Question 1

The following information is available for Renoir, Inc: 
The Accounts Payable Payment Period is:

Accepted Answer

The answer of The following information is available for Renoir,...

Question 2

Snow, Inc. has net cash from operations $125,000 for the year. They also purchased a new snowplow for $75,000 and paid cash dividends of $25,000. Snow's free cash flow is $25,000.

Accepted Answer

The answer of Snow, Inc. has net cash from operations...

Question 3

On its Statement of Cash Flows, Aspen, Inc. reported cash flow from operating activities of $99,000, cash flow from financing activities of ($127,000), and cash flow from investing activities of $103,000. Aspen, Inc. invested $65,000 cash in long-term assets. Aspen, Inc.'s free cash flow is:

Accepted Answer

Free cash flow = Cash flow from operating activities - Capital expenditures= $99,000 - $65,000= $34,000

Question 4

On its Statement of Cash Flows, Mike's Motors reported cash flow from operating activities of $108,000, cash flow from investing activities of $87,000, and cash flow from financing activities of ($61,000). Mike's Motors invested $55,000 cash in long-term assets. Mike's Motors' free cash flow is:

Accepted Answer

Free cash flow can be calculated by subtracting capital expenditures (cash used for investing activities) from cash flow from operating activities. 
Free cash flow = Cash flow from operating activities - Capital expenditures 
= $108,000 - $55,000 
= $53,000

Question 5

Twin Peaks Industries has an inventory turnover of 111 days, an Accounts Payable turnover of 77 days and an Accounts Receivable turnover of 79 days. Twin Peaks' cash conversion cycle is:

Accepted Answer

The cash conversion cycle (CCC) is a metric used to measure the time it takes for a company to convert its investments in inventory and accounts receivable into cash.

CCC = Inventory turnover + Accounts Receivable turnover - Accounts Payable turnover

Substituting the given values:

CCC = 111 + 79 - 77 
CCC = 113 days

Therefore, the correct answer is A) 113 days.

Question 6

Generally, the higher the cash conversion cycle, the healthier the company is financially.

Accepted Answer

The lower the cash conversion cycle, the healthier the company is financially. A high cash conversion cycle indicates that a company is taking longer to convert its investments in inventory and accounts receivable into cash, which could be a sign of cash flow problems or inefficient operations.

Question 7

Free cash flow is the anticipated amount of cash available from operations after paying for planned financing of stock and paying dividends.

Accepted Answer

Free cash flow is the amount of cash a company generates from its operations after subtracting the capital expenditures necessary to maintain or expand its asset base, not the financing of stock or payment of dividends.

Question 8

The cash conversion cycle depends upon the time it takes to sell merchandise inventory, to collect receivables and to pay payables.

Accepted Answer

The cash conversion cycle (CCC) is calculated as the sum of inventory conversion period (ICP), accounts receivable conversion period (ARCP), and accounts payable conversion period (APCP). It represents the time it takes for a company to convert its investment in inventory and accounts receivables into cash. Therefore, it depends upon the time it takes to sell merchandise inventory, to collect receivables, and to pay payables.

Question 9

The Bobblehead Company has an Accounts Receivable turnover of 33 days, an inventory turnover of 77 days and an Accounts Payable turnover of 39 days. Bobblehead's cash conversion cycle is:

Accepted Answer

The cash conversion cycle formula is:
CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Days Inventory Outstanding = 77 days
Accounts Receivable Turnover = 33 days, so Days Sales Outstanding = 33 days
Accounts Payable Turnover = 39 days, so Days Payable Outstanding = 39 days

Plugging in the numbers:
CCC = 77 days + 33 days - 39 days
CCC = 71 days

Therefore, the best choice is C) 71 days.

Question 10

Over time, if the cash conversion cycle for a business grows longer, this is an indication that they are holding cash too long.

Accepted Answer

A longer cash conversion cycle indicates that a company is taking more time to convert its inventory and other resources into cash flows from sales, not necessarily that they are holding cash too long. It reflects the time lag between the outlay of cash for purchases and the receipt of cash from sales.

Question 11

Danio Corp. has average Accounts Payable of $5,000 and cost of goods sold of $25,000; the Accounts Payable payment period for Danio is 73 days.

Accepted Answer

The Accounts Payable payment period formula is (Accounts Payable / Cost of Goods Sold) * 365. Plugging in the given values, we get (5,000 / 25,000) * 365 = 73 days. Therefore, the statement is true.

Question 12

A company settles a long-term note payable plus interest by paying $68,000 cash toward the principal amount and $5,440 cash for the interest. Under the direct method of reporting interest, the $5,440 would be listed as a(n):

Accepted Answer

The direct method of reporting interest involves listing the actual cash payments made for interest under the operating activities section of the cash flow statement. Since the company paid cash for the interest, it would be reported as an operating activity, along with other cash inflows and outflows related to operations. Therefore, the correct choice is A) operating activity.

Question 13

The following information is available for Bestway Company. What amount is paid for merchandise for the current year (2016)?

Accepted Answer

The answer of The following information is available for Bestway...

Question 14

The cash conversion cycle represents the number of days the cash is "tied up" in the operating activities of the business.

Accepted Answer

The cash conversion cycle (CCC) measures the number of days it takes for a company to convert its investments in inventory and accounts receivable into cash collected from customers. It represents the time period between the payment of cash for raw materials and the collection of cash from customers for products sold or services rendered. Therefore, it indicates how long cash is tied up in the company's operating cycle.

Question 15

The formula for the cash conversion cycle is days sales-in-inventory + free cash flow - receivables collection period.

Accepted Answer

The formula for the cash conversion cycle is actually:
Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) - Days Payable Outstanding (DPO)

Quiz 11: The Statement of Cash Flows

The following information is available for Renoir, Inc: The Accounts Payable Payment Period is: