Chapter 18 Short-Term Finance and Planning

1. Most firms have a positive cash cycle.

True False

2. The time period between the day a firm pays for its
inventory item and the day it received payment from
the customer who purchased that inventory item is
called the accounts receivable period.

True False

3. A graphical representation of the operating and cash

cycles is called a cash flow time line

True False

4. A letter of credit is a prearranged, short-term bank loan

made typically reviewed for renewal annually.

True False

5. Money deposited by a borrower with the bank in a low

or non-interest-bearing account as part of a loan
agreement is called a compensating balance.

True False

6. Cash cycle is the number of days it takes it takes a firm

to its receivables and the days it pays its creditors.

True False

7. Pledged financing is a short-term financing that

involves either the assignment of receivables to another
company for collection.

True False

8. A prearranged, short-term bank loan made on a formal

or informal basis, and typically reviewed for renewal
annually, is called a line of credit.

True False

9. Cash is increased when a firm grants credit to a

customer

True False
10. Secured financing on a short-term basis that involves
either the assignment or the factoring of receivables is
called accounts receivable financing.

True False

11. Accepting credit from a supplier increases cash.

True False

12. The length of time between the acquisition of inventory

and the collection of cash from receivables is called the
_______________________.

A.
B.
C.
D.
E.

13. The length of time between the acquisition of inventory

and its sale is called the ______________.

A.
B.
C.
D.
E.

14. The length of time between the sale of inventory and

the collection of cash from receivables is called the
__________________.

A.
B.
C.
D.
E.

15. The length of time between the acquisition of inventory

and payment for it is called the _____________.

A.
B.
C.
D.
E.
16. The length of time between the payment for inventory
and the collection of cash from receivables is called the
_________________.

A.
B.
C.
D.
E.

17. Costs of the firm that rise with increased levels of

investment in its current assets are called:

A.
B.
C.
D.
E.

18. Costs of the firm that fall with increased levels of

investment in its current assets are called:

A.
B.
C.
D.
E.

19. The forecast of cash receipts and disbursements for the

next planning period is called a:

A.
B.
C.
D.
E.

20. A ____________, issued by a bank, promises to make a

loan if certain conditions are met.

A.
B.
C.
D.
E.
21. A short-term loan where the lender holds the borrower's
receivables as security is called:

A.
B.
C.
D.
E.

22. A short-term loan secured by the borrower's inventory,

either directly or via an intermediary, is called a(n)
____________________.

A.
B.
C.
D.
E.

23. The average length of time it takes customers to pay for

the merchandise they buy is called the:

A.
B.
C.
D.
E.

24. The period of time during which either liquidity

reserves or external funding is needed to maintain
company operations is called the:

A.
B.
C.
D.
E.

25. The cash cycle can be defined as the operating cycle:

A.
B.
C.
D.
E.
26. A company procedure whereby the firm maintains a
relatively high ratio of current assets to sales is called a
_____ policy.

A.
B.
C.
D.
E.

27. A disruption in the production schedule due to a lack of

materials is called a:

A.
B.
C.
D.
E.

28. The financing of short-term assets with short-term debt

is known as:

A.
B.
C.
D.
E.

29. A floor plan can also be called a(n):

A.
B.
C.
D.
E.

30. An agreement by a bank which guarantees payment on

the prompt arrival of a shipment of goods from an
overseas supplier is called a:

A.
B.
C.
D.
E.
31. The process that transfers the responsibility for
collecting accounts receivables from a firm to a bank in
exchange for a percent of the accounts receivables
value is referred to as:

A.
B.
C.
D.
E.

32. Which of the following would NOT fall under the

heading of short-term financial planning?

A.
B.
C.
D.
E.

33. Which of the following is a source of cash, all else the

same?

A.
B.
C.
D.
E.

34. Which of the following represent an increase in cash,

all else the same?

I. Long-term debt is reduced

II. Inventory is acquired
III. Fixed assets are sold
IV. Receivables are factored

A.
B.
C.
D.
E.
35. Which of the following is a use of cash, all else the
same?

A.
B.
C.
D.
E.

36. Which of the following would result in an increase in

cash?

A.
B.
C.
D.
E.

37. If the initial current ratio for a firm is greater than one,
which of the following activities will decrease net
working capital?

I. Sale of inventory (at book value) on credit

II. Using cash to purchase marketable securities
III. Factoring receivable at 90% of their book value
IV. Obtaining a short-term bank loan to purchase fixed
assets

A.
B.
C.
D.
E.

38. Your firm's banker is getting nervous about your

liquidity. Which of the following actions would
increase the firm's current ratio (which is presently 0.6)
and ease the bank's concern?

A.
B.
C.
D.
E.
39. Which of the following regarding the organizational
chart is false?

A.
B.
C.
D.
E.

40. The _____________ is generally responsible for the

monitoring and control of accounts receivable.

A.
B.
C.
D.
E.

41. The _____________ is generally responsible for the

collection and dissemination of accounting information
on cash flows.

A.
B.
C.
D.
E.

42. According to the text, the ___________ is generally

responsible for making credit policy decisions.

A.
B.
C.
D.
E.
43. The ___________ is generally responsible for
monitoring short-term investment and borrowing
activities.

A.
B.
C.
D.
E.

44. Which of the following managers do(es) NOT have a

direct influence on the firm's inventory holdings?

I. Cash manager
II. Production manager
III. Payables manager
IV. Purchasing manager

A.
B.
C.
D.
E.

45. Which of the following managers do(es) NOT have a

direct influence on the firm's accounts receivable
balance?

I. Credit manager
II. Production manager
III. Payables manager
IV. Controller

A.
B.
C.
D.
E.
46. Which of the following correctly defines the operating
cycle?

I. Cash cycle - accounts payable period

II. Inventory period + accounts receivable period
III. Cash cycle + accounts payable period
IV. Inventory period - accounts receivable period -
accounts payable period

A.
B.
C.
D.
E.

47. All else the same, which of the following would

increase the length of a firm's cash cycle? Consider
each in isolation.

I. Inventory turnover increases

II. Accounts receivable period increases
III. Accounts payable period decreases

A.
B.
C.
D.
E.

48. All else the same, which of the following would

decrease the length of the cash cycle?

A.
B.
C.
D.
E.

49. All else the same, shortening your firm's cash cycle will
_______________.

A.
B.
C.
D.
E.
50. All else the same, shortening the firm's cash cycle will
likely____________ the firm's profitability.

A.
B.
C.
D.
E.

51. All else the same, which of the following will likely
increase the firm's cash cycle?

I. Changing credit terms to require payment in 30 days

rather than 20.
II. Purchasing inventory more often and in smaller
amounts.
III. Delaying payment on payables for an additional 10
days.
IV. Offering a larger discount for cash sales.

A.
B.
C.
D.
E.

52. Which of the following statements is true?

A.
B.
C.
D.
E.

53. Your firm decides to increase the time allowed

customers to pay their bills from 30 to 40 days. All else
the same, this action will _____________ and
_______________.

A.
B.
C.
D.
E.
54. Which of the following would move a firm toward a
flexible short-term financial policy?

I. Credit restrictions for accounts receivable are

increased.
II. The level of investment in inventory is decreased.
III. Investment in marketable securities is increased.

A.
B.
C.
D.
E.

55. If a firm maintains a relatively high level of

investments in cash and marketable securities, which of
the following statements is true?

A.
B.
C.
D.
E.

56. A firm which employs a flexible short-term financial

policy will have a relatively:

A.
B.
C.
D.
E.

57. A firm which successfully employs a _____________

short-term financial policy will probably decrease its
risk of default and/or inventory stock-outs.

A.
B.
C.
D.
E.
58. A ____________ short-term financial policy increases
the opportunity cost of holding liquid assets.

A.
B.
C.
D.
E.

59. A firm which employs a restrictive short-term financial

policy will have a relatively __________.

A.
B.
C.
D.
E.

60. A firm which successfully employs a ___________

short-term financial policy will probably
_______________ its risk of default and/or inventory
stock-outs.

A.
B.
C.
D.
E.

61. Your boss decides that your firm will switch from a
restrictive short-term financial policy to a more flexible
policy. You should expect to see the firm's current
ratio:

A.
B.
C.
D.
E.
62. Which of the following statements is false?

A.
B.
C.
D.
E.

63. ________ fall with increases in the level of investment

in current assets, while ________ increase.

A.
B.
C.
D.
E.

64. Which of the following regarding current asset

financing is correct?

A.
B.
C.
D.
E.

65. Which of the following is a correct statement?

A.
B.
C.
D.
E.

66. Which of the following issues falls under the heading of

short-term finance?

A.
B.
C.
D.
E.
67. Which of the following issues is/are NOT considered a
part of short-term finance?

A.
B.
C.
D.
E.

68. A firm is preparing a short-term financial plan. One

question the firm would most likely NOT address is
______________________.

A.
B.
C.
D.
E.

69. Short-term financial decisions are typically defined to

include cash inflows and outflows that occur within
_________ year(s) or less.

A.
B.
C.
D.
E.

70. A ___________ is an informal arrangement between a

bank and a business that allows the firm to periodically
borrow up to a pre-specified limit.

A.
B.
C.
D.
E.
71. A firm experiencing short-term cash flow problems can
most easily deal with the problem by
________________.

A.
B.
C.
D.
E.

72. A firm needs to raise cash and at the same time reduce
the level of its accounts receivable. This firm would
likely benefit most by _______________________.

A.
B.
C.
D.
E.

73. A type of inventory financing in which a third party to

the lending arrangement typically acts as a control
agent to supervise the inventory for the lender is called
_______________________.

A.
B.
C.
D.
E.

74. A firm wishes to obtain short term financing at a rate

significantly below that which a bank would charge. If
the firm is large and highly rated, it may be able to meet
its needs by _______________.

A.
B.
C.
D.
E.
75. Which of the following are sources of cash?

I. Increase in inventory
II. Decrease in accounts payable
III. Decrease in accounts receivable
IV. Increase in fixed assets

A.
B.
C.
D.
E.

76. Which one of the following is a use of cash?

A.
B.
C.
D.
E.

77. Which one of the following is a source of cash?

A.
B.
C.
D.
E.

78. Mycale's has always paid its suppliers in 30 days. The

company just hired a new financial officer who is
changing the policy such that suppliers will now be
paid in 45 days. This change will ______ the accounts
payable period and _______ the cash cycle.

A.
B.
C.
D.
E.
79. Which one of the following will decrease the operating
cycle?

A.
B.
C.
D.
E.

80. Which one of the following will increase the cash

cycle?

A.
B.
C.
D.
E.

81. Shortage costs are those costs that:

A.
B.
C.
D.
E.

82. Which of the following statements is correct concerning

a flexible short-term financial policy?

I. A flexible policy is most appropriate when carrying

costs are low relative to shortage costs.
II. A flexible policy entails the use of marketable
securities.
III. A flexible policy requires more short-term bank
loans than does a restrictive policy.
IV. The optimal current asset holdings are higher under
a flexible policy than under a restrictive policy.

A.
B.
C.
D.
E.
83. Which of the following are associated with a restrictive
short-term financial policy?

I. Minimal, if any, investments in marketable securities

II. Large investments in inventory
III. Frequent cash-outs
IV. Liberal credit terms for customers

A.
B.
C.
D.
E.

84. Which one of the following statements concerning

inventory loans is correct?

A.
B.
C.
D.
E.

85. In which one of the following situations will a firm

require the most short-term financing?

A.
B.
C.
D.
E.

86. Kea owns a wholesale nursery that sells potted plants to

large retail outlets. These sales are seasonal in nature.
Kea cannot afford to wait for payment from the retailers
as they often take 60 days or more to pay. Kea has only
been in business for three years. Due to the nature of
her business, Kea's bank is not willing to accept
responsibility for collecting the receivables. The type of
financing that is most appropriate for Kea's situation is:

A.
B.
C.
D.
E.
87. The primary objective of short-term financial
management is to:

A.
B.
C.
D.
E.

88. Which of the following classify as shortage costs?

I. Costs of placing an order

II. Lost customer goodwill
III. Reserve inventory storage costs
IV. The costs to set up equipment to produce a different
product

A.
B.
C.
D.
E.

89. Holidays, Etc. produces and distributes seasonal

merchandise to retail outlets. The firm has adopted a
compromise short-term financial policy. Given this
information, which one of the following statements
must be true?

A.
B.
C.
D.
E.

90. KNF, Inc. pays its creditors in 45 days. Inventory is

purchased one quarter prior to its sale. Cost of goods
sold is equal to 50% of the selling price. Each quarter
the total that KNF must pay on its accounts is equal to:

A.
B.
C.
D.
E.
91. Randy's Meat Market has a 46-day collection period.
The amount of cash that Randy collects each quarter is
equal to:

A.
B.
C.
D.
E.

92. Which of the following are generally considered as paid

in the quarter incurred for cash budgeting purposes?

I. Wages
II. Inventory purchases
III. Capital equipment purchases
IV. Taxes

A.
B.
C.
D.
E.

93. Delta, Inc. follows a flexible short-term financing

policy. The firm produces educational toys, which is a
cyclical business. When the firm needs to pay for large
inventories in advance of peak sales, the firm will:

A.
B.
C.
D.
E.

94. A type of short-term loan where the borrower sells its

receivables to the lender up-front, but at a discount to
face value, is called:

A.
B.
C.
D.
E.
95. Which one of the following is a source of cash?

A.
B.
C.
D.
E.

96. Which of the following are uses of cash?

I. marketable securities are sold

II. the amount of inventory on hand is increased
III. the firm takes out a long-term bank loan
IV. payments are paid on accounts payable

A.
B.
C.
D.
E.

97. Which one of the following will increase net working

capital? Assume that the current ratio is greater than
1.0.

A.
B.
C.
D.
E.

98. Which one of the following will decrease the net

working capital of a firm? Assume that the current ratio
is greater than 1.0.

A.
B.
C.
D.
E.
99. Which one of the following will decrease the operating
cycle?

A.
B.
C.
D.
E.

100. Which one of the following will decrease the operating

cycle?

A.
B.
C.
D.
E.

101. The operating cycle describes how a product:

A.
B.
C.
D.
E.

102. Which one of the following will not affect the operating
cycle?

A.
B.
C.
D.
E.

103. Which one of the following will increase the cash

cycle?

A.
B.
C.
D.
E.
104. An increase in which one of the following will decrease
the cash cycle, all else equal?

A.
B.
C.
D.
E.

105. ABC Manufacturing historically produced products that

were held in inventory until they could be sold to a
customer. The firm is now changing its policy and only
producing a product when it receives an actual order
from a customer. All else equal, this change will:

A.
B.
C.
D.
E.

106. Which one of the following statements concerning the

cash cycle is correct?

A.
B.
C.
D.
E.

107. Which one of the following statements is correct

concerning the cash cycle?

A.
B.
C.
D.
E.
108. Which of the following actions will tend to decrease the
inventory period?

I. discontinuing all slow-selling merchandise

II. selling obsolete inventory below cost just to get rid
of it
III. buying raw materials only as they are needed in the
manufacturing process
IV. producing goods on demand versus for inventory

A.
B.
C.
D.
E.

109. Which of the following actions will tend to decrease the

accounts receivable period?

I. loosening the standards for granting credit to

customers
II. increasing the discount for early payment by credit
customers
III. increasing the finance charges applied to all
customer balances outstanding over thirty days
IV. granting discounts for cash sales

A.
B.
C.
D.
E.

110. An increase in which one of the following is most apt to

be an indicator of an accounts receivable policy that is
too restrictive?

A.
B.
C.
D.
E.
111. If you delay paying your suppliers by an additional ten
days, then:

A.
B.
C.
D.
E.

112. Which one of the following will increase the accounts

payable period, all else constant?

A.
B.
C.
D.
E.

113. Which one of the following managers is most likely in

charge of establishing the accounts receivable policy?

A.
B.
C.
D.
E.

114. The manager responsible for the accounting

information concerning cash flows is the:

A.
B.
C.
D.
E.

115. Flexible short-term financial policies tend to:

A.
B.
C.
D.
E.
116. A restrictive short-term financial policy tends to:

A.
B.
C.
D.
E.

117. Which of the following are associated with a restrictive

short-term financial policy?

I. large investments in marketable securities

II. liberal credit terms for customers
III. minimal cash balances
IV. minimal credit sales

A.
B.
C.
D.
E.

118. A restrictive short-term financial policy, as compared to

a more flexible policy, tends to:

I. cause a firm to lose sales due to a lack of inventory

on hand.
II. increase the sales of a firm due to the firm's credit
availability and terms.
III. increase the probability that a firm will face a cash-
out situation.
IV. increase the ability of a firm to charge premium
prices.

A.
B.
C.
D.
E.
119. A flexible short-term financial policy:

A.
B.
C.
D.
E.

120. A flexible short-term financial policy:

A.
B.
C.
D.
E.

121. If your accounts receivable period is 30 days, you will

collect payment for your _____ sales during the second
quarter of a calendar year.

A.
B.
C.
D.
E.

122. Your firm collects 30% of sales in the month of sale,

55% of sales in the month following the month of sale
and 13% of sales in the second month following the
month of sale. Given this, you will collect _____ sales
during the month of June.

A.
B.
C.
D.
E.
123. A manufacturing firm has a 90 day collection period.
The firm produces seasonal merchandise and thus has
the least sales during the first quarter of a year and the
highest level of sales during the third quarter of a year.
The firm maintains a relatively steady level of
production which means that its cash disbursements are
fairly equal in all quarters. The firm is most apt to face
a cash-out situation in:

A.
B.
C.
D.
E.

124. Which one of the following sentences is correct about a

manufacturing firm with seasonal sales?

A.
B.
C.
D.
E.

125. Which two of the following four conditions are most

apt to cause a quarterly cash shortfall for a firm which
is financially sound?

I. a relatively constant level of sales

II. periodic expenditures for major equipment purchases
III. a steady dependence on a constant level of external
financing
IV. highly seasonal sales

A.
B.
C.
D.
E.
126. Which of the following statements are correct
concerning the cash balance of a firm?

I. Most firms plan on maintaining a minimum cash

balance at all times.
II. The cumulative cash surplus shown on a cash budget
is equal to the ending cash balance plus the minimum
cash balance retained by the firm.
III. The cumulative cash surplus at the end of March is
used as the beginning cash balance for April when you
are compiling a projected monthly cash balance report.
IV. A negative cumulative cash surplus indicates a
borrowing need by the firm.

A.
B.
C.
D.
E.

127. A cumulative cash deficit indicates that a firm:

A.
B.
C.
D.
E.

128. Which one of the following statements is correct?

A.
B.
C.
D.
E.
129. Which of the following are benefits of compiling a
short-term financial plan?

I. knowing ahead of time when your firm will probably

require external financing
II. being able to estimate how long of a time period
your firm might need a loan
III. being able to determine when your firm can best
afford to spend funds on a capital expenditure
IV. knowing when your firm should have excess funds
that can be invested

A.
B.
C.
D.
E.

130. The operating cycle is defined as the period of time

between the _____ and the _____.

A.
B.
C.
D.
E.

131. The cash cycle is defined as the period of time between

the _____ and the _____.

A.
B.
C.
D.
E.

132. Which one of the following is a use of cash?

A.
B.
C.
D.
E.
133. Which of the following are sources of cash?

I. credit extended by a supplier

II. the payment of wages to an employee
III. a reduction in the average accounts receivable
balance
IV. an increase in long-term debt

A.
B.
C.
D.
E.

134. Pedro's Farms has $137,000 in net working capital.

Which one of the following actions will increase that
amount?

A.
B.
C.
D.
E.

135. Holly's Meat Markets has accumulated $128,900 in net

working capital. Which one of the following will reduce
this amount?

A.
B.
C.
D.
E.

136. The operating cycle must lengthen when the:

A.
B.
C.
D.
E.
137. Which one of the following will shorten both the
operating and the cash cycles?

A.
B.
C.
D.
E.

138. Which of the following will shorten the cash cycle?

I. paying suppliers slower

II. collecting receivables faster
III. selling inventory slower
IV. selling more inventory on credit rather than for cash

A.
B.
C.
D.
E.

139. The Lumber Yard has installed a new inventory control

system which will improve the efficiency of the
operations and reduce excess inventory. This system
will _____ the inventory period and _____ the cash
cycle.

A.
B.
C.
D.
E.

140. At the ideal level of inventory, the:

A.
B.
C.
D.
E.
141. Evergreen Brothers Hardware offers credit to
contractors. As a reward for years of loyalty, the
brothers have decided to extend the length of the credit
period for their top ten customers. This extension will
_____ the accounts receivable period, _____ the
operating cycle, and _____ the cash cycle.

A.
B.
C.
D.
E.

142. Your key supplier has decided to change the terms of

your credit arrangement from net 45 to net 30. This
action will _____ your accounts payable period and
_____ your cash cycle.

A.
B.
C.
D.
E.

143. The Jennings Company recently hired a new chief

financial officer. One of the first changes she made was
to delay the payment of all bills by ten days. The net
effect of this action is to decrease the:

A.
B.
C.
D.
E.

144. Which one of the following statements is correct

concerning the short-term financial policy of a firm?

A.
B.
C.
D.
E.
145. Haywood Paints has a 45 day collection period.
Therefore they will collect _____ days of May sales,
_____ days of June sales, and _____ days of July sales
in the month of July.

A.
B.
C.
D.
E.

146. Keyser Metal Fabricators collects 25% of sales in the

month of sale, 65% in the month following the month
of sale, and the 10% in the second month following the
month of sale. In August, Keyser will collect _____
sales.

A.
B.
C.
D.
E.

147. The cumulative cash surplus or deficit:

A.
B.
C.
D.
E.

148. Bristol Machinery has a conventional receivables

factoring arrangement with a factor. This indicates that:

A.
B.
C.
D.
E.
149. Which one of the following statements is correct
concerning inventory loans?

A.
B.
C.
D.
E.

150. Suppose that the inventory period is 50 days, the

accounts payable period is 35 days, and the cash cycle
is 55 days. What is the operating cycle?

A.
B.
C.
D.
E.

151. Melons 'R' Us, a national chain of fruit stands, has an

inventory period of 65 days, an accounts payable period
of 30 days, and an accounts receivable period of 24
days. The CFO wants to implement a discount plan in
order to reduce the receivables period to 18 days. What
will happen to the firm's operating cycle?

A.
B.
C.
D.
E.

152. Suppose that the inventory period is 50 days, the

accounts receivable period is 40 days, and the cash
cycle is 55 days. What is the accounts payable period?

A.
B.
C.
D.
E.
153. A firm has average inventory of $1,250,000, an
inventory period of 58 days, a receivables period of 32
days, and average payables of $810,000. What is its
cash cycle?

A.
B.
C.
D.
E.

154. Suppose that the inventory period is 50 days, the

accounts receivable period is 40 days, and the accounts
payable period is 35 days. What is the cash cycle?

A.
B.
C.
D.
E.

155. For the year just ended, James' Drafting Supplies had
average accounts receivable of $880,000 and total
credit sales of $4,800,000. Throughout the year, a factor
purchased accounts receivable from the firm at a 2%
discount. What was the firm's days in receivables?

A.
B.
C.
D.
E.

156. For the year just ended, James' Drafting Supplies had
average accounts receivable of $880,000 and total
credit sales of $4,800,000. Throughout the year, a factor
purchased accounts receivable from the firm at a 2%
discount. What was the firm's effective interest rate paid
on its receivables financing?

A.
B.
C.
D.
E.
157. For the year just ended, James' Drafting Supplies had
average accounts receivable of $880,000 and total
credit sales of $4,800,000. Throughout the year, a factor
purchased accounts receivable from the firm at a 2%
discount. If the firm wishes to get its factoring costs
below 11%, what is the MAXIMUM days in
receivables it can have?

A.
B.
C.
D.
E.

158. What is the inventory turnover?

A.
B.
C.
D.
E.

159. What is the inventory period?

A.
B.
C.
D.
E.

160. What is the accounts receivable turnover?

A.
B.
C.
D.
E.
161. What is the accounts receivable period?

A.
B.
C.
D.
E.

162. What is the accounts payable turnover?

A.
B.
C.
D.
E.

163. What is the accounts payable period?

A.
B.
C.
D.
E.

164. What is the length of the operating cycle?

A.
B.
C.
D.
E.

165. What is the length of the cash cycle?

A.
B.
C.
D.
 Ned's Co. has an average collection period of 45 days
and an operating cycle of 130 days. It has a policy of
keeping at least $10 on hand as a minimum cash
balance, and has a beginning cash balance for the first
quarter of $20. Beginning receivables for the quarter
amount to $35. Sales for the first and second quarters
are expected to be $110 and $125, respectively, while
purchases amount to 80% of the next quarter's forecast
sales. The accounts payable period is 90 days.

166. What are cash collections in the first quarter?

A.
B.
C.
D.
E.

167. What is the value of the receivables account at the end

of the first quarter?

A.
B.
C.
D.
E.

168. What are cash disbursements for the first quarter?

A.
B.
C.
D.
E.

169. What is the value of the payables account at the end of

the first quarter?

A.
B.
C.
D.
170. What is the ending cash balance for the first quarter?

A.
B.
C.
D.
E.

171. What is Ned ‘s cash cycle at the end of the first

quarter?

A.
B.
C.
D.
E.

[Each transaction takes place at the end of the business

day.]

172. How many days are in the operating cycle?

A.
B.
C.
D.
E.

173. How many days are in the inventory period?

A.
B.
C.
D.
E.
174. How many days are in the accounts receivable period?

A.
B.
C.
D.
E.

175. How many days are in the accounts payable period?

A.
B.
C.
D.
E.

176. How many days are in the cash cycle?

A.
B.
C.
D.
E.

Jumbotron Inc. had sales of $8,000 in November,

$14,000 in December, and projects sales of $10,000 for
January, $12,000 for February, and $8,000 for March.
The firm's cost of goods sold every month is equal to
70% of the next month's sales. The firm collects its
receivables in 60 days and pays its payables in 30 days.
The firm begins January 1 with $10,000 in cash. All
sales and purchases are on credit.

177. What is Jumbotron's accounts receivable at the end of

January?

A.
B.
C.
D.
E.
178. What is Jumbotron's accounts payable at the end of
January?

A.
B.
C.
D.
E.

179. What is Jumbotron's total cash collections for

February?

A.
B.
C.
D.
E.

180. What is Jumbotron's cash balance at the end of

January?

A.
B.
C.
D.
E.

181. What is Jumbotron's cash balance at the end of

February?

A.
B.
C.
D.
E.

182. What is Jumbotron's cash balance at the end of March?

A.
B.
C.
D.
E.
183. What are Jumbotron's total cash collections in March?

A.
B.
C.
D.
E.

184. What are Jumbotron's total cash disbursements in

March?

A.
B.
C.
D.
E.

Credit Sales = $175,000

COGS = $125,000

185. How many days are in the inventory period?

A.
B.
C.
D.
E.

186. How many days are in the receivables period?

A.
B.
C.
D.
E.
187. How many days are in the operating cycle?

A.
B.
C.
D.
E.

188. How many days are in the payables period?

A.
B.
C.
D.
E.

189. How many days are in the cash cycle?

A.
B.
C.
D.
E.

Year Average

Credit Sales = $180,000

COGS = $135,000

190. How many days are in the inventory period?

A.
B.
C.
D.
E.
191. How many days are in the receivables period?

A.
B.
C.
D.
E.

192. How many days are in the operating cycle?

A.
B.
C.
D.
E.

193. How many days are in the payables period?

A.
B.
C.
D.
E.

194. How many days are in the cash cycle?

A.
B.
C.
D.
E.

195. How many days are in the inventory period?

A.
B.
C.
D.
E.
196. How many days are in the accounts receivable period?

A.
B.
C.
D.
E.

197. How many days are in the operating cycle?

A.
B.
C.
D.
E.

198. How many days are in the accounts payable period?

A.
B.
C.
D.
E.

199. How many days are in the cash cycle?

A.
B.
C.
D.
E.

Blackberry, Inc. had sales for the past year of $38,250

and cost of goods sold of $21,038. In addition, the
statement of financial position accounts was as shown
in the table below. Blackberry uses average account
values and a 365-day year where applicable in all of its
computations.
200. What is the inventory turnover rate for Blackberry,
Inc.?

A.
B.
C.
D.
E.

201. What is the inventory period for Blackberry, Inc.?

A.
B.
C.
D.
E.

202. What is the accounts receivable period for Blackberry,

Inc.?

A.
B.
C.
D.
E.

203. What is the operating cycle for Blackberry, Inc.?

A.
B.
C.
D.
E.

204. What is the cash cycle for Blackberry, Inc.?

A.
B.
C.
D.
E.
205. Tomas Industries has an inventory period of 132 days,
an accounts payable period of 94 days, and an accounts
receivable period of 43 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.

206. Which statement is correct given the following

statement of financial position information?

A.
B.
C.
D.
E.

ALPHA, Inc. sells all of its products on credit.

Purchases are 60% of the sales for the following
quarter. The firm uses a 365-day year and account
averages where applicable in its computations.
The financial manager of the firm provides the
following relevant information:
207. What is the amount of purchases in Quarter 2?

A.
B.
C.
D.
E.

208. What is the amount of the total disbursements for

Quarter 3?

A.
B.
C.
D.
E.

209. What is the accounts receivable balance at the end of

Quarter 1?

A.
B.
C.
D.
E.

210. What is the amount of the cash collections in Quarter

4?

A.
B.
C.
D.
E.

211. What is the net cash flow for Quarter 2?

A.
B.
C.
D.
E.
212. What is the accounts payable balance at the beginning
of Quarter 2?

A.
B.
C.
D.
E.

213. A firm collects 10% of its sales in the month of sale,

60% in the following month, and 30% in the second
month following the sale. Sales for the firm by month
are:

What is the accounts receivable balance at the end of

June?

A.
B.
C.
D.
E.

214. ANX Ltd of Montreal collects 23% of its sales in the

month of sale, 56% in the month following the month
of sale, 19% in the second month following the sale,
and 2% of sales are never collected. Sales are:

What is the amount of the cash collections in October?

A.
B.
C.
D.
E.
215. A Vancouver firm has a cash balance of $12,000 as of
June 1. During the month they paid $16,000 on account,
$13,000 for wages, and $1,000 for other expense items.
The company maintains a minimum cash balance of
$10,000. Sales for the firm for April, May, and June are
$15,000, $22,000, and $18,750, respectively. The
company collects 40% of sales in the month of sale,
50% in the following month, and 10% in the second
month following the month of sale. What is the cash
surplus or deficit as of June 30?

A.
B.
C.
D.
E.

216. A company has a $20 million operating loan credit with

its bank at a rate of 0.55% per month. What is the
effective rate of the operating loan?

A.
B.
C.
D.
E.

217. Fred's Factory has credit sales of $747,500 and an

average accounts receivable balance of $57,500. Fred
factors his receivables throughout the year with his
local bank at a 2% discount. What is the effective
annual rate of this arrangement?

A.
B.
C.
D.
E.
218. Your firm has sales of $628,000 and cost of goods sold
of $402,000. At the beginning of the year, your
inventory was $31,000. At the end of the year, the
inventory balance was $33,000. What is the inventory
turnover rate?

A.
B.
C.
D.
E.

219. A firm has sales of $720,000. The cost of goods sold is

equal to 70% of sales. The firm has an average
inventory of $6,500. How many days on average does it
take the firm to sell its inventory?

A.
B.
C.
D.
E.

220. Bilt Rite, Inc. has sales of $610,000. The cost of goods
sold is equal to 70% of sales. The beginning accounts
receivable balance is $21,000 and the ending accounts
receivable balance is $25,000. How long on average
does it take the firm to collect its receivables?

A.
B.
C.
D.
E.

221. Weson, Inc. has sales of $462,000, costs of goods sold

of $308,000 and average accounts receivable of
$48,900. How long does it take its credit customers to
pay for their purchases?

A.
B.
C.
D.
E.
222. LoDo, Inc. has sales of $642,000 and average accounts
payable of $36,400. The cost of goods sold is
equivalent to 65% of sales. How long does it take LoDo
to pay its suppliers?

A.
B.
C.
D.
E.

223. True Blue Stores had a beginning accounts payable

balance of $56,900 and an ending accounts payable
balance of $62,800. Sales for the period were $670,000
and costs of goods sold were $418,000. What is the
payables turnover rate?

A.
B.
C.
D.
E.

224. A firm has an inventory turnover rate of 16, a

receivables turnover rate of 21 and a payables turnover
rate of 11. How long is the operating cycle?

A.
B.
C.
D.
E.

225. Your firm currently has an operating cycle of 64 days.

You are analyzing some operational changes which are
expected to decrease the accounts receivable period by
3 days and decrease the inventory period by 2 days. The
accounts payable turnover rate is expected to increase
from 7 to 9 times per year. If all of these changes are
adopted, what will your firm's new operating cycle be?

A.
B.
C.
D.
E.
226. Dallas and More (D&M) sells its inventory in 82 days
on average. Its average customer charges his purchase
on a credit card whereby payment is received in ten
days. On the other hand, D&M takes 56 days on
average to pay for its purchases. Given this information,
what is the length of D&M's operating cycle?

A.
B.
C.
D.
E.

227. Jaxson and Sons has an inventory period of 33 days, an

accounts payable period of 41 days and an accounts
receivable period of 27 days. Management is
considering offering a 5% discount if its credit
customers pay for their purchases within 10 days. If the
new discount is offered the accounts receivable period
is expected to decline by 13 days. If the new discount is
offered, the operating cycle will decrease from _____
days to _____ days.

A.
B.
C.
D.
E.

228. Wislon, Inc. has an inventory turnover rate of 15, an

accounts payable period of 54 days and an accounts
receivable period of 37 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.
229. Drefus, Inc. has an inventory turnover of 15 and an
accounts receivable turnover of 9. The accounts payable
period is 51 days. What is the length of the cash cycle?

A.
B.
C.
D.
E.

230. A firm currently has a 36 day cash cycle. Assume that

the firm changes its operations such that it decreases its
receivables period by 4 days, increases its inventory
period by 1 day and decreases its payables period by 2
days. What will the length of the cash cycle be after
these changes?

A.
B.
C.
D.
E.

231. A firm currently has a 43 day cash cycle. Assume that

the firm changes its operations such that it increases its
receivables period by 2 days, decreases its inventory
period by 1 day and increases its payables period by 3
days. What will the length of the cash cycle be after
these changes?

A.
B.
C.
D.
E.
232. Martinque and Son has a 60 day collection period. Sales
for the next calendar year are estimated at $1,200,
$1,100, $2,300 and $1,800, respectively, by quarter
starting with the first quarter of the year. Given this
information, which one of the following statements is
correct? Assume that a year has 360 days.

A.
B.
C.
D.
E.

233. Smith and Johnson has expected sales of $380, $340,

$430 and $480 for the months of January through April,
respectively. The accounts receivable period is 15 days.
How much did the firm collect in the month of March?
Assume that a year has 360 days.

A.
B.
C.
D.
E.

234. Dokos, Inc. has a beginning receivables balance on

January 1st of $560. Sales for January through April are
$620, $680, $570 and $550, respectively. The accounts
receivable period is 30 days. How much did the firm
collect in the month of March? Assume that a year has
360 days.

A.
B.
C.
D.
E.
235. Baker Industries has a 45 day accounts receivable
period. The estimated quarterly sales for this year,
starting with the first quarter, are $1,200, $1,400,
$1,900 and $3,200, respectively. How much does the
firm expect to collect in the third quarter? Assume that
a year has 360 days.

A.
B.
C.
D.
E.

236. D & F, Inc. expects sales of $620, $650, $730 and $780
for the months of April through July, respectively. The
firm collects 20% of sales in the month of sale, 50% in
the month following the month of sale and 28% in the
second month following the month of sale. The
remaining 2% of sales is never collected. How much
money does the firm expect to collect in the month of
July?

A.
B.
C.
D.
E.

237. Birds Unlimited has a 45 day accounts payable period.

The firm has expected sales of $1,800, $2,100, $2,400
and $2,800, respectively, by quarter for the next
calendar year. The cost of goods sold for a quarter is
equal to 65% of the next quarter sales. What is the
amount of the projected cash disbursements for
accounts payable for Quarter 2 of the next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.
238. Your firm sells $2,000 worth of goods in December,
$1,700 worth in January, $1,500 in February and $1,600
in March. Your cost is 60% of the retail price. You have
a receivables period of 30 days and a payables period of
45 days. You buy your products one month prior to
selling them. Which one of the following statements is
correct given this information?

A.
B.
C.
D.
E.

239. As of the beginning of the quarter, you have a cash

balance of $250. During the quarter you pay your
suppliers $310. Your accounts receivable collections are
$420. You also pay an interest payment of $30 and a tax
bill of $180. In addition, you borrow $75. What is your
cash balance at the end of the quarter?

A.
B.
C.
D.
E.

240. On April 1st, your firm had a beginning cash balance of

$280. Your sales for March were $460 and your April
sales were $510. During April you had cash expenses of
$130 and payments on your accounts payable to $210.
Your accounts receivable period is 30 days. What is
your firm's beginning cash balance on May 1st?

A.
B.
C.
D.
E.
241. Pluto, Inc. has a beginning cash balance of $430 on
February 1st. The firm has projected sales of $600 in
January, $800 in February and $900 in March. The cost
of goods sold is equal to 70% of sales. Goods are
purchased one month prior to the month of sale. The
accounts payable period is 30 days and the accounts
receivable period is 15 days. The firm has monthly cash
expenses of $180. What is the projected ending cash
balance at the end of February? Assume that every
month has 30 days.

A.
B.
C.
D.
E.

242. Your firm factors its accounts receivable immediately at

a 3% discount. The average collection period is 41.95
days. Assume that all accounts are collected in full.
What is the effective annual interest rate on this
arrangement?

A.
B.
C.
D.
E.

243. Your firm has a net cash inflow for the quarter of - $30
(negative). The beginning cash balance is $15.
Company policy is to maintain a minimum cash balance
of $5 and borrow only the amount that is necessary to
maintain that balance. How much does your firm need
to borrow to have a zero cumulative surplus?

A.
B.
C.
D.
E.
244. Your firm has a net cash inflow for the quarter of $60.
The beginning cash balance is $35. Company policy is
to maintain a minimum cash balance of $15 and borrow
only the amount that is necessary to maintain that
balance. How much does your firm need to borrow or
how much can it repay on its loans to have a zero
cumulative surplus?

A.
B.
C.
D.
E.

245. At the beginning of the year, you have an outstanding

short-term loan of $10 which was used to cover your
cash needs for the previous year. During the current
year, you expect to pay $2 interest and have an annual
net cash inflow of - $10 (negative), excluding the
interest payment. What is your anticipated loan balance
at year end?

A.
B.
C.
D.
E.

246. Beckwith Upholstery has sales of $930,000 and cost of

goods sold of $590,000. The firm had a beginning
inventory of $43,000 and an ending inventory of
$41,000. What is the length of the inventory period?

A.
B.
C.
D.
E.
247. Your firm has sales of $879,000 and cost of goods sold
of $568,000. At the beginning of the year, your
inventory was $38,000. At the end of the year, the
inventory balance was $43,000. What is the inventory
turnover rate?

A.
B.
C.
D.
E.

248. Delta Motors has sales of $521,000. The cost of goods

sold is equal to 63% of sales. The firm has an average
inventory of $22,800. How many days on average does
it take the firm to sell its inventory?

A.
B.
C.
D.
E.

249. Cascade Vista has sales of $1.3 million. The cost of

goods sold is equal to 72% of sales. The beginning
accounts receivable balance is $108,000 and the ending
accounts receivable balance is $121,000. How long on
average does it take the firm to collect its receivables?

A.
B.
C.
D.
E.

250. Webster, Inc. has sales of $267,000, costs of goods sold

of $149,000, and average accounts receivable of
$18,400. On average, how long does it take its credit
customers to pay for their purchases?

A.
B.
C.
D.
E.
251. Rocky Mountain Homes has sales of $1.45 million and
average accounts payable of $74,400. The cost of goods
sold is equivalent to 80% of sales. How long does it
take Rocky Mountain to pay its suppliers?

A.
B.
C.
D.
E.

252. Buck or Less Stores had a beginning accounts payable

balance of $269,000 and an ending accounts payable
balance of $327,000. Sales for the period were $3.4
million and costs of goods sold were $2.5 million. What
is the payables turnover rate?

A.
B.
C.
D.
E.

253. A firm has an inventory turnover rate of 18, a

receivables turnover rate of 23, and a payables turnover
rate of 12. How long is the operating cycle?

A.
B.
C.
D.
E.

254. Your firm currently has an operating cycle of 92 days.

You are analyzing some operational changes which are
expected to decrease the accounts receivable period by
4 days and decrease the inventory period by 5 days. The
accounts payable turnover rate is expected to increase
from 8 to 9 times per year. If all of these changes are
adopted, what will be your firm's new operating cycle?

A.
B.
C.
D.
E.
255. Dexter and Francis Merchants (DFM) sell their
inventory in 94 days on average. Their average
customer charges purchase on a credit card whereby
payment is received in 6 days. On the other hand, DFM
takes 47 days on average to pay for their purchases.
Given this information, what is the length of DFM's
operating cycle?

A.
B.
C.
D.
E.

256. I.R. Ruth, Inc. has an inventory turnover rate of 16.59,

an accounts payable period of 51 days, and an accounts
receivable period of 34 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.

257. Smathers, Inc. has an inventory turnover rate of 14 and

an accounts receivable turnover rate of 11. The
accounts payable period is 56 days. What is the length
of the cash cycle?

A.
B.
C.
D.
E.
258. Baxter United currently has a 41 day cash cycle.
Assume the firm changes its operations such that it
decreases its receivables period by 7 days, decreases its
inventory period by 4 days, and decreases its payables
period by 3 days. What will be the length of the cash
cycle after these changes?

A.
B.
C.
D.
E.

259. Jefferson Boat Works has a 60 day collection period.

Sales for the next calendar year are estimated at $1,800,
$2,400, $2,700, and $3,600, respectively, by quarter
starting with the first quarter of the year. How much
will the firm collect in the third quarter of next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.

260. T.J. Waxham's has a beginning receivables balance on

January 1 of $1,460. Sales for January through April are
$1,200, $1,450, $1,580, and $1,640, respectively. The
accounts receivable period is 30 days. How much did
the firm collect in the month of April? Assume that a
year has 360 days.

A.
B.
C.
D.
E.
261. Thornton's Wholesalers has expected sales of $920,
$870, $620, and $570 for the months of April through
July, respectively. The accounts receivable period is 45
days. How much will the firm collect in the month of
June? Assume that a year has 360 days.

A.
B.
C.
D.
E.

262. Edgewater Industrial Products has a 45 day accounts

receivable period. The estimated quarterly sales for this
year, starting with the first quarter, are $2,800, $3,100,
$4,200, and $3,300, respectively. How much does the
firm expect to collect in the fourth quarter? Assume that
a year has 360 days.

A.
B.
C.
D.
E.

263. Nelson Optical purchases its inventory one quarter prior

to the quarter of sale. The purchase price is 55% of the
sales price and the accounts payable period is 30 days.
What is the amount of the expected disbursements for
quarter three given the following expected quarterly
sales?

A.
B.
C.
D.
E.
264. Natural Woods has a 60 day accounts payable period.
The firm has expected sales of $3,200, $3,800, $4,600,
and $4,800, respectively, by quarter for the next
calendar year. The cost of goods sold for a quarter is
equal to 60% of the next quarter sales. What is the
amount of the projected cash disbursements for
accounts payable for the third quarter of the next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.

265. Your firm sells $6,000 worth of goods in December,

$4,700 worth in January, $5,100 in February, and
$5,800 in March. Your cost is 65% of your selling price.
You have a receivables period of 30 days and a
payables period of 60 days. You buy your products one
month prior to selling them. How much will you pay on
your accounts payable in February?

A.
B.
C.
D.
E.

266. As of the beginning of the quarter, Trellis Florists has a

cash balance of $420. During the quarter, suppliers are
paid $840, receivables of $1,010 are collected, taxes of
$260 are paid, and $55 is borrowed. What is Trellis'
cash balance at the end of the quarter?

A.
B.
C.
D.
E.
267. On May 1, D.R.Y. Inc. had a beginning cash balance of
$690. April sales were $810, and May sales were $990.
Cash expenses of $130 and payments on accounts
payable of $370 were paid during May. The accounts
receivable period is 30 days. What is D.R.Y.'s
beginning cash balance on June 1?

A.
B.
C.
D.
E.

268. Your firm has a net cash inflow for the quarter of - $26
(negative). The beginning cash balance is $12.
Company policy is to maintain a minimum cash balance
of $10 and borrow only the amount that is necessary to
maintain that balance. How much does your firm need
to borrow to have a zero cumulative surplus?

A.
B.
C.
D.
E.

269. Your firm has a net cash inflow for the quarter of $44.
The beginning cash balance is $27. Company policy is
to maintain a minimum cash balance of $25 and borrow
only the amount that is necessary to maintain that
balance. How much does your firm need to borrow or
how much can it repay on its loans to have a zero
cumulative surplus?

A.
B.
C.
D.
E.
270. ABX is acquiring additional current assets. Which of
the following costs will increase as a result of the
acquisition of the additional current assets?

A.
B.
C.
D.
E.

271. Symphony Instruments, Inc. has sales of $760,000 and

cost of goods sold of $520,000. The firm had a
beginning inventory of $39,000 and an ending
inventory of $48,000. What is the length of the
inventory period?

A.
B.
C.
D.
E.

272. A national firm has sales of $575,000 and cost of goods

sold of $368,000. At the beginning of the year, the
inventory was $42,000. At the end of the year, the
inventory balance was $45,000. What is the inventory
turnover rate?

A.
B.
C.
D.
E.

273. Paul's Manufacturing has sales of $810,000. The cost of

goods sold is equal to 80% of sales. The firm has an
average inventory of $11,500. How many days on
average does it take the firm to sell its inventory?

A.
B.
C.
D.
E.
274. Tops, Inc. has sales of $705,000. The cost of goods sold
is equal to 60% of sales. The beginning accounts
receivable balance is $33,000 and the ending accounts
receivable balance is $36,000. How long on average
does it take the firm to collect its receivables?

A.
B.
C.
D.
E.

275. Crosland, Inc. has sales of $512,000, costs of goods

sold of $345,000, average accounts receivable of
$56,400, and average accounts payable of $45,900.
How long does it take for Crosland's credit customers to
pay for their purchases?

A.
B.
C.
D.
E.

276. Tippler, Inc. has sales of $468,000, average accounts

receivable of $27,500, and average accounts payable of
$22,300. The cost of goods sold is equivalent to 75% of
sales. How long does it take Tippler to pay their
suppliers?

A.
B.
C.
D.
E.
277. Joe's Merchandise had a beginning accounts payable
balance of $61,800 and an ending accounts payable
balance of $67,400. Sales for the period were $580,000
and costs of goods sold were $436,000. What is the
payables turnover rate?

A.
B.
C.
D.
E.

278. Your firm has an inventory turnover rate of 22, a

payables turnover rate of 9, and a receivables turnover
rate of 17. How long is your firm's operating cycle?

A.
B.
C.
D.
E.

279. Center Enterprises currently has an operating cycle of

58 days. You are analyzing some operational changes
which are expected to increase the accounts receivable
period by 4 days and decrease the inventory period by 3
days. The accounts payable turnover rate is expected to
increase from 9 to 12 times per year. If all of these
changes are adopted, what will Center's new operating
cycle be?

A.
B.
C.
D.
E.
280. On average, Stuff for Less is able to sell their inventory
in 23 days. Stuff for Less takes 60 days on average to
pay for their purchases. On the other hand, their
average customer charges their purchase on a credit
card whereby payment is received in 15 days. Given
this information, what is the length of operating cycle?

A.
B.
C.
D.
E.

281. Cailey's Shoppe has an inventory period of 37 days, an

accounts payable period of 44 days, and an accounts
receivable period of 25 days. Management is
considering an offer from their suppliers to pay within
15 days and receive a 7% discount. If the new discount
is taken, the accounts payable period is expected to
decline by 10 days. If the new discount is taken, the
operating cycle will be _____ days.

A.
B.
C.
D.
E.

282. Evans, Inc. has an inventory period of 36 days, an

accounts payable period of 44 days, and an accounts
receivable turnover rate of 20. What is the length of the
cash cycle?

A.
B.
C.
D.
E.
283. Weavers, Inc. has an inventory turnover of 22 and an
accounts payable turnover of 13. The accounts
receivable period is 39 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.

284. The Pearson Co. currently has a 25 day cash cycle.

Assume the firm changes its operations such that it
increases its receivables period by 3 days, decreases its
inventory period by 2 days, and decreases its payables
period by 5 days. What will the length of the cash cycle
be after these changes?

A.
B.
C.
D.
E.

285. A company currently has a 51 day cash cycle. Assume

the firm changes its operations such that it decreases its
receivables period by 3 days, increases its inventory
period by 4 days, and increases its payables period by 1
day. What will the length of the cash cycle be after
these changes?

A.
B.
C.
D.
E.
286. The Dawson Brothers have a 60 day collection period.
Sales for the next calendar year are estimated at $1,800,
$1,300, $2,200 and $2,000, respectively, by quarter
starting with the first quarter of the year. Given this
information, which one of the following statements is
correct? Assume a year has 360 days.

A.
B.
C.
D.
E.

287. Wrangler, Inc. has a beginning receivables balance on

February 1 of $680. Sales for February through May are
$310, $340, $360, and $400, respectively. The accounts
receivable period is 30 days. How much did the firm
collect in the month of May? Assume that a year has
360 days.

A.
B.
C.
D.
E.

288. McDonald and Sons have expected sales of $320, $350,

$410, and $460 for the months of January through
April, respectively. The accounts receivable period is 15
days. What is the accounts receivable balance at the end
of February? Assume that a year has 360 days.

A.
B.
C.
D.
E.
289. SAP, Inc. has a beginning receivables balance on
January 1 of $390. Sales for January through April are
$520, $580, $640, and $540, respectively. The accounts
receivable period is 30 days. How much did the firm
collect in the month of February? Assume that a year
has 360 days.

A.
B.
C.
D.
E.

290. The Deluxe Corporation has a 45 day accounts

receivable period. The estimated quarterly sales for this
year, starting with the first quarter, are $1,700, $2,100,
$3,500, and $2,500, respectively. What is the accounts
receivable balance at the beginning of the second
quarter? Assume that a year has 360 days.

A.
B.
C.
D.
E.

291. Chief Industries expects sales of $720, $680, $750, and

$800 for the months of May through August,
respectively. The firm collects 10% of sales in the
month of sale, 60% in the month following the month
of sale, and 27% in the second month following the
month of sale. The remaining 3% of sales is never
collected. How much money does the firm expect to
collect in the month of July?

A.
B.
C.
D.
E.
292. Eastland, Inc. purchases their inventory one quarter
prior to the quarter of sale. The purchase price is 50%
of the sales price. The accounts payable period is 30
days. The accounts payable balance at the beginning of
quarter one is $28,000. What is the amount of the
expected disbursements for quarter three given the
following expected quarterly sales?

A.
B.
C.
D.
E.

293. Limitless Styles has a 45 day accounts payable period.

The firm has expected sales of $900, $1,200, $1,900,
and $2,600, respectively, by quarter for the next
calendar year. The cost of goods sold for a quarter is
equal to 70% of the next quarter sales. The firm has a
beginning payables balance of $600 as of quarter one.
What is the amount of the projected cash disbursements
for accounts payable for Quarter 3 of the next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.
294. Krista's sells $4,000 worth of goods in December,
$2,800 worth in January, $3,200 in February and $3,500
in March. The wholesale cost is 65% of the retail price.
The firm has a receivables period of 30 days, a payables
period of 60 days, and buys inventory one month prior
to selling it. Which one of the following statements is
correct?

A.
B.
C.
D.
E.

295. As of the beginning of the quarter, Callahan, Inc. had a

cash balance of $320. During the quarter the company
paid suppliers $230. The company collected $400 from
customers. The company also paid an interest payment
of $40 and $170 in taxes. In addition, the company
borrowed $100. What is Callahan's cash balance at the
end of the quarter?

A.
B.
C.
D.
E.

296. On May 1, your firm had a beginning cash balance of

$140. Your sales for April were $350 and your May
sales were $430. During May you had cash expenses of
$90 and payments on your accounts payable of $260.
Your accounts receivable period is 30 days. What is
your firm's beginning cash balance on June 1?

A.
B.
C.
D.
E.
297. Wyler, Inc. has a beginning cash balance of $380 on
March 1. The firm has projected sales of $550 in
February, $700 in March, and $800 in April. The cost of
goods sold is equal to 75% of sales. Goods are
purchased one month prior to the month of sale. The
accounts payable period is 30 days and the accounts
receivable period is 15 days. The firm has monthly cash
expenses of $200. What is the projected ending cash
balance at the end of March? Assume that every month
has 30 days.

A.
B.
C.
D.
E.

298. Barkely's has a line of credit with a local bank in the

amount of $125,000. The loan agreement calls for
interest of 8% with a compensating balance of 4% ,
which is based on the total amount borrowed. The
compensating balance will be deposited into an interest-
free account. What is the effective interest rate on the
loan if the firm needs to borrow $58,000 for one year to
cover operating expenses?

A.
B.
C.
D.
E.

299. Juno Industrial Supply has a $250,000 line of credit at a

9% interest rate. The loan agreement requires a 3%
compensating balance, which is based on the total
amount borrowed, and which will be held in an interest-
free account. What is the effective interest rate if the
firm borrows $169,000 on the line of credit for one
year?

A.
B.
C.
D.
E.
300. Marshall's has a $75,000 line of credit with Tabor Bank.
The line of credit calls for an interest rate of 8.5% and a
compensating balance of 6%. The compensating
balance is based on the total amount borrowed and will
be held in an interest-free account. What is the effective
annual interest rate if the firm borrows $49,000 for one
year?

A.
B.
C.
D.
E.

301. Your firm factors its accounts receivables immediately

at a 2% discount. The average collection period is 32
days. Assume that all accounts are collected in full.
What is the effective annual interest rate on this
arrangement?

A.
B.
C.
D.
E.

302. The Friendly Bank offers AB United a $200,000 line of

credit with an interest rate of 2.25% per quarter. The
credit line also requires that 2% of the unused portion
of the credit line be deposited in a non-interest bearing
account as a compensating balance. AB United's short-
term investments are paying 1.5% per quarter. What is
the effective annual interest rate on this arrangement if
the line of credit goes unused all year? Assume any
funds borrowed or invested use compound interest.

A.
B.
C.
D.
E.
303. Merc Express has a $50,000 line of credit with
Crossroads Bank. The loan agreement requires that
3.5% of the unused portion of the credit line be
deposited in a non-interest bearing account as a
compensating balance. The interest rate on the
borrowed funds is 2.4% per quarter. Merc Express'
short-term investments are paying 1.75% per quarter.
What is the effective annual interest rate on the line of
credit if Merc Express borrows the entire $50,000 for
one year? Assume any funds borrowed or invested use
compound interest.

A.
B.
C.
D.
E.

304. Your bank offers you a $25,000 line of credit with an

interest rate of 2.25% per quarter. The loan agreement
also requires that 4% of the unused portion of the credit
line be deposited in a non-interest bearing account as a
compensating balance. Your short-term investments are
paying 0.40% per month. What is your effective annual
interest rate on this arrangement if you do not borrow
any money on this credit line during the year? Assume
any funds borrowed or invested use compound interest.

A.
B.
C.
D.
E.
305. New Town Bank offers a $25,000 line of credit with an
interest rate of 2.5% per quarter. The loan agreement
also requires that 5% of the unused portion of the credit
line be deposited in a non-interest bearing account as a
compensating balance. Short-term investments are
currently paying 1.6% per quarter. What is the effective
annual interest rate on the line of credit if a customer
borrows the entire $25,000 for one year? Assume any
funds borrowed or invested use compound interest.

A.
B.
C.
D.
E.

306. The Corner Store has a beginning cash balance for the
quarter of $1,240. The store has a policy of maintaining
a minimum cash balance of $1,000 and is willing to
borrow funds as needed to maintain that balance. How
much will the store have to borrow if the net cash flow
for the quarter is - $370?

A.
B.
C.
D.
E.

307. Building Blocks has a beginning cash balance for the

quarter of $800. The firm's president requires a
minimum cash balance of $800 be maintained at all
times. Further, the president has a policy of borrowing
when necessary to maintain that balance. If funds have
been borrowed, then the president requires they be
repaid as soon as excess funds are available. How much
will the firm borrow or repay this quarter if the
quarterly receipts are $2,565 and the quarterly
disbursements are $2,607?

A.
B.
C.
D.
E.
308. At the beginning of the year, you have an outstanding
short-term loan of $684 which was used to cover your
cash needs for the previous year. During the current
year, you expect to pay $34 in interest. The projected
net cash flow for the year is $403, excluding the interest
payment. What is your anticipated loan balance at year
end?

A.
B.
C.
D.
E.

309. Ajax Corporation estimates that for credit sales, 20% of

cash is received in the month of sale; 60% in the month
after the sale, and 15% second month after the sale. The
remainder is never collected. Ajax had credit sales of
$23,000 in January; $23,000 in February, and $19,000
in March. Given the following information, determine
the cash collections for March.

A.
B.
C.
D.
E.

310. Bandall Corporation estimates that for credit sales, 55%

of cash is received in the month of sale; 35% in the
month after the sale, and 13% second month after the
sale. The remainder is never collected. Bandall had
credit sales of $78,000 in April; $92,000 in May, and
$115,000 in June. Given the following information,
determine the cash collections for June.

A.
B.
C.
D.
E.
311. Melody Inc. had a November ending cash balance of
$15,000. As well, it had sales of $10,000 in November,
$20,000 in December, and projects sales of $25,000 for
January, $30,000 for February, and $35,000 for March.
The firm collects its receivables in the month after the
sale. Given this information, calculate its cash balance
at the end of March.

A.
B.
C.
D.
E.

312. Xolo Inc. had an August ending cash balance of

$70,000. As well, it had sales of $60,000 in August,
$80,000 in September, and projects sales of $95,000 for
October, $115,000 for November, and $145,000 for
December. The firm collects its receivables in the
month after the sale. Given this information, calculate
its cash balance at the end of November.

A.
B.
C.
D.
E.

313. Kunal Corporation had sales of $60,000 in August;

$80,000 in September; $95,000 in October; $115,000 in
November and $145,000 in December. Cost of goods
sold has consistently been at 65% of sales. Additionally,
Kunal had $45,000 worth of merchandise at the start of
August and plans on having inventory on hand worth
20% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in September.

A.
B.
C.
D.
E.
314. Kunal Corporation had sales of $60,000 in August;
$80,000 in September; $95,000 in October; $115,000 in
November and $145,000 in December. Cost of goods
sold has consistently been at 65% of sales. Additionally,
Kunal had $45,000 worth of merchandise at the start of
August and plans on having inventory on hand worth
20% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in October.

A.
B.
C.
D.
E.

315. Kunal Corporation had sales of $60,000 in August;

$80,000 in September; $95,000 in October; $115,000 in
November and $145,000 in December. Cost of goods
sold has consistently been at 65% of sales. Additionally,
Kunal had $45,000 worth of merchandise at the start of
August and plans on having inventory on hand worth
20% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in November.

A.
B.
C.
D.
E.
316. Fulton Corporation had sales of $60,000 in January;
$80,000 in February; $95,000 in March; $115,000 in
April and $145,000 in May. Cost of goods sold has
consistently been at 70% of sales. Additionally, Fulton
had $15,000 worth of merchandise at the start of
January and plans on having inventory on hand worth
35% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in January.

A.
B.
C.
D.
E.

317. Fulton Corporation had sales of $60,000 in January;

$80,000 in February; $95,000 in March; $115,000 in
April and $145,000 in May. Cost of goods sold has
consistently been at 70% of sales. Additionally, Fulton
had $15,000 worth of merchandise at the start of
January and plans on having inventory on hand worth
35% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in February.

A.
B.
C.
D.
E.
318. Fulton Corporation had sales of $60,000 in January;
$80,000 in February; $95,000 in March; $115,000 in
April and $145,000 in May. Cost of goods sold has
consistently been at 70% of sales. Additionally, Fulton
had $15,000 worth of merchandise at the start of
January and plans on having inventory on hand worth
35% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in March.

A.
B.
C.
D.
E.

319. Bousee Corporation had sales of $45,000 in January;

$70,000 in February; $85,000 in March; $105,000 in
April and $120,000 in May. Cost of goods sold has
consistently been at 75% of sales. Additionally, Fulton
had no inventory at the start of January and plans on
having inventory on hand worth 15% of next month's
cost of goods sold. Half of inventory purchases are paid
for in the current month, and the remaining amount in
the next month. Given this information, calculate the
amount of inventory paid for in January.

A.
B.
C.
D.
E.
320. Bousee Corporation had sales of $45,000 in January;
$70,000 in February; $85,000 in March; $105,000 in
April and $120,000 in May. Cost of goods sold has
consistently been at 75% of sales. Additionally, Fulton
had no inventory at the start of January and plans on
having inventory on hand worth 15% of next month's
cost of goods sold. Half of inventory purchases are paid
for in the current month, and the remaining amount in
the next month. Given this information, calculate the
amount of inventory paid for in February.

A.
B.
C.
D.
E.

321. Bousee Corporation had sales of $45,000 in January;

$70,000 in February; $85,000 in March; $105,000 in
April and $120,000 in May. Cost of goods sold has
consistently been at 75% of sales. Additionally, Fulton
had no inventory at the start of January and plans on
having inventory on hand worth 15% of next month's
cost of goods sold. Half of inventory purchases are paid
for in the current month, and the remaining amount in
the next month. Given this information, calculate the
amount of inventory paid for in March.

A.
B.
C.
D.
E.

322. Selling on credit typically involves at least three

different entities in a large firm: the credit manager, the
marketing manager, and the controller. What are the
potential sources of conflict between the three?
323. During the past year, Omni, Inc. had total credit sales of
$1,000,000. Omni's cost of sales averaged 70% of
credit sales, it had average accounts receivable of
$124,500, and it always paid its payables according to
the required net 30 schedule. Inventory averaged
$184,000 for the year. Using this information, compute
the length of the five different cycles/periods discussed
in the text that trace inventory from purchase to
collection of the account.

324. It has been argued that if one could perfectly

synchronize a firm's cash inflows and outflows, short-
term financial planning would be unnecessary. Do you
agree? What actions can the firm's financial decision-
makers take to reduce the degree of asynchronization?
Why should this be of concern?

325. Restrictive short-term financial policies with regard to

current asset management include three basic actions.
List and briefly describe each action.
326. When workers connected with the automobile industry
go on strike, it typically makes big headlines since the
automaker will usually end up being shut down if the
strike drags on. Suppose the makers of brakes for GM
go out on strike and GM has no other source from
which to purchase brakes for its new automobiles.
Explain how following a restrictive current asset
management policy would affect GM in this case. What
are the pros and cons of GM moving to a more flexible
policy?

327. As the CFO of Billybob's Auto Recycling, you plan to

implement a system whereby customers who pay their
bills on time will receive a 10% rebate on their
purchases. Those who pay earlier than required will
receive a 15% rebate. Explain the impact of this
proposal on the firm.
328. Graphically depict shortage costs, carrying costs, and
the total cost curve showing the optimal investment in
current assets (Costs on the vertical axis, current assets
on the horizontal axis.) Be sure to label the optimal
level of current assets. Using the same format, illustrate
what a flexible short-term financing policy looks like
and also illustrate what a restrictive policy looks like.

329. Accounts receivable and inventory are some of the most

liquid assets a firm owns and their market value is
typically fairly close to book value. Even so, in the eyes
of many lenders, these assets make for inadequate
collateral on loans, particularly if the business looking
to borrow the money is in a liquidity crisis. Why do you
think this is the case?

330. List and describe the three basic types of secured

inventory loans. What are the advantages and
disadvantages of each type of loan?
331. Financial managers often state that pro forma cash
budgets are more crucial to the successful management
of a firm than are the accounting statements. Explain
the logic of this statement and present arguments to
support such a claim.

332. Why is it important for firms to maintain a minimum

cash balance when the cost of doing so is greater than
the return generated by the funds held in reserve?

333. Restrictive short-term financial policies regarding

current asset management include three basic actions.
List and briefly describe each action.
334. Paulette's Wholesalers has adopted a flexible short-term
financial policy. Explain how this policy affects the
current assets of the firm.
 Chapter 18 Short-Term Finance and Planning Key
1. Most firms have a positive cash cycle.

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #1
Type: Concepts

2. The time period between the day a firm pays for its
inventory item and the day it received payment from
the customer who purchased that inventory item is
called the accounts receivable period.

FALSE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #2
Type: Concepts

3. A graphical representation of the operating and cash

cycles is called a cash flow time line

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #3
Type: Concepts

4. A letter of credit is a prearranged, short-term bank loan

made typically reviewed for renewal annually.

FALSE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #4
Type: Concepts

5. Money deposited by a borrower with the bank in a low

or non-interest-bearing account as part of a loan
agreement is called a compensating balance.

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #5
Type: Concepts
6. Cash cycle is the number of days it takes it takes a firm
to its receivables and the days it pays its creditors.

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #6
Type: Concepts

7. Pledged financing is a short-term financing that

involves either the assignment of receivables to another
company for collection.

FALSE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #7
Type: Concepts

8. A prearranged, short-term bank loan made on a formal

or informal basis, and typically reviewed for renewal
annually, is called a line of credit.

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #8
Type: Concepts

9. Cash is increased when a firm grants credit to a

customer

FALSE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #9
Type: Concepts

10. Secured financing on a short-term basis that involves

either the assignment or the factoring of receivables is
called accounts receivable financing.

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #10
Type: Concepts

11. Accepting credit from a supplier increases cash.

TRUE
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #11
Type: Concepts
12. The length of time between the acquisition of inventory
and the collection of cash from receivables is called the
_______________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #12
Type: Definitions

13. The length of time between the acquisition of inventory

and its sale is called the ______________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #13
Type: Definitions

14. The length of time between the sale of inventory and

the collection of cash from receivables is called the
__________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #14
Type: Definitions
15. The length of time between the acquisition of inventory
and payment for it is called the _____________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #15
Type: Definitions

16. The length of time between the payment for inventory

and the collection of cash from receivables is called the
_________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #16
Type: Definitions

17. Costs of the firm that rise with increased levels of

investment in its current assets are called:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #17
Type: Definitions
18. Costs of the firm that fall with increased levels of
investment in its current assets are called:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #18
Type: Definitions

19. The forecast of cash receipts and disbursements for the

next planning period is called a:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #19
Type: Definitions

20. A ____________, issued by a bank, promises to make a

loan if certain conditions are met.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #20
Type: Definitions

21. A short-term loan where the lender holds the borrower's

receivables as security is called:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
 Ross - Chapter 18 #21
Type: Definitions

22. A short-term loan secured by the borrower's inventory,

either directly or via an intermediary, is called a(n)
____________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #22
Type: Definitions

23. The average length of time it takes customers to pay for

the merchandise they buy is called the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #23
Type: Definitions

24. The period of time during which either liquidity

reserves or external funding is needed to maintain
company operations is called the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #24
Type: Definitions
25. The cash cycle can be defined as the operating cycle:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #25
Type: Definitions

26. A company procedure whereby the firm maintains a

relatively high ratio of current assets to sales is called a
_____ policy.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #26
Type: Definitions

27. A disruption in the production schedule due to a lack of

materials is called a:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #27
Type: Definitions

28. The financing of short-term assets with short-term debt

is known as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
 Ross - Chapter 18 #28
Type: Definitions

29. A floor plan can also be called a(n):

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #29
Type: Definitions

30. An agreement by a bank which guarantees payment on

the prompt arrival of a shipment of goods from an
overseas supplier is called a:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #30
Type: Definitions

31. The process that transfers the responsibility for

collecting accounts receivables from a firm to a bank in
exchange for a percent of the accounts receivables
value is referred to as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #31
Type: Definitions
32. Which of the following would NOT fall under the
heading of short-term financial planning?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #32
Type: Concepts

33. Which of the following is a source of cash, all else the

same?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #33
Type: Concepts

34. Which of the following represent an increase in cash,

all else the same?

I. Long-term debt is reduced

II. Inventory is acquired
III. Fixed assets are sold
IV. Receivables are factored

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #34
Type: Concepts
35. Which of the following is a use of cash, all else the
same?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #35
Type: Concepts

36. Which of the following would result in an increase in

cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #36
Type: Concepts

37. If the initial current ratio for a firm is greater than one,
which of the following activities will decrease net
working capital?

I. Sale of inventory (at book value) on credit

II. Using cash to purchase marketable securities
III. Factoring receivable at 90% of their book value
IV. Obtaining a short-term bank loan to purchase fixed
assets

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #37
Type: Concepts
38. Your firm's banker is getting nervous about your
liquidity. Which of the following actions would
increase the firm's current ratio (which is presently 0.6)
and ease the bank's concern?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #38
Type: Concepts

39. Which of the following regarding the organizational

chart is false?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #39
Type: Concepts

40. The _____________ is generally responsible for the

monitoring and control of accounts receivable.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #40
Type: Concepts
41. The _____________ is generally responsible for the
collection and dissemination of accounting information
on cash flows.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #41
Type: Concepts

42. According to the text, the ___________ is generally

responsible for making credit policy decisions.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #42
Type: Concepts

43. The ___________ is generally responsible for

monitoring short-term investment and borrowing
activities.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #43
Type: Concepts
44. Which of the following managers do(es) NOT have a
direct influence on the firm's inventory holdings?

I. Cash manager
II. Production manager
III. Payables manager
IV. Purchasing manager

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #44
Type: Concepts

45. Which of the following managers do(es) NOT have a

direct influence on the firm's accounts receivable
balance?

I. Credit manager
II. Production manager
III. Payables manager
IV. Controller

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #45
Type: Concepts
46. Which of the following correctly defines the operating
cycle?

I. Cash cycle - accounts payable period

II. Inventory period + accounts receivable period
III. Cash cycle + accounts payable period
IV. Inventory period - accounts receivable period -
accounts payable period

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #46
Type: Concepts

47. All else the same, which of the following would

increase the length of a firm's cash cycle? Consider
each in isolation.

I. Inventory turnover increases

II. Accounts receivable period increases
III. Accounts payable period decreases

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #47
Type: Concepts

48. All else the same, which of the following would

decrease the length of the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #48
Type: Concepts
49. All else the same, shortening your firm's cash cycle will
_______________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #49
Type: Concepts

50. All else the same, shortening the firm's cash cycle will
likely____________ the firm's profitability.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #50
Type: Concepts

51. All else the same, which of the following will likely
increase the firm's cash cycle?

I. Changing credit terms to require payment in 30 days

rather than 20.
II. Purchasing inventory more often and in smaller
amounts.
III. Delaying payment on payables for an additional 10
days.
IV. Offering a larger discount for cash sales.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #51
Type: Concepts
52. Which of the following statements is true?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #52
Type: Concepts

53. Your firm decides to increase the time allowed

customers to pay their bills from 30 to 40 days. All else
the same, this action will _____________ and
_______________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #53
Type: Concepts

54. Which of the following would move a firm toward a

flexible short-term financial policy?

I. Credit restrictions for accounts receivable are

increased.
II. The level of investment in inventory is decreased.
III. Investment in marketable securities is increased.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #54
Type: Concepts
55. If a firm maintains a relatively high level of
investments in cash and marketable securities, which of
the following statements is true?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #55
Type: Concepts

56. A firm which employs a flexible short-term financial

policy will have a relatively:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #56
Type: Concepts

57. A firm which successfully employs a _____________

short-term financial policy will probably decrease its
risk of default and/or inventory stock-outs.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #57
Type: Concepts
58. A ____________ short-term financial policy increases
the opportunity cost of holding liquid assets.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #58
Type: Concepts

59. A firm which employs a restrictive short-term financial

policy will have a relatively __________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #59
Type: Concepts

60. A firm which successfully employs a ___________

short-term financial policy will probably
_______________ its risk of default and/or inventory
stock-outs.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #60
Type: Concepts
61. Your boss decides that your firm will switch from a
restrictive short-term financial policy to a more flexible
policy. You should expect to see the firm's current
ratio:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #61
Type: Concepts

62. Which of the following statements is false?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #62
Type: Concepts

63. ________ fall with increases in the level of investment

in current assets, while ________ increase.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #63
Type: Concepts
64. Which of the following regarding current asset
financing is correct?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #64
Type: Concepts

65. Which of the following is a correct statement?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #65
Type: Concepts

66. Which of the following issues falls under the heading of

short-term finance?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #66
Type: Concepts

67. Which of the following issues is/are NOT considered a

part of short-term finance?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #67
 Type: Concepts

68. A firm is preparing a short-term financial plan. One

question the firm would most likely NOT address is
______________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #68
Type: Concepts

69. Short-term financial decisions are typically defined to

include cash inflows and outflows that occur within
_________ year(s) or less.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #69
Type: Concepts

70. A ___________ is an informal arrangement between a

bank and a business that allows the firm to periodically
borrow up to a pre-specified limit.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #70
Type: Concepts
71. A firm experiencing short-term cash flow problems can
most easily deal with the problem by
________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #71
Type: Concepts

72. A firm needs to raise cash and at the same time reduce
the level of its accounts receivable. This firm would
likely benefit most by _______________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #72
Type: Concepts

73. A type of inventory financing in which a third party to

the lending arrangement typically acts as a control
agent to supervise the inventory for the lender is called
_______________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #73
Type: Concepts
74. A firm wishes to obtain short term financing at a rate
significantly below that which a bank would charge. If
the firm is large and highly rated, it may be able to meet
its needs by _______________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #74
Type: Concepts

75. Which of the following are sources of cash?

I. Increase in inventory
II. Decrease in accounts payable
III. Decrease in accounts receivable
IV. Increase in fixed assets

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #75
Type: Concepts

76. Which one of the following is a use of cash?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #76
Type: Concepts
77. Which one of the following is a source of cash?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #77
Type: Concepts

78. Mycale's has always paid its suppliers in 30 days. The

company just hired a new financial officer who is
changing the policy such that suppliers will now be
paid in 45 days. This change will ______ the accounts
payable period and _______ the cash cycle.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #78
Type: Concepts

79. Which one of the following will decrease the operating

cycle?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #79
Type: Concepts
80. Which one of the following will increase the cash
cycle?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #80
Type: Concepts

81. Shortage costs are those costs that:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #81
Type: Concepts

82. Which of the following statements is correct concerning

a flexible short-term financial policy?

I. A flexible policy is most appropriate when carrying

costs are low relative to shortage costs.
II. A flexible policy entails the use of marketable
securities.
III. A flexible policy requires more short-term bank
loans than does a restrictive policy.
IV. The optimal current asset holdings are higher under
a flexible policy than under a restrictive policy.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #82
Type: Concepts
83. Which of the following are associated with a restrictive
short-term financial policy?

I. Minimal, if any, investments in marketable securities

II. Large investments in inventory
III. Frequent cash-outs
IV. Liberal credit terms for customers

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #83
Type: Concepts

84. Which one of the following statements concerning

inventory loans is correct?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #84
Type: Concepts

85. In which one of the following situations will a firm

require the most short-term financing?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #85
Type: Concepts
86. Kea owns a wholesale nursery that sells potted plants to
large retail outlets. These sales are seasonal in nature.
Kea cannot afford to wait for payment from the retailers
as they often take 60 days or more to pay. Kea has only
been in business for three years. Due to the nature of
her business, Kea's bank is not willing to accept
responsibility for collecting the receivables. The type of
financing that is most appropriate for Kea's situation is:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #86
Type: Concepts

87. The primary objective of short-term financial

management is to:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #87
Type: Concepts

88. Which of the following classify as shortage costs?

I. Costs of placing an order

II. Lost customer goodwill
III. Reserve inventory storage costs
IV. The costs to set up equipment to produce a different
product

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #88
Type: Concepts
89. Holidays, Etc. produces and distributes seasonal
merchandise to retail outlets. The firm has adopted a
compromise short-term financial policy. Given this
information, which one of the following statements
must be true?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #89
Type: Concepts

90. KNF, Inc. pays its creditors in 45 days. Inventory is

purchased one quarter prior to its sale. Cost of goods
sold is equal to 50% of the selling price. Each quarter
the total that KNF must pay on its accounts is equal to:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #90
Type: Concepts

91. Randy's Meat Market has a 46-day collection period.

The amount of cash that Randy collects each quarter is
equal to:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #91
Type: Concepts
92. Which of the following are generally considered as paid
in the quarter incurred for cash budgeting purposes?

I. Wages
II. Inventory purchases
III. Capital equipment purchases
IV. Taxes

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #92
Type: Concepts

93. Delta, Inc. follows a flexible short-term financing

policy. The firm produces educational toys, which is a
cyclical business. When the firm needs to pay for large
inventories in advance of peak sales, the firm will:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #93
Type: Concepts

94. A type of short-term loan where the borrower sells its

receivables to the lender up-front, but at a discount to
face value, is called:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #94
Type: Definitions
95. Which one of the following is a source of cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #95
Type: Concepts

96. Which of the following are uses of cash?

I. marketable securities are sold

II. the amount of inventory on hand is increased
III. the firm takes out a long-term bank loan
IV. payments are paid on accounts payable

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #96
Type: Concepts

97. Which one of the following will increase net working

capital? Assume that the current ratio is greater than
1.0.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #97
Type: Concepts
98. Which one of the following will decrease the net
working capital of a firm? Assume that the current ratio
is greater than 1.0.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #98
Type: Concepts

99. Which one of the following will decrease the operating

cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #99
Type: Concepts

100. Which one of the following will decrease the operating

cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #100
Type: Concepts

101. The operating cycle describes how a product:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
 Ross - Chapter 18 #101
Type: Concepts

102. Which one of the following will not affect the operating
cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #102
Type: Concepts

103. Which one of the following will increase the cash

cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #103
Type: Concepts

104. An increase in which one of the following will decrease

the cash cycle, all else equal?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #104
Type: Concepts
105. ABC Manufacturing historically produced products that
were held in inventory until they could be sold to a
customer. The firm is now changing its policy and only
producing a product when it receives an actual order
from a customer. All else equal, this change will:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #105
Type: Concepts

106. Which one of the following statements concerning the

cash cycle is correct?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #106
Type: Concepts

107. Which one of the following statements is correct

concerning the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #107
Type: Concepts
108. Which of the following actions will tend to decrease the
inventory period?

I. discontinuing all slow-selling merchandise

II. selling obsolete inventory below cost just to get rid
of it
III. buying raw materials only as they are needed in the
manufacturing process
IV. producing goods on demand versus for inventory

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #108
Type: Concepts

109. Which of the following actions will tend to decrease the

accounts receivable period?

I. loosening the standards for granting credit to

customers
II. increasing the discount for early payment by credit
customers
III. increasing the finance charges applied to all
customer balances outstanding over thirty days
IV. granting discounts for cash sales

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #109
Type: Concepts
110. An increase in which one of the following is most apt to
be an indicator of an accounts receivable policy that is
too restrictive?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #110
Type: Concepts

111. If you delay paying your suppliers by an additional ten

days, then:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #111
Type: Concepts

112. Which one of the following will increase the accounts

payable period, all else constant?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #112
Type: Concepts
113. Which one of the following managers is most likely in
charge of establishing the accounts receivable policy?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #113
Type: Concepts

114. The manager responsible for the accounting

information concerning cash flows is the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #114
Type: Concepts

115. Flexible short-term financial policies tend to:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #115
Type: Concepts

116. A restrictive short-term financial policy tends to:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #116
Type: Concepts
117. Which of the following are associated with a restrictive
short-term financial policy?

I. large investments in marketable securities

II. liberal credit terms for customers
III. minimal cash balances
IV. minimal credit sales

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #117
Type: Concepts

118. A restrictive short-term financial policy, as compared to

a more flexible policy, tends to:

I. cause a firm to lose sales due to a lack of inventory

on hand.
II. increase the sales of a firm due to the firm's credit
availability and terms.
III. increase the probability that a firm will face a cash-
out situation.
IV. increase the ability of a firm to charge premium
prices.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #118
Type: Concepts

119. A flexible short-term financial policy:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #119
 Type: Concepts

120. A flexible short-term financial policy:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #120
Type: Concepts

121. If your accounts receivable period is 30 days, you will

collect payment for your _____ sales during the second
quarter of a calendar year.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #121
Type: Concepts

122. Your firm collects 30% of sales in the month of sale,

55% of sales in the month following the month of sale
and 13% of sales in the second month following the
month of sale. Given this, you will collect _____ sales
during the month of June.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #122
Type: Concepts
123. A manufacturing firm has a 90 day collection period.
The firm produces seasonal merchandise and thus has
the least sales during the first quarter of a year and the
highest level of sales during the third quarter of a year.
The firm maintains a relatively steady level of
production which means that its cash disbursements are
fairly equal in all quarters. The firm is most apt to face
a cash-out situation in:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #123
Type: Concepts

124. Which one of the following sentences is correct about a

manufacturing firm with seasonal sales?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #124
Type: Concepts

125. Which two of the following four conditions are most

apt to cause a quarterly cash shortfall for a firm which
is financially sound?

I. a relatively constant level of sales

II. periodic expenditures for major equipment purchases
III. a steady dependence on a constant level of external
financing
IV. highly seasonal sales

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #125
 Type: Concepts

126. Which of the following statements are correct

concerning the cash balance of a firm?

I. Most firms plan on maintaining a minimum cash

balance at all times.
II. The cumulative cash surplus shown on a cash budget
is equal to the ending cash balance plus the minimum
cash balance retained by the firm.
III. The cumulative cash surplus at the end of March is
used as the beginning cash balance for April when you
are compiling a projected monthly cash balance report.
IV. A negative cumulative cash surplus indicates a
borrowing need by the firm.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #126
Type: Concepts

127. A cumulative cash deficit indicates that a firm:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #127
Type: Concepts

128. Which one of the following statements is correct?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #128
Type: Concepts
129. Which of the following are benefits of compiling a
short-term financial plan?

I. knowing ahead of time when your firm will probably

require external financing
II. being able to estimate how long of a time period
your firm might need a loan
III. being able to determine when your firm can best
afford to spend funds on a capital expenditure
IV. knowing when your firm should have excess funds
that can be invested

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #129
Type: Concepts

130. The operating cycle is defined as the period of time

between the _____ and the _____.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #130
Type: Definitions

131. The cash cycle is defined as the period of time between

the _____ and the _____.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #131
Type: Definitions
132. Which one of the following is a use of cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #132
Type: Definitions

133. Which of the following are sources of cash?

I. credit extended by a supplier

II. the payment of wages to an employee
III. a reduction in the average accounts receivable
balance
IV. an increase in long-term debt

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #133
Type: Definitions

134. Pedro's Farms has $137,000 in net working capital.

Which one of the following actions will increase that
amount?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #134
Type: Concepts
135. Holly's Meat Markets has accumulated $128,900 in net
working capital. Which one of the following will reduce
this amount?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #135
Type: Concepts

136. The operating cycle must lengthen when the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #136
Type: Concepts

137. Which one of the following will shorten both the

operating and the cash cycles?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #137
Type: Concepts
138. Which of the following will shorten the cash cycle?

I. paying suppliers slower

II. collecting receivables faster
III. selling inventory slower
IV. selling more inventory on credit rather than for cash

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #138
Type: Concepts

139. The Lumber Yard has installed a new inventory control

system which will improve the efficiency of the
operations and reduce excess inventory. This system
will _____ the inventory period and _____ the cash
cycle.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #139
Type: Concepts

140. At the ideal level of inventory, the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #140
Type: Concepts
141. Evergreen Brothers Hardware offers credit to
contractors. As a reward for years of loyalty, the
brothers have decided to extend the length of the credit
period for their top ten customers. This extension will
_____ the accounts receivable period, _____ the
operating cycle, and _____ the cash cycle.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #141
Type: Concepts

142. Your key supplier has decided to change the terms of

your credit arrangement from net 45 to net 30. This
action will _____ your accounts payable period and
_____ your cash cycle.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #142
Type: Concepts

143. The Jennings Company recently hired a new chief

financial officer. One of the first changes she made was
to delay the payment of all bills by ten days. The net
effect of this action is to decrease the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #143
Type: Concepts
144. Which one of the following statements is correct
concerning the short-term financial policy of a firm?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #144
Type: Concepts

145. Haywood Paints has a 45 day collection period.

Therefore they will collect _____ days of May sales,
_____ days of June sales, and _____ days of July sales
in the month of July.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #145
Type: Concepts

146. Keyser Metal Fabricators collects 25% of sales in the

month of sale, 65% in the month following the month
of sale, and the 10% in the second month following the
month of sale. In August, Keyser will collect _____
sales.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #146
Type: Concepts
147. The cumulative cash surplus or deficit:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #147
Type: Concepts

148. Bristol Machinery has a conventional receivables

factoring arrangement with a factor. This indicates that:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #148
Type: Concepts

149. Which one of the following statements is correct

concerning inventory loans?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #149
Type: Concepts

150. Suppose that the inventory period is 50 days, the

accounts payable period is 35 days, and the cash cycle
is 55 days. What is the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
 Ross - Chapter 18 #150
Type: Problems

151. Melons 'R' Us, a national chain of fruit stands, has an

inventory period of 65 days, an accounts payable period
of 30 days, and an accounts receivable period of 24
days. The CFO wants to implement a discount plan in
order to reduce the receivables period to 18 days. What
will happen to the firm's operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #151
Type: Problems

152. Suppose that the inventory period is 50 days, the

accounts receivable period is 40 days, and the cash
cycle is 55 days. What is the accounts payable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #152
Type: Problems

153. A firm has average inventory of $1,250,000, an

inventory period of 58 days, a receivables period of 32
days, and average payables of $810,000. What is its
cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #153
Type: Problems
154. Suppose that the inventory period is 50 days, the
accounts receivable period is 40 days, and the accounts
payable period is 35 days. What is the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #154
Type: Problems

155. For the year just ended, James' Drafting Supplies had
average accounts receivable of $880,000 and total
credit sales of $4,800,000. Throughout the year, a factor
purchased accounts receivable from the firm at a 2%
discount. What was the firm's days in receivables?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #155
Type: Problems

156. For the year just ended, James' Drafting Supplies had
average accounts receivable of $880,000 and total
credit sales of $4,800,000. Throughout the year, a factor
purchased accounts receivable from the firm at a 2%
discount. What was the firm's effective interest rate paid
on its receivables financing?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #156
Type: Problems
157. For the year just ended, James' Drafting Supplies had
average accounts receivable of $880,000 and total
credit sales of $4,800,000. Throughout the year, a factor
purchased accounts receivable from the firm at a 2%
discount. If the firm wishes to get its factoring costs
below 11%, what is the MAXIMUM days in
receivables it can have?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #157
Type: Problems

Ross - Chapter 18

158. What is the inventory turnover?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #158
Type: Problems

159. What is the inventory period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
 Ross - Chapter 18 #159
Type: Problems

160. What is the accounts receivable turnover?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #160
Type: Problems

161. What is the accounts receivable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #161
Type: Problems

162. What is the accounts payable turnover?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #162
Type: Problems

163. What is the accounts payable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #163
Type: Problems
164. What is the length of the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #164
Type: Problems

165. What is the length of the cash cycle?

A.
B.
C.
D.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #165
Type: Problems

Ned's Co. has an average collection period of 45 days

and an operating cycle of 130 days. It has a policy of
keeping at least $10 on hand as a minimum cash
balance, and has a beginning cash balance for the first
quarter of $20. Beginning receivables for the quarter
amount to $35. Sales for the first and second quarters
are expected to be $110 and $125, respectively, while
purchases amount to 80% of the next quarter's forecast
sales. The accounts payable period is 90 days.
Ross - Chapter 18

166. What are cash collections in the first quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #166
Type: Problems
167. What is the value of the receivables account at the end
of the first quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #167
Type: Problems

168. What are cash disbursements for the first quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #168
Type: Problems

169. What is the value of the payables account at the end of

the first quarter?

A.
B.
C.
D.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #169
Type: Problems

170. What is the ending cash balance for the first quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #170
Type: Problems
171. What is Ned ‘s cash cycle at the end of the first
quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #171
Type: Problems

[Each transaction takes place at the end of the business

day.]

Ross - Chapter 18

172. How many days are in the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #172
Type: Problems

173. How many days are in the inventory period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #173
Type: Problems
174. How many days are in the accounts receivable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #174
Type: Problems

175. How many days are in the accounts payable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #175
Type: Problems

176. How many days are in the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #176
Type: Problems

Jumbotron Inc. had sales of $8,000 in November,

$14,000 in December, and projects sales of $10,000 for
January, $12,000 for February, and $8,000 for March.
The firm's cost of goods sold every month is equal to
70% of the next month's sales. The firm collects its
receivables in 60 days and pays its payables in 30 days.
The firm begins January 1 with $10,000 in cash. All
sales and purchases are on credit.
Ross - Chapter 18
177. What is Jumbotron's accounts receivable at the end of
January?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #177
Type: Problems

178. What is Jumbotron's accounts payable at the end of

January?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #178
Type: Problems

179. What is Jumbotron's total cash collections for

February?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #179
Type: Problems

180. What is Jumbotron's cash balance at the end of

January?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
 Ross - Chapter 18 #180
Type: Problems

181. What is Jumbotron's cash balance at the end of

February?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #181
Type: Problems

182. What is Jumbotron's cash balance at the end of March?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #182
Type: Problems

183. What are Jumbotron's total cash collections in March?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #183
Type: Problems

184. What are Jumbotron's total cash disbursements in

March?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
 Ross - Chapter 18 #184
Type: Problems

Credit Sales = $175,000

COGS = $125,000
Ross - Chapter 18

185. How many days are in the inventory period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #185
Type: Problems

186. How many days are in the receivables period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #186
Type: Problems

187. How many days are in the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #187
Type: Problems
188. How many days are in the payables period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #188
Type: Problems

189. How many days are in the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #189
Type: Problems

Year Average

Credit Sales = $180,000

COGS = $135,000
Ross - Chapter 18

190. How many days are in the inventory period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #190
Type: Problems
191. How many days are in the receivables period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #191
Type: Problems

192. How many days are in the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #192
Type: Problems

193. How many days are in the payables period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #193
Type: Problems

194. How many days are in the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #194
Type: Problems
195. How many days are in the inventory period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #195
Type: Problems

196. How many days are in the accounts receivable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #196
Type: Problems

197. How many days are in the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #197
Type: Problems

198. How many days are in the accounts payable period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #198
Type: Problems
199. How many days are in the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #199
Type: Problems

Blackberry, Inc. had sales for the past year of $38,250

and cost of goods sold of $21,038. In addition, the
statement of financial position accounts was as shown
in the table below. Blackberry uses average account
values and a 365-day year where applicable in all of its
computations.

Ross - Chapter 18

200. What is the inventory turnover rate for Blackberry,

Inc.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #200
Type: Problems

201. What is the inventory period for Blackberry, Inc.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #201
 Type: Problems

202. What is the accounts receivable period for Blackberry,

Inc.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #202
Type: Problems

203. What is the operating cycle for Blackberry, Inc.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #203
Type: Problems

204. What is the cash cycle for Blackberry, Inc.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #204
Type: Problems
205. Tomas Industries has an inventory period of 132 days,
an accounts payable period of 94 days, and an accounts
receivable period of 43 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #205
Type: Problems

206. Which statement is correct given the following

statement of financial position information?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #206
Type: Problems
 ALPHA, Inc. sells all of its products on credit.
Purchases are 60% of the sales for the following
quarter. The firm uses a 365-day year and account
averages where applicable in its computations.
The financial manager of the firm provides the
following relevant information:

Ross - Chapter 18

207. What is the amount of purchases in Quarter 2?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #207
Type: Problems

208. What is the amount of the total disbursements for

Quarter 3?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #208
Type: Problems
209. What is the accounts receivable balance at the end of
Quarter 1?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #209
Type: Problems

210. What is the amount of the cash collections in Quarter

4?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #210
Type: Problems

211. What is the net cash flow for Quarter 2?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #211
Type: Problems

212. What is the accounts payable balance at the beginning

of Quarter 2?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #212
 Type: Problems

213. A firm collects 10% of its sales in the month of sale,

60% in the following month, and 30% in the second
month following the sale. Sales for the firm by month
are:

What is the accounts receivable balance at the end of

June?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #213
Type: Problems

214. ANX Ltd of Montreal collects 23% of its sales in the

month of sale, 56% in the month following the month
of sale, 19% in the second month following the sale,
and 2% of sales are never collected. Sales are:

What is the amount of the cash collections in October?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #214
Type: Problems
215. A Vancouver firm has a cash balance of $12,000 as of
June 1. During the month they paid $16,000 on account,
$13,000 for wages, and $1,000 for other expense items.
The company maintains a minimum cash balance of
$10,000. Sales for the firm for April, May, and June are
$15,000, $22,000, and $18,750, respectively. The
company collects 40% of sales in the month of sale,
50% in the following month, and 10% in the second
month following the month of sale. What is the cash
surplus or deficit as of June 30?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #215
Type: Problems

216. A company has a $20 million operating loan credit with

its bank at a rate of 0.55% per month. What is the
effective rate of the operating loan?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #216
Type: Problems

217. Fred's Factory has credit sales of $747,500 and an

average accounts receivable balance of $57,500. Fred
factors his receivables throughout the year with his
local bank at a 2% discount. What is the effective
annual rate of this arrangement?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #217
Type: Problems
218. Your firm has sales of $628,000 and cost of goods sold
of $402,000. At the beginning of the year, your
inventory was $31,000. At the end of the year, the
inventory balance was $33,000. What is the inventory
turnover rate?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #218
Type: Problems

219. A firm has sales of $720,000. The cost of goods sold is

equal to 70% of sales. The firm has an average
inventory of $6,500. How many days on average does it
take the firm to sell its inventory?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #219
Type: Problems

220. Bilt Rite, Inc. has sales of $610,000. The cost of goods
sold is equal to 70% of sales. The beginning accounts
receivable balance is $21,000 and the ending accounts
receivable balance is $25,000. How long on average
does it take the firm to collect its receivables?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #220
Type: Problems
221. Weson, Inc. has sales of $462,000, costs of goods sold
of $308,000 and average accounts receivable of
$48,900. How long does it take its credit customers to
pay for their purchases?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #221
Type: Problems

222. LoDo, Inc. has sales of $642,000 and average accounts

payable of $36,400. The cost of goods sold is
equivalent to 65% of sales. How long does it take LoDo
to pay its suppliers?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #222
Type: Problems

223. True Blue Stores had a beginning accounts payable

balance of $56,900 and an ending accounts payable
balance of $62,800. Sales for the period were $670,000
and costs of goods sold were $418,000. What is the
payables turnover rate?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #223
Type: Problems
224. A firm has an inventory turnover rate of 16, a
receivables turnover rate of 21 and a payables turnover
rate of 11. How long is the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #224
Type: Problems

225. Your firm currently has an operating cycle of 64 days.

You are analyzing some operational changes which are
expected to decrease the accounts receivable period by
3 days and decrease the inventory period by 2 days. The
accounts payable turnover rate is expected to increase
from 7 to 9 times per year. If all of these changes are
adopted, what will your firm's new operating cycle be?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #225
Type: Problems

226. Dallas and More (D&M) sells its inventory in 82 days

on average. Its average customer charges his purchase
on a credit card whereby payment is received in ten
days. On the other hand, D&M takes 56 days on
average to pay for its purchases. Given this information,
what is the length of D&M's operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #226
Type: Problems
227. Jaxson and Sons has an inventory period of 33 days, an
accounts payable period of 41 days and an accounts
receivable period of 27 days. Management is
considering offering a 5% discount if its credit
customers pay for their purchases within 10 days. If the
new discount is offered the accounts receivable period
is expected to decline by 13 days. If the new discount is
offered, the operating cycle will decrease from _____
days to _____ days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #227
Type: Problems

228. Wislon, Inc. has an inventory turnover rate of 15, an

accounts payable period of 54 days and an accounts
receivable period of 37 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #228
Type: Problems

229. Drefus, Inc. has an inventory turnover of 15 and an

accounts receivable turnover of 9. The accounts payable
period is 51 days. What is the length of the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #229
Type: Problems
230. A firm currently has a 36 day cash cycle. Assume that
the firm changes its operations such that it decreases its
receivables period by 4 days, increases its inventory
period by 1 day and decreases its payables period by 2
days. What will the length of the cash cycle be after
these changes?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #230
Type: Problems

231. A firm currently has a 43 day cash cycle. Assume that

the firm changes its operations such that it increases its
receivables period by 2 days, decreases its inventory
period by 1 day and increases its payables period by 3
days. What will the length of the cash cycle be after
these changes?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #231
Type: Problems

232. Martinque and Son has a 60 day collection period. Sales

for the next calendar year are estimated at $1,200,
$1,100, $2,300 and $1,800, respectively, by quarter
starting with the first quarter of the year. Given this
information, which one of the following statements is
correct? Assume that a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #232
Type: Problems
233. Smith and Johnson has expected sales of $380, $340,
$430 and $480 for the months of January through April,
respectively. The accounts receivable period is 15 days.
How much did the firm collect in the month of March?
Assume that a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #233
Type: Problems

234. Dokos, Inc. has a beginning receivables balance on

January 1st of $560. Sales for January through April are
$620, $680, $570 and $550, respectively. The accounts
receivable period is 30 days. How much did the firm
collect in the month of March? Assume that a year has
360 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #234
Type: Problems

235. Baker Industries has a 45 day accounts receivable

period. The estimated quarterly sales for this year,
starting with the first quarter, are $1,200, $1,400,
$1,900 and $3,200, respectively. How much does the
firm expect to collect in the third quarter? Assume that
a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #235
Type: Problems
236. D & F, Inc. expects sales of $620, $650, $730 and $780
for the months of April through July, respectively. The
firm collects 20% of sales in the month of sale, 50% in
the month following the month of sale and 28% in the
second month following the month of sale. The
remaining 2% of sales is never collected. How much
money does the firm expect to collect in the month of
July?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #236
Type: Problems

237. Birds Unlimited has a 45 day accounts payable period.

The firm has expected sales of $1,800, $2,100, $2,400
and $2,800, respectively, by quarter for the next
calendar year. The cost of goods sold for a quarter is
equal to 65% of the next quarter sales. What is the
amount of the projected cash disbursements for
accounts payable for Quarter 2 of the next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #237
Type: Problems
238. Your firm sells $2,000 worth of goods in December,
$1,700 worth in January, $1,500 in February and $1,600
in March. Your cost is 60% of the retail price. You have
a receivables period of 30 days and a payables period of
45 days. You buy your products one month prior to
selling them. Which one of the following statements is
correct given this information?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #238
Type: Problems

239. As of the beginning of the quarter, you have a cash

balance of $250. During the quarter you pay your
suppliers $310. Your accounts receivable collections are
$420. You also pay an interest payment of $30 and a tax
bill of $180. In addition, you borrow $75. What is your
cash balance at the end of the quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #239
Type: Problems

240. On April 1st, your firm had a beginning cash balance of

$280. Your sales for March were $460 and your April
sales were $510. During April you had cash expenses of
$130 and payments on your accounts payable to $210.
Your accounts receivable period is 30 days. What is
your firm's beginning cash balance on May 1st?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #240
 Type: Problems

241. Pluto, Inc. has a beginning cash balance of $430 on

February 1st. The firm has projected sales of $600 in
January, $800 in February and $900 in March. The cost
of goods sold is equal to 70% of sales. Goods are
purchased one month prior to the month of sale. The
accounts payable period is 30 days and the accounts
receivable period is 15 days. The firm has monthly cash
expenses of $180. What is the projected ending cash
balance at the end of February? Assume that every
month has 30 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #241
Type: Problems

242. Your firm factors its accounts receivable immediately at

a 3% discount. The average collection period is 41.95
days. Assume that all accounts are collected in full.
What is the effective annual interest rate on this
arrangement?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #242
Type: Problems
243. Your firm has a net cash inflow for the quarter of - $30
(negative). The beginning cash balance is $15.
Company policy is to maintain a minimum cash balance
of $5 and borrow only the amount that is necessary to
maintain that balance. How much does your firm need
to borrow to have a zero cumulative surplus?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #243
Type: Problems

244. Your firm has a net cash inflow for the quarter of $60.
The beginning cash balance is $35. Company policy is
to maintain a minimum cash balance of $15 and borrow
only the amount that is necessary to maintain that
balance. How much does your firm need to borrow or
how much can it repay on its loans to have a zero
cumulative surplus?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #244
Type: Problems

245. At the beginning of the year, you have an outstanding

short-term loan of $10 which was used to cover your
cash needs for the previous year. During the current
year, you expect to pay $2 interest and have an annual
net cash inflow of - $10 (negative), excluding the
interest payment. What is your anticipated loan balance
at year end?

A.
B.
C.
D.
E.
Difficulty: Basic
 Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #245
Type: Problems

246. Beckwith Upholstery has sales of $930,000 and cost of

goods sold of $590,000. The firm had a beginning
inventory of $43,000 and an ending inventory of
$41,000. What is the length of the inventory period?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #246
Type: Problems

247. Your firm has sales of $879,000 and cost of goods sold
of $568,000. At the beginning of the year, your
inventory was $38,000. At the end of the year, the
inventory balance was $43,000. What is the inventory
turnover rate?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #247
Type: Problems

248. Delta Motors has sales of $521,000. The cost of goods

sold is equal to 63% of sales. The firm has an average
inventory of $22,800. How many days on average does
it take the firm to sell its inventory?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #248
Type: Problems
249. Cascade Vista has sales of $1.3 million. The cost of
goods sold is equal to 72% of sales. The beginning
accounts receivable balance is $108,000 and the ending
accounts receivable balance is $121,000. How long on
average does it take the firm to collect its receivables?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #249
Type: Problems

250. Webster, Inc. has sales of $267,000, costs of goods sold

of $149,000, and average accounts receivable of
$18,400. On average, how long does it take its credit
customers to pay for their purchases?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #250
Type: Problems

251. Rocky Mountain Homes has sales of $1.45 million and

average accounts payable of $74,400. The cost of goods
sold is equivalent to 80% of sales. How long does it
take Rocky Mountain to pay its suppliers?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #251
Type: Problems
252. Buck or Less Stores had a beginning accounts payable
balance of $269,000 and an ending accounts payable
balance of $327,000. Sales for the period were $3.4
million and costs of goods sold were $2.5 million. What
is the payables turnover rate?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #252
Type: Problems

253. A firm has an inventory turnover rate of 18, a

receivables turnover rate of 23, and a payables turnover
rate of 12. How long is the operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #253
Type: Problems

254. Your firm currently has an operating cycle of 92 days.

You are analyzing some operational changes which are
expected to decrease the accounts receivable period by
4 days and decrease the inventory period by 5 days. The
accounts payable turnover rate is expected to increase
from 8 to 9 times per year. If all of these changes are
adopted, what will be your firm's new operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #254
Type: Problems
255. Dexter and Francis Merchants (DFM) sell their
inventory in 94 days on average. Their average
customer charges purchase on a credit card whereby
payment is received in 6 days. On the other hand, DFM
takes 47 days on average to pay for their purchases.
Given this information, what is the length of DFM's
operating cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #255
Type: Problems

256. I.R. Ruth, Inc. has an inventory turnover rate of 16.59,

an accounts payable period of 51 days, and an accounts
receivable period of 34 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #256
Type: Problems

257. Smathers, Inc. has an inventory turnover rate of 14 and

an accounts receivable turnover rate of 11. The
accounts payable period is 56 days. What is the length
of the cash cycle?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #257
Type: Problems
258. Baxter United currently has a 41 day cash cycle.
Assume the firm changes its operations such that it
decreases its receivables period by 7 days, decreases its
inventory period by 4 days, and decreases its payables
period by 3 days. What will be the length of the cash
cycle after these changes?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #258
Type: Problems

259. Jefferson Boat Works has a 60 day collection period.

Sales for the next calendar year are estimated at $1,800,
$2,400, $2,700, and $3,600, respectively, by quarter
starting with the first quarter of the year. How much
will the firm collect in the third quarter of next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #259
Type: Problems

260. T.J. Waxham's has a beginning receivables balance on

January 1 of $1,460. Sales for January through April are
$1,200, $1,450, $1,580, and $1,640, respectively. The
accounts receivable period is 30 days. How much did
the firm collect in the month of April? Assume that a
year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #260
Type: Problems
261. Thornton's Wholesalers has expected sales of $920,
$870, $620, and $570 for the months of April through
July, respectively. The accounts receivable period is 45
days. How much will the firm collect in the month of
June? Assume that a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #261
Type: Problems

262. Edgewater Industrial Products has a 45 day accounts

receivable period. The estimated quarterly sales for this
year, starting with the first quarter, are $2,800, $3,100,
$4,200, and $3,300, respectively. How much does the
firm expect to collect in the fourth quarter? Assume that
a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #262
Type: Problems
263. Nelson Optical purchases its inventory one quarter prior
to the quarter of sale. The purchase price is 55% of the
sales price and the accounts payable period is 30 days.
What is the amount of the expected disbursements for
quarter three given the following expected quarterly
sales?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #263
Type: Problems

264. Natural Woods has a 60 day accounts payable period.

The firm has expected sales of $3,200, $3,800, $4,600,
and $4,800, respectively, by quarter for the next
calendar year. The cost of goods sold for a quarter is
equal to 60% of the next quarter sales. What is the
amount of the projected cash disbursements for
accounts payable for the third quarter of the next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #264
Type: Problems
265. Your firm sells $6,000 worth of goods in December,
$4,700 worth in January, $5,100 in February, and
$5,800 in March. Your cost is 65% of your selling price.
You have a receivables period of 30 days and a
payables period of 60 days. You buy your products one
month prior to selling them. How much will you pay on
your accounts payable in February?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #265
Type: Problems

266. As of the beginning of the quarter, Trellis Florists has a

cash balance of $420. During the quarter, suppliers are
paid $840, receivables of $1,010 are collected, taxes of
$260 are paid, and $55 is borrowed. What is Trellis'
cash balance at the end of the quarter?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #266
Type: Problems

267. On May 1, D.R.Y. Inc. had a beginning cash balance of

$690. April sales were $810, and May sales were $990.
Cash expenses of $130 and payments on accounts
payable of $370 were paid during May. The accounts
receivable period is 30 days. What is D.R.Y.'s
beginning cash balance on June 1?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #267
Type: Problems
268. Your firm has a net cash inflow for the quarter of - $26
(negative). The beginning cash balance is $12.
Company policy is to maintain a minimum cash balance
of $10 and borrow only the amount that is necessary to
maintain that balance. How much does your firm need
to borrow to have a zero cumulative surplus?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #268
Type: Problems

269. Your firm has a net cash inflow for the quarter of $44.
The beginning cash balance is $27. Company policy is
to maintain a minimum cash balance of $25 and borrow
only the amount that is necessary to maintain that
balance. How much does your firm need to borrow or
how much can it repay on its loans to have a zero
cumulative surplus?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #269
Type: Problems

270. ABX is acquiring additional current assets. Which of

the following costs will increase as a result of the
acquisition of the additional current assets?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #270
Type: Concepts
271. Symphony Instruments, Inc. has sales of $760,000 and
cost of goods sold of $520,000. The firm had a
beginning inventory of $39,000 and an ending
inventory of $48,000. What is the length of the
inventory period?

A.
B.
C.
D.
E.

Inventory turnover = $520,000/[($39,000 + $48,000)/2]

= 11.954; Inventory period = 365/11.954 = 30.53 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #271
Type: Problems

272. A national firm has sales of $575,000 and cost of goods

sold of $368,000. At the beginning of the year, the
inventory was $42,000. At the end of the year, the
inventory balance was $45,000. What is the inventory
turnover rate?

A.
B.
C.
D.
E.

Inventory turnover = $368,000/[($42,000 + $45,000)/2]

= 8.46 times

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #272
Type: Problems
273. Paul's Manufacturing has sales of $810,000. The cost of
goods sold is equal to 80% of sales. The firm has an
average inventory of $11,500. How many days on
average does it take the firm to sell its inventory?

A.
B.
C.
D.
E.

Inventory turnover = ($810,000 × .80)/$11,500 = 56.35;

Inventory period = 365/56.35 = 6.48 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #273
Type: Problems

274. Tops, Inc. has sales of $705,000. The cost of goods sold
is equal to 60% of sales. The beginning accounts
receivable balance is $33,000 and the ending accounts
receivable balance is $36,000. How long on average
does it take the firm to collect its receivables?

A.
B.
C.
D.
E.

Receivables turnover = $705,000/[($33,000 +

$36,000)/2] = 20.435; Receivables period = 365/20.435
= 17.86 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #274
Type: Problems
275. Crosland, Inc. has sales of $512,000, costs of goods
sold of $345,000, average accounts receivable of
$56,400, and average accounts payable of $45,900.
How long does it take for Crosland's credit customers to
pay for their purchases?

A.
B.
C.
D.
E.

Receivables turnover = $512,000/$56,400 = 9.078;

Receivables period = 365/9.078 = 40.21 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #275
Type: Problems

276. Tippler, Inc. has sales of $468,000, average accounts

receivable of $27,500, and average accounts payable of
$22,300. The cost of goods sold is equivalent to 75% of
sales. How long does it take Tippler to pay their
suppliers?

A.
B.
C.
D.
E.

Payables turnover = ($468,000 × .75)/$22,300 = 15.74;

Payables period = 365/15.74 = 23.19 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #276
Type: Problems
277. Joe's Merchandise had a beginning accounts payable
balance of $61,800 and an ending accounts payable
balance of $67,400. Sales for the period were $580,000
and costs of goods sold were $436,000. What is the
payables turnover rate?

A.
B.
C.
D.
E.

Payables turnover = $436,000/[($61,800 + $67,400)/2)]

= 6.75 times

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #277
Type: Problems

278. Your firm has an inventory turnover rate of 22, a

payables turnover rate of 9, and a receivables turnover
rate of 17. How long is your firm's operating cycle?

A.
B.
C.
D.
E.

Inventory period = 365/22 = 16.59 days; Accounts

receivable period = 365/17 = 21.47 days; Operating
cycle = 16.59 + 21.47 days = 38.06 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #278
Type: Problems
279. Center Enterprises currently has an operating cycle of
58 days. You are analyzing some operational changes
which are expected to increase the accounts receivable
period by 4 days and decrease the inventory period by 3
days. The accounts payable turnover rate is expected to
increase from 9 to 12 times per year. If all of these
changes are adopted, what will Center's new operating
cycle be?

A.
B.
C.
D.
E.

Operating cycle = 58 + 4 - 3 = 59 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #279
Type: Problems

280. On average, Stuff for Less is able to sell their inventory

in 23 days. Stuff for Less takes 60 days on average to
pay for their purchases. On the other hand, their
average customer charges their purchase on a credit
card whereby payment is received in 15 days. Given
this information, what is the length of operating cycle?

A.
B.
C.
D.
E.

Operating cycle = 23 + 15 = 38 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #280
Type: Problems
281. Cailey's Shoppe has an inventory period of 37 days, an
accounts payable period of 44 days, and an accounts
receivable period of 25 days. Management is
considering an offer from their suppliers to pay within
15 days and receive a 7% discount. If the new discount
is taken, the accounts payable period is expected to
decline by 10 days. If the new discount is taken, the
operating cycle will be _____ days.

A.
B.
C.
D.
E.

Original operating cycle = 37 + 25 = 62 days; the

operating cycle will not change due to the change in the
accounts payable period.

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #281
Type: Problems

282. Evans, Inc. has an inventory period of 36 days, an

accounts payable period of 44 days, and an accounts
receivable turnover rate of 20. What is the length of the
cash cycle?

A.
B.
C.
D.
E.

Cash cycle = (365/20) + 36 - 44 = 10.25 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #282
Type: Problems
283. Weavers, Inc. has an inventory turnover of 22 and an
accounts payable turnover of 13. The accounts
receivable period is 39 days. What is the length of the
cash cycle?

A.
B.
C.
D.
E.

Cash cycle = (365/22) + 39 - (365/13) = 27.51 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #283
Type: Problems

284. The Pearson Co. currently has a 25 day cash cycle.

Assume the firm changes its operations such that it
increases its receivables period by 3 days, decreases its
inventory period by 2 days, and decreases its payables
period by 5 days. What will the length of the cash cycle
be after these changes?

A.
B.
C.
D.
E.

Cash cycle = 25 + 3 - 2 + 5 = 31 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #284
Type: Problems
285. A company currently has a 51 day cash cycle. Assume
the firm changes its operations such that it decreases its
receivables period by 3 days, increases its inventory
period by 4 days, and increases its payables period by 1
day. What will the length of the cash cycle be after
these changes?

A.
B.
C.
D.
E.

Cash cycle = 51 - 3 + 4 - 1 = 51 days

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #285
Type: Problems

286. The Dawson Brothers have a 60 day collection period.

Sales for the next calendar year are estimated at $1,800,
$1,300, $2,200 and $2,000, respectively, by quarter
starting with the first quarter of the year. Given this
information, which one of the following statements is
correct? Assume a year has 360 days.

A.
B.
C.
D.
E.

Accounts receivable balance at beginning of Quarter 4

= $2,200/90 × 60 = $1,466.67

Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #286
Type: Problems
287. Wrangler, Inc. has a beginning receivables balance on
February 1 of $680. Sales for February through May are
$310, $340, $360, and $400, respectively. The accounts
receivable period is 30 days. How much did the firm
collect in the month of May? Assume that a year has
360 days.

A.
B.
C.
D.
E.

In May, the firm would collect April sales of $360.

Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #287
Type: Problems

288. McDonald and Sons have expected sales of $320, $350,

$410, and $460 for the months of January through
April, respectively. The accounts receivable period is 15
days. What is the accounts receivable balance at the end
of February? Assume that a year has 360 days.

A.
B.
C.
D.
E.

Ending receivables in February = $350/30 × 15 = $175

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #288
Type: Problems
289. SAP, Inc. has a beginning receivables balance on
January 1 of $390. Sales for January through April are
$520, $580, $640, and $540, respectively. The accounts
receivable period is 30 days. How much did the firm
collect in the month of February? Assume that a year
has 360 days.

A.
B.
C.
D.
E.

In February, the firm would collect January sales of

$520.

Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #289
Type: Problems

290. The Deluxe Corporation has a 45 day accounts

receivable period. The estimated quarterly sales for this
year, starting with the first quarter, are $1,700, $2,100,
$3,500, and $2,500, respectively. What is the accounts
receivable balance at the beginning of the second
quarter? Assume that a year has 360 days.

A.
B.
C.
D.
E.

Beginning accounts receivable balance in quarter 2 =

Ending accounts receivable balance of quarter 1 =
$1,700/90 × 45 = $850

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #290
Type: Problems
291. Chief Industries expects sales of $720, $680, $750, and
$800 for the months of May through August,
respectively. The firm collects 10% of sales in the
month of sale, 60% in the month following the month
of sale, and 27% in the second month following the
month of sale. The remaining 3% of sales is never
collected. How much money does the firm expect to
collect in the month of July?

A.
B.
C.
D.
E.

July collections = (.10 × $750) + (.60 × $680) + (.27 ×

$720) = $677.40

Difficulty: Basic
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #291
Type: Problems

292. Eastland, Inc. purchases their inventory one quarter

prior to the quarter of sale. The purchase price is 50%
of the sales price. The accounts payable period is 30
days. The accounts payable balance at the beginning of
quarter one is $28,000. What is the amount of the
expected disbursements for quarter three given the
following expected quarterly sales?

A.
B.
C.
D.
E.

Quarter 3 disbursements = [(30/90) × $45,000 × .50] +

[(60/90) × $52,000 × .50] = $24,833.33

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #292
Type: Problems
293. Limitless Styles has a 45 day accounts payable period.
The firm has expected sales of $900, $1,200, $1,900,
and $2,600, respectively, by quarter for the next
calendar year. The cost of goods sold for a quarter is
equal to 70% of the next quarter sales. The firm has a
beginning payables balance of $600 as of quarter one.
What is the amount of the projected cash disbursements
for accounts payable for Quarter 3 of the next year?
Assume that a year has 360 days.

A.
B.
C.
D.
E.

Disbursement = [(45/90) × (.70 × $1,900)] + [(45/90) ×

(.70 × $2,600)] = $1,575

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #293
Type: Problems

294. Krista's sells $4,000 worth of goods in December,

$2,800 worth in January, $3,200 in February and $3,500
in March. The wholesale cost is 65% of the retail price.
The firm has a receivables period of 30 days, a payables
period of 60 days, and buys inventory one month prior
to selling it. Which one of the following statements is
correct?

A.
B.
C.
D.
E.

January ending A/P balance = (.65 × $2,800) + (.65 ×

$3,200) = $3,900

Difficulty: Basic
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #294
Type: Problems
295. As of the beginning of the quarter, Callahan, Inc. had a
cash balance of $320. During the quarter the company
paid suppliers $230. The company collected $400 from
customers. The company also paid an interest payment
of $40 and $170 in taxes. In addition, the company
borrowed $100. What is Callahan's cash balance at the
end of the quarter?

A.
B.
C.
D.
E.

Cash balance = $320 - $230 + $400 - $40 - $170 + $100

= $380

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #295
Type: Problems

296. On May 1, your firm had a beginning cash balance of

$140. Your sales for April were $350 and your May
sales were $430. During May you had cash expenses of
$90 and payments on your accounts payable of $260.
Your accounts receivable period is 30 days. What is
your firm's beginning cash balance on June 1?

A.
B.
C.
D.
E.

Cash balance = $140 - $90 - $260 + $350 = $140

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #296
Type: Problems
297. Wyler, Inc. has a beginning cash balance of $380 on
March 1. The firm has projected sales of $550 in
February, $700 in March, and $800 in April. The cost of
goods sold is equal to 75% of sales. Goods are
purchased one month prior to the month of sale. The
accounts payable period is 30 days and the accounts
receivable period is 15 days. The firm has monthly cash
expenses of $200. What is the projected ending cash
balance at the end of March? Assume that every month
has 30 days.

A.
B.
C.
D.
E.

March collections = [(15/30) × $550] + [(15/30) ×

$700] = $625; March disbursements for payables = .75
× $700 = $525; March ending cash balance = $380 +
$625 - $525 - $200 = $280

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #297
Type: Problems

298. Barkely's has a line of credit with a local bank in the

amount of $125,000. The loan agreement calls for
interest of 8% with a compensating balance of 4% ,
which is based on the total amount borrowed. The
compensating balance will be deposited into an interest-
free account. What is the effective interest rate on the
loan if the firm needs to borrow $58,000 for one year to
cover operating expenses?

A.
B.
C.
D.
E.

Amount borrowed = $58,000 (1 - .04) =

$60,416.67; Annual interest = $60,416.67 × .08 =
$4,833.33; Effective interest rate = $4,833.33
$58,000 = .0833 = 8.33%

Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
 Ross - Chapter 18 #298
Type: Problems

299. Juno Industrial Supply has a $250,000 line of credit at a

9% interest rate. The loan agreement requires a 3%
compensating balance, which is based on the total
amount borrowed, and which will be held in an interest-
free account. What is the effective interest rate if the
firm borrows $169,000 on the line of credit for one
year?

A.
B.
C.
D.
E.

Amount borrowed = $169,000 (1 - .03) =

$174,226.80; Annual interest = $174,226.80 × .09 =
$15,680.41; Effective interest rate = $15,680.41
$169,000 = .09278 = 9.28%

Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #299
Type: Problems

300. Marshall's has a $75,000 line of credit with Tabor Bank.

The line of credit calls for an interest rate of 8.5% and a
compensating balance of 6%. The compensating
balance is based on the total amount borrowed and will
be held in an interest-free account. What is the effective
annual interest rate if the firm borrows $49,000 for one
year?

A.
B.
C.
D.
E.

Amount borrowed = $49,000 (1 - .06) =

$52,127.66; Annual interest = $52,127.66 × .085 =
$4,430.85; Effective interest rate = $4,430.85
$49,000 = .09043 = 9.04%

Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #300
Type: Problems
301. Your firm factors its accounts receivables immediately
at a 2% discount. The average collection period is 32
days. Assume that all accounts are collected in full.
What is the effective annual interest rate on this
arrangement?

A.
B.
C.
D.
E.

Interest rate for 32 days = .02 .98 = .020408;

Number of periods per year = 365 32 =
11.40625; Effective annual rate = 1.02040811.40625 - 1
= .259 = 25.9%

Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #301
Type: Problems

302. The Friendly Bank offers AB United a $200,000 line of

credit with an interest rate of 2.25% per quarter. The
credit line also requires that 2% of the unused portion
of the credit line be deposited in a non-interest bearing
account as a compensating balance. AB United's short-
term investments are paying 1.5% per quarter. What is
the effective annual interest rate on this arrangement if
the line of credit goes unused all year? Assume any
funds borrowed or invested use compound interest.

A.
B.
C.
D.
E.

Effective annual interest = (1.015)4 - 1 = .06136 =

6.14%

Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #302
Type: Problems
303. Merc Express has a $50,000 line of credit with
Crossroads Bank. The loan agreement requires that
3.5% of the unused portion of the credit line be
deposited in a non-interest bearing account as a
compensating balance. The interest rate on the
borrowed funds is 2.4% per quarter. Merc Express'
short-term investments are paying 1.75% per quarter.
What is the effective annual interest rate on the line of
credit if Merc Express borrows the entire $50,000 for
one year? Assume any funds borrowed or invested use
compound interest.

A.
B.
C.
D.
E.

Effective annual interest = (1.024)4 - 1 = .09951 =

9.95%

Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #303
Type: Problems

304. Your bank offers you a $25,000 line of credit with an

interest rate of 2.25% per quarter. The loan agreement
also requires that 4% of the unused portion of the credit
line be deposited in a non-interest bearing account as a
compensating balance. Your short-term investments are
paying 0.40% per month. What is your effective annual
interest rate on this arrangement if you do not borrow
any money on this credit line during the year? Assume
any funds borrowed or invested use compound interest.

A.
B.
C.
D.
E.

Effective annual interest = (1.004)12 - 1 = .04907 =

4.91%

Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #304
Type: Problems
305. New Town Bank offers a $25,000 line of credit with an
interest rate of 2.5% per quarter. The loan agreement
also requires that 5% of the unused portion of the credit
line be deposited in a non-interest bearing account as a
compensating balance. Short-term investments are
currently paying 1.6% per quarter. What is the effective
annual interest rate on the line of credit if a customer
borrows the entire $25,000 for one year? Assume any
funds borrowed or invested use compound interest.

A.
B.
C.
D.
E.

Effective annual interest = (1.025)4 - 1 = .10381 =

10.38%

Difficulty: Basic
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #305
Type: Problems

306. The Corner Store has a beginning cash balance for the
quarter of $1,240. The store has a policy of maintaining
a minimum cash balance of $1,000 and is willing to
borrow funds as needed to maintain that balance. How
much will the store have to borrow if the net cash flow
for the quarter is - $370?

A.
B.
C.
D.
E.

Cash deficit = $1,240 - $370 - $1,000 = - $130; the firm

needs to borrow $130.

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #306
Type: Problems
307. Building Blocks has a beginning cash balance for the
quarter of $800. The firm's president requires a
minimum cash balance of $800 be maintained at all
times. Further, the president has a policy of borrowing
when necessary to maintain that balance. If funds have
been borrowed, then the president requires they be
repaid as soon as excess funds are available. How much
will the firm borrow or repay this quarter if the
quarterly receipts are $2,565 and the quarterly
disbursements are $2,607?

A.
B.
C.
D.
E.

Amount that must be borrowed = $800 + $2,565 -

$2,607 - $800 = - $42. The firm must borrow $42.

Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #307
Type: Problems

308. At the beginning of the year, you have an outstanding

short-term loan of $684 which was used to cover your
cash needs for the previous year. During the current
year, you expect to pay $34 in interest. The projected
net cash flow for the year is $403, excluding the interest
payment. What is your anticipated loan balance at year
end?

A.
B.
C.
D.
E.

Loan balance = $684 + $34 + $403 = $315

Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #308
Type: Problems
309. Ajax Corporation estimates that for credit sales, 20% of
cash is received in the month of sale; 60% in the month
after the sale, and 15% second month after the sale. The
remainder is never collected. Ajax had credit sales of
$23,000 in January; $23,000 in February, and $19,000
in March. Given the following information, determine
the cash collections for March.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #309
Type: Multiple Choice
310. Bandall Corporation estimates that for credit sales, 55%
of cash is received in the month of sale; 35% in the
month after the sale, and 13% second month after the
sale. The remainder is never collected. Bandall had
credit sales of $78,000 in April; $92,000 in May, and
$115,000 in June. Given the following information,
determine the cash collections for June.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #310
Type: Multiple Choice
311. Melody Inc. had a November ending cash balance of
$15,000. As well, it had sales of $10,000 in November,
$20,000 in December, and projects sales of $25,000 for
January, $30,000 for February, and $35,000 for March.
The firm collects its receivables in the month after the
sale. Given this information, calculate its cash balance
at the end of March.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #311
Type: Multiple Choice
312. Xolo Inc. had an August ending cash balance of
$70,000. As well, it had sales of $60,000 in August,
$80,000 in September, and projects sales of $95,000 for
October, $115,000 for November, and $145,000 for
December. The firm collects its receivables in the
month after the sale. Given this information, calculate
its cash balance at the end of November.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #312
Type: Multiple Choice
313. Kunal Corporation had sales of $60,000 in August;
$80,000 in September; $95,000 in October; $115,000 in
November and $145,000 in December. Cost of goods
sold has consistently been at 65% of sales. Additionally,
Kunal had $45,000 worth of merchandise at the start of
August and plans on having inventory on hand worth
20% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in September.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #313
Type: Multiple Choice
314. Kunal Corporation had sales of $60,000 in August;
$80,000 in September; $95,000 in October; $115,000 in
November and $145,000 in December. Cost of goods
sold has consistently been at 65% of sales. Additionally,
Kunal had $45,000 worth of merchandise at the start of
August and plans on having inventory on hand worth
20% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in October.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #314
Type: Multiple Choice
315. Kunal Corporation had sales of $60,000 in August;
$80,000 in September; $95,000 in October; $115,000 in
November and $145,000 in December. Cost of goods
sold has consistently been at 65% of sales. Additionally,
Kunal had $45,000 worth of merchandise at the start of
August and plans on having inventory on hand worth
20% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in November.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #315
Type: Multiple Choice
316. Fulton Corporation had sales of $60,000 in January;
$80,000 in February; $95,000 in March; $115,000 in
April and $145,000 in May. Cost of goods sold has
consistently been at 70% of sales. Additionally, Fulton
had $15,000 worth of merchandise at the start of
January and plans on having inventory on hand worth
35% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in January.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #316
Type: Multiple Choice
317. Fulton Corporation had sales of $60,000 in January;
$80,000 in February; $95,000 in March; $115,000 in
April and $145,000 in May. Cost of goods sold has
consistently been at 70% of sales. Additionally, Fulton
had $15,000 worth of merchandise at the start of
January and plans on having inventory on hand worth
35% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in February.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #317
Type: Multiple Choice
318. Fulton Corporation had sales of $60,000 in January;
$80,000 in February; $95,000 in March; $115,000 in
April and $145,000 in May. Cost of goods sold has
consistently been at 70% of sales. Additionally, Fulton
had $15,000 worth of merchandise at the start of
January and plans on having inventory on hand worth
35% of next month's cost of goods sold. If all inventory
purchases are purchased and paid for in the current
month, calculate the amount of inventory purchased and
paid for in March.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #318
Type: Multiple Choice
319. Bousee Corporation had sales of $45,000 in January;
$70,000 in February; $85,000 in March; $105,000 in
April and $120,000 in May. Cost of goods sold has
consistently been at 75% of sales. Additionally, Fulton
had no inventory at the start of January and plans on
having inventory on hand worth 15% of next month's
cost of goods sold. Half of inventory purchases are paid
for in the current month, and the remaining amount in
the next month. Given this information, calculate the
amount of inventory paid for in January.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #319
Type: Multiple Choice
320. Bousee Corporation had sales of $45,000 in January;
$70,000 in February; $85,000 in March; $105,000 in
April and $120,000 in May. Cost of goods sold has
consistently been at 75% of sales. Additionally, Fulton
had no inventory at the start of January and plans on
having inventory on hand worth 15% of next month's
cost of goods sold. Half of inventory purchases are paid
for in the current month, and the remaining amount in
the next month. Given this information, calculate the
amount of inventory paid for in February.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #320
Type: Multiple Choice
321. Bousee Corporation had sales of $45,000 in January;
$70,000 in February; $85,000 in March; $105,000 in
April and $120,000 in May. Cost of goods sold has
consistently been at 75% of sales. Additionally, Fulton
had no inventory at the start of January and plans on
having inventory on hand worth 15% of next month's
cost of goods sold. Half of inventory purchases are paid
for in the current month, and the remaining amount in
the next month. Given this information, calculate the
amount of inventory paid for in March.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #321
Type: Multiple Choice
322. Selling on credit typically involves at least three
different entities in a large firm: the credit manager, the
marketing manager, and the controller. What are the
potential sources of conflict between the three?

The textbook answer to this question would be that, if

the marketing manager is trying to land a new account,
it may seek more liberal credit terms as an inducement.
However, this may increase the firm's investment in
receivables or its exposure to bad-debt risk, and conflict
can result. Beyond this, it is difficult to think of sources
of conflict between the controller and the other two
parties unless unethical or even illegal business
activities are being pondered.

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #322
Type: Essay

323. During the past year, Omni, Inc. had total credit sales of
$1,000,000. Omni's cost of sales averaged 70% of
credit sales, it had average accounts receivable of
$124,500, and it always paid its payables according to
the required net 30 schedule. Inventory averaged
$184,000 for the year. Using this information, compute
the length of the five different cycles/periods discussed
in the text that trace inventory from purchase to
collection of the account.

The periods/cycles are:

Inventory cycle = 365/(1,000,000. 7/184,000) = 95.9
days
Accounts receivable period = 365/(1,000,000/124,500)
= 45.4 days
Operating cycle = 95.9 + 45.4 = 141.3 days
Accounts payable period = 30 days
Cash cycle = 141.3 - 30 = 111.3 days

Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #323
Type: Essay
324. It has been argued that if one could perfectly
synchronize a firm's cash inflows and outflows, short-
term financial planning would be unnecessary. Do you
agree? What actions can the firm's financial decision-
makers take to reduce the degree of asynchronization?
Why should this be of concern?

This question asks the student to note the impact of the

differential timing of the cash and operating cycles. We
sometimes explain this to students in terms of a simple
analogy. If we could arrange our finances so that our
bills all came due on the day after we got paid, our
chequing account balance could be kept at a low level
throughout the month. The fact that bills come due
throughout the month, however, necessitates the
maintenance of a greater level of spendable funds. The
opportunity cost of this balance can be substantial for a
firm with millions of dollars of inflows and outflows on
a monthly basis. Financial decision-makers can
influence the lengths of the cash and operating cycles
by adjusting credit terms and making payments at
different points as well as, from a longer-term
perspective, investing in equipment that utilizes
different production technologies (and, therefore,
different production times).

Difficulty: Intermediate
Learning Objective: 18-01 The operating and cash cycles and why they are important.
Ross - Chapter 18 #324
Type: Essay

325. Restrictive short-term financial policies with regard to

current asset management include three basic actions.
List and briefly describe each action.

The three actions are: Keep cash low with little invested
in marketable securities, keep inventory low, and
minimize accounts receivable.

Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #325
Type: Essay
326. When workers connected with the automobile industry
go on strike, it typically makes big headlines since the
automaker will usually end up being shut down if the
strike drags on. Suppose the makers of brakes for GM
go out on strike and GM has no other source from
which to purchase brakes for its new automobiles.
Explain how following a restrictive current asset
management policy would affect GM in this case. What
are the pros and cons of GM moving to a more flexible
policy?

If GM follows a restrictive policy, it will likely (1) run

out of brakes relatively fast because it stocks as little as
possible under its restrictive policy and (2) run out of
new car inventory because it also tries to keep that to a
minimum. In this case, the workers could shut GM
down completely in a relatively short period of time
because what good is a car with no brakes? By moving
to a more flexible policy, GM may be able to use
backlogs of brake inventory to continue producing cars
even as the strike drags on, or it may maintain
significant inventories of finished cars to meet demand
even after production halts. However, given that
virtually every part required for a new car is crucial,
GM would have to stock massive amounts of
inventories to avoid shut-downs. Furthermore, it is hard
to imagine that holding significant amounts of finished
product in the form of autos is the answer given the
tremendous financing and opportunity costs involved.
Beyond these basic concerns, students may become
creative, talking about the benefits of ABC inventory
systems in this case, or some other types of solutions to
deal with the potential strikers.

Difficulty: Challenge
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #326
Type: Essay
327. As the CFO of Billybob's Auto Recycling, you plan to
implement a system whereby customers who pay their
bills on time will receive a 10% rebate on their
purchases. Those who pay earlier than required will
receive a 15% rebate. Explain the impact of this
proposal on the firm.

The obvious results of this policy change include an

increase in expected sales (due to the lower effective
purchase price for customers that pay early) and a
reduction in gross profit associated with offering the
large discounts. Less obvious are such effects as the
potential reduction in the firm's average receivables
balance (and the cost of carrying them), and the
potential for strategic price-cutting (as well as other
actions) by competitor firms (assuming the product in
question can be treated as a commodity item).

Difficulty: Challenge
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #327
Type: Essay

328. Graphically depict shortage costs, carrying costs, and

the total cost curve showing the optimal investment in
current assets (Costs on the vertical axis, current assets
on the horizontal axis.) Be sure to label the optimal
level of current assets. Using the same format, illustrate
what a flexible short-term financing policy looks like
and also illustrate what a restrictive policy looks like.

Students should replicate Figure 18.2 in the text.

Difficulty: Basic
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #328
Type: Essay
329. Accounts receivable and inventory are some of the most
liquid assets a firm owns and their market value is
typically fairly close to book value. Even so, in the eyes
of many lenders, these assets make for inadequate
collateral on loans, particularly if the business looking
to borrow the money is in a liquidity crisis. Why do you
think this is the case?

From a lender's standpoint, these assets can make

inadequate collateral precisely due to their liquidity.
They tend to be assets that are difficult to take a specific
security interest in, plus they are easily converted into
cash. If a firm runs into financial distress, it is not
uncommon for the firm to convert its good receivables
and most saleable inventory into cash. If the lender is
not monitoring the situation closely, it may find that by
the time it becomes obvious the business won't survive,
all of the good receivables and inventory are gone,
leaving a pool of "liquid" assets that have questionable
market value.

Difficulty: Intermediate
Learning Objective: 18-04 The sources and uses of cash on the statement of financial position.
Ross - Chapter 18 #329
Type: Essay

330. List and describe the three basic types of secured

inventory loans. What are the advantages and
disadvantages of each type of loan?

The three types are general security agreement, trust

receipts, and field warehouse financing. The general
security agreement is certainly the easiest for the firm
since the lender just takes a lien against all of the firm's
inventory and the borrower typically does not have to
give the lender precise lists of what constitutes
inventory on a regular basis. Trust receipt financing
requires the borrower and lender to specify the exact
inventory that backs up each advance. This can be a
time-consuming and cumbersome type of financing for
the firm. Field warehouse financing requires an
independent company to supervise the collateral for the
lender. This, too, can be a cumbersome type of
financing.

Difficulty: Intermediate
Learning Objective: 18-05 The different types of short-term borrowing.
Ross - Chapter 18 #330
 Type: Essay

331. Financial managers often state that pro forma cash

budgets are more crucial to the successful management
of a firm than are the accounting statements. Explain
the logic of this statement and present arguments to
support such a claim.

Pro forma cash budgets forecast the cash position of the

firm in the future. This forecast alerts the financial
manager to cash shortfalls that may be forthcoming and
also to excess cash that may be available. By having
this information, financial managers can take actions to
improve upon or prevent events before they occur.
Accounting statements on the other hand are historical
and show where the firm has been on a net profit basis.
While the past provides trend and other information, it
may or may not be indicative of the future.

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #331
Type: Essay

332. Why is it important for firms to maintain a minimum

cash balance when the cost of doing so is greater than
the return generated by the funds held in reserve?

The primary reason for maintaining a minimum level of

cash is that the future is uncertain. When an unexpected
opportunity arises or an unexpected cost is incurred, the
firm will have an increased ability to react to the
situation. Firms cannot borrow money every time an
unexpected event occurs.

Difficulty: Intermediate
Learning Objective: 18-03 The essentials of short-term financial planning.
Ross - Chapter 18 #332
Type: Essay
333. Restrictive short-term financial policies regarding
current asset management include three basic actions.
List and briefly describe each action.

The three actions are: Keep cash low with little invested
in marketable securities, keep inventory low and
minimize accounts receivable.

Difficulty: Basic
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #333
Type: Essay

334. Paulette's Wholesalers has adopted a flexible short-term

financial policy. Explain how this policy affects the
current assets of the firm.

A flexible short-term financial policy supports large

cash and cash equivalent balances, a high level of
inventory, and a high level of accounts receivable.
Thus, the current assets of a firm with a flexible policy
will be greater than that of a comparable firm with a
restrictive policy.

Difficulty: Intermediate
Learning Objective: 18-02 The different types of short-term financial policy.
Ross - Chapter 18 #334
Type: Essay
Chapter 18 Short-Term Finance and Planning Summary