Finanace Chp 16

Furniture Outlet has an accounts receivable period of 53 days and an accounts payable period of 87 days. The company turns over its inventory 4.3 times per year and marks up the inventory an average of 38 percent over its wholesale cost. What is the length of the firm's operating cycle? A. 137.88 days B. 147.88 days C. 89.22 days D. 60.88 days E. 125.68 days

A. 137.88 days Explanation Operating cycle = (365/4.3) + 53 = 137.88 days

The amount of time a firm holds inventory in stock is referred to as the: A. inventory period. B. accounts receivable period. C. accounts payable period. D. operating cycle. E. cash cycle.

A. inventory period.

Which one of the following is a use of cash? A. Selling inventory at cost B. Paying a supplier for inventory you purchased last month C. Borrowing money from a local bank D. Collecting payment from a customer E. Selling a fixed asset such as a piece of machinery

B. Paying a supplier for inventory you purchased last month

Accounts receivable financing is the term used to describe which one of the following types of loans that involve either the assignment or the factoring of a firm's accounts receivable? A. Secured short-term loan B. Unsecured short-term loan C. Secured long-term loan D. Unsecured long-term loan E. Trust receipt loan

A. Secured short-term loan

Consider the following financial statement information: Beginning Balance Inventory - $18,600 Accounts Receivable- $4,200 Accounts Payable- $5,800 Net Sales- $76,400 Cost of Goods Sold- $51,700 Ending Balance Inventory - $19,400 Accounts Receivable- $4,500 Accounts Payable- $5,200 Net Sales- $76,400 Cost of Goods Sold- $51,700 Assume all sales and purchases are on credit. How long is the cash cycle? (Use average balance sheet account balances.) A. 80.21 days B. 116.09 days C. 101.03 days D. 113.58 days E. 73.57 days

B. 116.09 days Explanation Inventory period = 365/{$51,700/[($18,600 + 19,400)/2]} = 134.139 days Accounts receivable period = 365/{$76,400/[($4,200 + $4,500)/2]} = 20.782 days Accounts payable period = 365/{$51,700/[($5,800 + 5,200)/2]} = 38.830 days Cash cycle = 134.139 + 20.782 − 38.830 = 116.09 days

The Shoe Tree currently has an operating cycle of 199 days and a cash cycle of 54 days. The company is implementing some changes that will reduce the inventory period by 11 days, decrease the receivables period by 6 days, and decrease the accounts payable period by 4 days. How many days will be in the new cash cycle once all of these changes become effective? A. 35 days B. 45 days C. 41 days D. 33 days E. 38 days

C. 41 days Explanation New cash cycle = 54 −11 − 6 + 4 = 41 days

Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called? A. Operating projection B. Receivables schedule C. Balance sheet D. Cash budget E. Compromise policy

D. Cash budget

Which one of the following will increase the operating cycle? A. Decreasing the accounts payable period B. Increasing the accounts payable turnover rate C. Increasing the cash cycle D. Decreasing the accounts receivable turnover rate E. Decreasing the inventory period

D. Decreasing the accounts receivable turnover rate

Which one of these will increase the operating cycle? A. Decreasing the days' sales in inventory B. Decreasing the accounts payable period C. Increasing the accounts receivable turnover rate D. Decreasing the inventory turnover rate E. Decreasing the accounts payable turnover rate

D. Decreasing the inventory turnover rate

Which of these actions is indicative of a restrictive short-term financial policy? A. Granting increasing amounts of credit to customers B. Expanding the number of inventory items carried C. Increasing the firm's investment in the current accounts D. Minimizing the cash balances held by the firm E. Investing relatively large amounts in marketable securities

D. Minimizing the cash balances held by the firm

Which one of the following commences on the day inventory is purchased and ends on the day the payment for the sale of that inventory is collected? Assume all sales and purchases are on credit. A. Inventory period B. Accounts receivable period C. Accounts payable period D. Operating cycle E. Cash cycle

D. Operating cycle

The operating cycle is equal to the: A. inventory period plus the accounts payable period. B. accounts receivable period plus the cash cycle. C. inventory period minus the accounts payable period plus the accounts receivable period. D. accounts receivable period plus the inventory period. E. inventory period plus the cash cycle.

D. accounts receivable period plus the inventory period.

An increase in the accounts receivable period is most apt to: A. lengthen the accounts payable period. B. shorten the inventory period. C. shorten the operating cycle. D. lengthen the cash cycle. E. shorten the accounts payable period.

D. lengthen the cash cycle.

The cash cycle equals the: A. inventory period plus the accounts receivable period. B. inventory period plus the accounts payable period. C. operating cycle minus the inventory period. D. operating cycle minus the accounts payable period. E. operating cycle minus the accounts receivable period.

D. operating cycle minus the accounts payable period.

The accounts receivable period is the time that elapses between the _________ and the _________. A. purchase of inventory; payment to the supplier B. purchase of inventory; collection of the receivable C. sale of inventory; payment to supplier D. sale of inventory; collection of the receivable E. sale of inventory; billing to customer

D. sale of inventory; collection of the receivable

Which one of the following is directly related to increases in a firm's current assets? A. Reorder costs B. Shortage costs C. Restocking costs D. Out-of-stock events E. Carrying costs

E. Carrying costs

Which of these is a use of cash? A. Issuing new shares of stock B. Decreasing accounts receivable C. Decreasing inventory D. Decreasing fixed assets E. Decreasing accounts payable

E. Decreasing accounts payable

Which of these activities is a source of cash? A. Decreasing long-term debt B. Increasing inventory C. Repurchasing shares of stock D. Increasing fixed assets E. Decreasing accounts receivable

E. Decreasing accounts receivable

Which of the following are sources of cash? 1. Decreasing accounts receivable 2. Increasing inventory 3. Increasing accounts payable 4. Increasing common stock A. I and III only B. II and IV only C. II and III only D. I and IV only E. I, III, and IV only

E. I, III, and IV only

Which of these best describes a line of credit? A. Long-term, prearranged, committed bank loan B. Short-term loan secured by accounts receivable C. Short-term loan secured by inventory D. Long-term, prearranged, noncommitted bank loan E. Short-term prearranged bank loan that can be either committed or noncommitted

E. Short-term prearranged bank loan that can be either committed or noncommitted