Question 1

Chovita Marbles' purchases for next month's sales are constant each month at $1,500. Other payments for wages, rent, and taxes are constant at $700 per month. Chovita's total cash disbursements for a month is _____.

Accepted Answer

Chovita Marbles' total cash disbursements for a month include both the purchases for sales ($1,500) and other payments ($700), totaling $2,200.

Question 2

The Danser Company expects to have sales of $30,000 in January, $33,000 in February, and $38,000 in March. If 20 percent of sales are for cash, 40 percent are credit sales paid in the month following the sale, and 40 percent are credit sales paid 2 months following the sale, the cash receipts from the sales in March are:

Accepted Answer

Cash receipts in March include 20% of March sales ($7,600), 40% of February sales ($13,200), and 40% of January sales ($12,000), totaling $32,800.

Question 3

Which of the following investments is an example of marketable securities?

Accepted Answer

Marketable securities are short-term investments that can be easily bought and sold in the market, such as Treasury bills. Accounts payable, long-term bonds, and long-term loans are not marketable securities. Equity can be considered a marketable security, but it is not the best answer as it is not a type of investment but rather a form of ownership in a company.

Question 4

Which of the following statements is correct regarding cash budgets?

Accepted Answer

Cash budgets include all expected cash inflows and outflows, including tax expenses, to ensure the firm maintains adequate cash flow.

Question 5

A minimum checking account balance that a firm must maintain with a bank to help offset the costs and services such as check clearing and cash management advice is called a _____ balance.

Accepted Answer

Compensating balance is the minimum balance that a firm must maintain with a bank to offset the costs of specific services, such as check clearing, cash management advice, and loan origination fees. This balance does not earn interest for the firm and is held as collateral against any outstanding loans or credit extended by the bank to the firm. The other options, such as transactions, precautionary, speculative, and convertible balances, do not refer to a minimum balance maintained with a bank.

Question 6

Having synchronized cash flows enables a firm to:

Accepted Answer

The answer of Having synchronized cash flows enables a firm...

Question 7

Jumpdisk Company writes checks averaging $15,000 a day, and it takes 5 days for these checks to clear. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. The firm's net float in dollars is:

Accepted Answer

First, we need to calculate the disbursement float, which is the time difference between when a check is written and when it clears. In this case, it is 5 days for Jumpdisk Company's checks, so the disbursement float is $15,000 x 5 = $75,000.

Next, we need to calculate the collection float, which is the time difference between when a check is received and when it clears. In this case, the firm receives $17,000 per day, but loses 3 days while its receipts are being deposited and cleared, so the collection float is $17,000 x 3 = $51,000.

To find the net float, we subtract the collection float from the disbursement float: $75,000 - $51,000 = $24,000. Therefore, the firm's net float in dollars is $24,000.

Thus, the answer is D.

Question 8

The value of checks that have been written and given to the customers but have not been deducted from the account on which they were written is the _____ float.

Accepted Answer

Disbursement float refers to the value of checks that have been issued by a company but have not yet cleared or been deducted from the account. This type of float can have an impact on a company's cash flow and liquidity.

Question 9

A cash balance held in reserve for unforeseen fluctuations in cash flows is called a _____ balance.

Accepted Answer

A precautionary balance is held in reserve for unforeseen fluctuations in cash flows. Transactions balances are used for regular business operations, compensating balances are used to secure a loan, speculative balances are invested to earn a return, and a lockbox is a service used to expedite the collection of cash receipts.

Question 10

Which of the following is a common method of disbursement or cash outflow control?

Accepted Answer

A zero-balance account is a common method of cash outflow control where funds are transferred only when checks are presented for payment, minimizing idle cash.

Question 11

Firms should own marketable securities because they:

Accepted Answer

Marketable securities can be easily traded in the money market, providing firms with a relatively liquid investment opportunity. This can help to increase the firm's overall returns and flexibility in managing its cash balances.

Question 12

Reston Inc. has expected sales of $17,000,000. While 10 percent of its customers pay cash, the remaining 90 percent pay on credit with 40 percent paying on Day 10, 30 percent paying on Day 20, 15 percent paying on Day 25, and 15 percent paying on Day 30. Which of the following is Reston's days sales outstanding (DSO)?

Accepted Answer

Total credit sales= $17,000,000*(90%)= $15,300,000
Days to collect the payment= (40%*10)+(30%*20)+(15%*25)+(15%*30)= 4+6+3.75+4.5= 18.25 days
DSO= (Accounts Receivable/Total credit sales)*Number of days
Since all customers are either cash or pay on credit, accounts receivable= $0
Thus, DSO= (0/15,300,000)*18.25= 0 days

Question 13

Which of the following will help a firm accelerate the collection of customers' payments and the conversion of those payments into cash?

Accepted Answer

A lockbox arrangement helps a firm accelerate the collection of customers' payments by having payments sent directly to a bank, where they are processed and deposited quickly, thus speeding up the conversion of those payments into cash.

Question 14

The amount of checks that have been received and deposited but have not yet been made available to the account in which they were deposited is the _____ float.

Accepted Answer

The term "float" refers to the time between when a check is deposited and when funds become available in the account. The collections float refers to checks that have been deposited but have not yet cleared or been made available to the account. Disbursement refers to the outflow of funds, net is the amount left over after deductions, balance refers to the total amount of money in an account, and deposit refers to the act of putting money into an account.

Question 15

Rainbow Inc. has expected sales of $200,000 a month. Rainbow's cash sales are 10% of total sales and the remaining 90 percent pay on credit, of which 20% take advantage of a discount and rest pay during the following month. If Rainbow's credit policy is 2/10 net 30, the amount of discount offered by Rainbow is _____.

Accepted Answer

Total cash sales = 10% of $200,000 = $20,000
Total credit sales = 90% of $200,000 = $180,000
20% of the credit sales take advantage of a discount, so they pay within 10 days and get a 2% discount.
Amount of credit sales that take advantage of the discount = 20% of $180,000 = $36,000
Discount offered = 2% of $36,000 = $720.

Question 16

Marketable securities:

Accepted Answer

Marketable securities are investments that can be easily bought and sold on public exchanges, making them very liquid. They are typically short-term investments that provide a safe place to park excess cash while earning a small return.

Question 17

Chadmark Corporation's budgeted monthly sales are $3,000. 40 percent of its customers pay in the same month and take the 2 percent discount. The remaining 60 percent pay in the month following the sale and don't receive a discount. Chadmark's total receipts for a typical month i.

Accepted Answer

The amount of customers who pay in the same month and receive the discount is 40% of $3,000 which is $1,200. The amount of customers who pay in the month following the sale without discount is 60% of $3,000 which is $1,800.

Therefore, the total receipts for Chadmark Corporation in a typical month would be:

$1,200 + ($1,800 - ($1,800*0.02)) = $2,976

Question 18

Total cash receipts for Zinc Corporation in a month is $15,000 and total cash disbursements in a month is $10,000. Which of the following is true about Zinc's cash position if it aims to maintain minimum cash balance of $8,000?

Accepted Answer

The answer of Total cash receipts for Zinc Corporation in...

Question 19

What type of system allows a customer's bank to periodically transfer funds from its account to a selling firm's bank account for payment of bills?

Accepted Answer

A preauthorized debit system allows for automatic periodic transfers of funds from a customer's bank account to a selling firm's account, making it an efficient and convenient method for bill payments. Disbursement agreements, lockbox agreements, concentration banking systems, and zero-balance accounts do not necessarily involve automatic transfers or recurring payments.

Question 20

A report showing how long accounts receivable have been outstanding is called _____.

Accepted Answer

An aging schedule is a report that categorizes accounts receivable by the length of time they have been outstanding, typically in 30-day intervals. It helps businesses identify which invoices are overdue and by how many days, allowing them to take appropriate actions to collect the money owed.

Quiz 15: Managing Short-Term Assets