Question 1

Gilbert and Sons has sales for the year of $24 800 and cost of goods sold of $14 200.The firm carries an average inventory of $3100 and an average accounts payable balance of $2400.What is the inventory period?

Accepted Answer

The inventory period is calculated as (Average Inventory / Cost of Goods Sold) * 365. Here, it is ($3100 / $14200) * 365 = 79.65, which rounds to 80 days.

Question 2

Allison Adventures has the following estimated sales:
Sales
Purchases are equal to 65 per cent of the following quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 45 days.Assume that there are 30 days in each month.Allison Adventures will purchase _____ of goods in the third quarter and pay their suppliers _____ during the third quarter.

Accepted Answer

D

Question 3

Which one of the following statements is correct concerning the accounts payable period?

Accepted Answer

Extending the accounts payable period effectively decreases the cash needs of a firm because it allows the firm to hold onto cash for a longer period of time before paying its suppliers. This can improve a firm's working capital position and cash flow. A shorter accounts payable period may be preferred by managers in order to maintain good relationships with suppliers, but it may increase cash outflows and reduce flexibility. Increasing the accounts payable turnover rate will actually decrease the accounts payable period, and an increase in the accounts payable period will increase the operating cycle, all else equal. The accounts payable period is calculated as the average accounts payable divided by cost of goods sold, not the other way around.

Question 4

Which one of the following statements concerning a firm's sources and uses of cash is correct given the following account values?

Accepted Answer

The answer of Which one of the following statements concerning...

Question 5

Bluewater,Inc.has the following estimated quarterly sales for next year.The accounts receivable period is 60 days.What is the expected accounts receivable balance at the end of the third quarter? Assume that each month has 30 days.
Sales

Accepted Answer

The answer of Bluewater,Inc.has the following estimated quarterly sales for...

Question 6

The inventory period is equal to:

Accepted Answer

The inventory period is calculated as 365 days divided by the inventory turnover ratio, which is equivalent to 365 multiplied by the average inventory divided by the cost of goods sold.

Question 7

Carter United has annual sales of $509 000 and cost of goods sold of $267 000.The profit margin is 4 per cent and the accounts payable period is 32 days.What is the average accounts payable balance?

Accepted Answer

The average accounts payable balance is calculated as follows:Average accounts payable balance = (Cost of goods sold / 365 days) x Accounts payable period= ($267,000 / 365 days) x 32 days= $23,408.22

Question 8

The operating cycle commences when:

Accepted Answer

The operating cycle starts when inventory is purchased, and it ends when the cash is collected from the customers for the sale of such inventory. This means that the operating cycle is the period of time required to convert inventory into cash, and the first step in this process is the purchase of inventory.

Question 9

The Hot Potato Co.operates several mobile units which contract with construction companies to provide hot food and beverages to their workers.The company has annual sales of $167 200.Cost of goods sold average 45 per cent of sales and the profit margin is 6 per cent.The average accounts receivable balance is $23 400.On average,how long does it take Hot Potato to collect from its construction customers?

Accepted Answer

The average collection period is calculated as (Accounts Receivable / Annual Sales) * 365. For Hot Potato Co., this is ($23,400 / $167,200) * 365 = 51 days.

Question 10

The Moose Co.currently has 81 days in its cash cycle and 136 days in its operating cycle.The firm purchases all of its inventory from one supplier.This supplier has offered a 5 per cent discount to The Moose Co.if it will pay for its purchases within 10 days.If The Moose Co.changes it payables policy and pays in 10 days,the firm's cash cycle will be _____ days.

Accepted Answer

The answer of The Moose Co.currently has 81 days in...

Question 11

The Windslow Co.has the following estimated sales:
Sales
Purchases are equal to 55 per cent of the following quarter's sales.What is the amount of anticipated purchases which will be made in the third quarter?

Accepted Answer

To find the anticipated purchases for the third quarter, we need to first find the estimated sales for the second quarter, as purchases are equal to 55% of the following quarter's sales. Since no information is given about the estimated sales for the second quarter, we cannot calculate the exact amount of anticipated purchases. However, we can make an educated guess based on the options given.

Option B is the highest value, and if we assume that the estimated sales for the second quarter are also high, it would result in higher anticipated purchases for the third quarter. Therefore, B is the best choice.

Question 12

Short-term uncommitted loan facilities are often used to finance temporary needs,such as:

Accepted Answer

Short-term uncommitted loan facilities can be used for a variety of temporary needs, such as paying trade creditors to earn discounts, one-off transactions, meeting salary payments when trade receivables are slow, and other short-term financing needs. Therefore, all of the given answers are valid.

Question 13

The time between the payment for inventory and the receipt of cash from the sale of that inventory is called the:

Accepted Answer

The time between paying for inventory and receiving cash from its sale is known as the cash cycle. The cash cycle is an essential parameter that helps a company to manage its cash flows effectively. It mainly focuses on the time taken by a company to convert its inventory into cash, which is a crucial factor in determining its liquidity. Therefore, option D is the correct answer.

Question 14

Which of the following are considered to be shortage costs?
I.the cost of placing an order
II.production disruptions caused by the inventory
III.lost sales due to limited selection
IV.opportunity cost associated with highly liquid assets

Accepted Answer

Shortage costs are costs incurred when demand exceeds supply. These costs include lost sales due to limited selection (III) and production disruptions caused by the inventory (II).

Question 15

Factoring involves the lender buying the accounts receivable assets of the borrowing company at a discount to their face value.If the factoring company can recover future bad debt from the borrowing company,this is called:

Accepted Answer

Conventional factoring is when the factoring company can recover future bad debts from the borrowing company. In this type of factoring, the lender buys the accounts receivable assets of the borrowing company at a discount to their face value. The other options do not fit the scenario described in the question.

Question 16

Baker Industries offers credit terms of 2/20,net 60 to Charlie Co.Charlie Co.has an inventory period of 15 days and an operating cycle of 45 days.Given this,which of the following statements are correct?
I.The credit terms of Baker Industries are too restrictive.
II.If Charlie Co.forgoes the discount on its purchases,it will have a negative cash cycle.
III.Baker Industries is financing the accounts receivable of Charlie Co.
IV.If Charlie Co.is delinquent in its payment,Baker Industries should be concerned.

Accepted Answer

Charlie Co.'s operating cycle is 45 days, and if it forgoes the discount, it pays in 60 days, resulting in a negative cash cycle. Baker Industries is financing Charlie Co.'s accounts receivable, and delinquency in payment is a concern for Baker Industries.

Question 17

The cash cycle is equal to:

Accepted Answer

The cash cycle is the time between when the company pays for goods and services and when it receives payment for its own goods and services. It is calculated as the sum of the inventory period (time between buying raw materials and selling finished goods), the accounts receivable period (time between selling goods and receiving payment), and the accounts payable period (time between buying goods and paying for them). Therefore, option C, which adds the inventory period to the difference between accounts receivable and accounts payable periods, is the correct choice.

Question 18

At the end of June 2007,TB Cave & Associates had an average of $45 000 in accounts receivable.Credit sales were $292 500.The company factors all of its receivables immediately at a 1.50% discount.For simplification,consider that all of the accounts receivable are expected to be collected in full.What is the company's effective cost of borrowing on this source of financing?

Accepted Answer

The answer of At the end of June 2007,TB Cave...

Question 19

The __________ facility is a major source of short-term finance for a corporation.It allows the company,without any previous notice,to put its bank account into ______,up to an agreed limit.

Accepted Answer

An overdraft facility allows a company to withdraw more money than it has in its bank account, creating a deficit up to an agreed limit, providing short-term finance.

Question 20

Which one of the following commences on the day inventory is purchased and ends on the day the payment for that inventory is collected? Assume all sales and purchases are on credit.

Accepted Answer

The operating cycle starts when inventory is purchased and ends when payment is collected from sales, encompassing the entire process of buying, selling, and collecting receivables.

Quiz 16: Short-Term Financial Planning