Finance 323 Ch 18

A national firm has sales of $729,000 and cost of goods sold of $478,000. At the beginning of the year, the inventory was $37,000. At the end of the year, the inventory balance was $41,000. What is the inventory turnover rate? A. 12.26 times B. 12.78 times C. 14.22 times D. 18.56 times E. 19.70 times

A. 12.26 times 478000/(39000)

On average, Furniture & More is able to sell its inventory in 27 days. The firm takes 87 days on average to pay for its purchases. On the other hand, its average customer pays with a credit card which allows the firm to collect its receivables in 4 days. Given this information, what is the length of operating cycle? A. 31 days B. 38 days C. 45 days D. 56 days E. 62 days

A. 31 days

HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100. Sales for the period were $610,000 and costs of goods sold were $442,000. What is the payables turnover rate? A. 7.86 times B. 8.39 times C. 9.02 times D. 9.86 times E. 10.85 times

A. 7.86 times (57300+55100)/2=56200 442000/56200=7.86

Costs that increase as a firm acquires additional current assets are called _____ costs. A. carrying B. shortage C. order D. safety E. trading

A. carrying

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

A. operating cycle.

Which one of the following is indicative of a short-term restrictive financial policy? A. purchasing inventory on an as-needed basis B. granting credit to all customers C. investing heavily in marketable securities D. maintaining a large accounts receivable balance E. keeping inventory levels high

A. purchasing inventory on an as-needed basis

The Bear Rug has sales of $811,000. The cost of goods sold is equal to 63 percent of sales. The beginning accounts receivable balance is $41,000 and the ending accounts receivable balance is $38,000. How long on average does it take the firm to collect its receivables? A. 17.26 days B. 17.78 days C. 18.58 days D. 20.44 days E. 29.77 days

B. 17.78 days (38000+41000)/2=39500 39500/811000=0.0487 0.0487*365=17.78

Your firm has an inventory turnover rate of 14, a payables turnover rate of 8, and a receivables turnover rate of 19. How long is your firm's operating cycle? A. 45.06 days B. 45.28 days C. 45.63 days D. 53.13 days E. 53.78 days

B. 45.28 days 365/14=26.07 365/19=19.21 26.07+19.21=45.28

Which of the following are uses of cash? I. collecting a receivable II. increasing inventory III. obtaining a bank loan IV. paying a supplier for previous purchases A. I and III only B. II and IV only C. I and II only D. I, II, and IV only E. II, III, and IV only

B. II and IV only

Which one of the following equals the operating cycle? A. cash cycle plus accounts receivable period B. inventory period plus the accounts receivable period C. inventory period plus the accounts payable period D. accounts payable period minus the cash cycle E. accounts payable period plus the accounts receivable period

B. inventory period plus the accounts receivable period

The length of time that elapses between the day a firm purchases an inventory item and the day that item sells is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

B. inventory period.

Costs that decrease as a firm acquires additional current assets are called _____ costs. A. carrying B. shortage C. debt D. equity E. payables

B. shortage

The Mountain Top Shoppe has sales of $512,000, average accounts receivable of $31,400 and average accounts payable of $24,800. The cost of goods sold is equivalent to 71 percent of sales. How long does it take The Mountain Top Shoppe to pay its suppliers? A. 21.76 days B. 22.38 days C. 24.90 days D. 25.89 days E. 26.67 days

C. 24.90 days (512000*0.71)/24800=14.66 365/14.66=24.90

Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $41,000 and an ending inventory of $47,000. What is the length of the inventory period? A. 19.21 days B. 20.89 days C. 26.72 days D. 30.53 days E. 33.69 days

C. 26.72 days (41000+47000)/2=44000 44000/601000=0.073 0.073*365=26.72

The Blue Star has sales of $387,000, costs of goods sold of $259,000, average accounts receivable of $9,800, and average accounts payable of $12,600. How long does it take for the firm's credit customers to pay for their purchases? A. 7.67 days B. 8.78 days C. 9.24 days D. 11.88 days E. 13.81 days

C. 9.24 days 387000/9800=39.49 365/39.49=9.24

The length of time between the sale of inventory and the collection of the payment for that sale is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle

C. accounts receivable period.

West Chester Automation has an inventory turnover of 16 and an accounts payable turnover of 11. The accounts receivable period is 36 days. What is the length of the cash cycle? A. 5.67 days B. 25.63 days C. 41.00 days D. 52.00 days E. 58.81 days

D. 52.00 days

Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18. What is the length of the cash cycle? A. 3.00 days B. 5.28 days C. 26.28 days D. 71.00 days E. 73.28 days

D. 71.00 days

22. A flexible short-term financial policy: I. increases shortage costs due to frequent cash-outs. II. tends to increase sales as compared to a restrictive policy. III. requires a sizeable investment in current assets. IV. incurs more carrying costs than a restrictive policy. A. I and IV only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, III, and IV only

D. II, III, and IV only

The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

D. accounts payable period

Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year. This arrangement is called a(n): A. floor loan. B. open loan. C. compensating balance. D. line of credit. E. bank note.

D. line of credit.

Central Supply purchased a toboggan for inventory this morning and paid cash for it. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

E. cash cycle.