined as the:

Alicia wrote a check for $18 on Friday, May 6.The check cleared the bank on Wednesday, May 11.There were no other checks or deposits outstanding during the month.Given this, which one of the following statements is correct?

Which of these is most likely the fastest method of collecting cash?

The set of procedures used to determine the inventory levels for demand-dependent inventories is called:

Which of these is a speculative motive for holding cash?

Which one of the following is a system for managing demand-dependent inventories that minimizes the amount of inventory on hand?

Which of these is most apt to delay the collection of cash?

The Check Clearing Act for the 21st Century has caused:

Which statement is correct?

Which statement is correct?

How quickly can a bank receive payment once it transmits a copy of a check to the bank on which the check was drawn?

A firm's float management policy is most apt to include which one of the following statements?

Laurie's Ice Rink keeps an extra $1,000 in its checking account simply in case an emergency arises.Which type of motive for holding cash does this represent?

Which of these represents a transaction motive for holding cash?

Which of these practices will reduce a firm's collection float? I.Installing a lockbox system II.Utilizing zero-balance accounts III.Depositing checks daily rather than weekly IV.Reducing the processing delay by one day

Which one of the following will reduce the disbursement float of a firm?

Taylor's Market received five checks today and went to the bank to deposit all of them.Unfortunately, the bank was closed for the day due to a robbery.How does the bank closure affect the firm's float assuming these five checks are the only outstanding bank items?

The Check Clearing Act for the 21^st Century has caused: