Chapter 18 Short-Term Finance and Planning Answer Key
Multiple Choice Questions
1. The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
2. The length of time that elapses between the day a firm purchases an inventory item and the day that item sells is called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Inventory period
3. The length of time between the sale of inventory and the collection of the payment for that sale is called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts receivable period
4. The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts payable period
5. Central Supply purchased a toboggan for inventory this morning and paid cash for it. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
6. A graphical representation of the operating and cash cycles is called a(n):
A. operating chart.
B. cash flow time line.
C. production flow line.
D. component chart.
E. working time line.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash flow time line
7. Costs that increase as a firm acquires additional current assets are called _____ costs.
A. carrying
B. shortage
C. order
D. safety
E. trading
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Carrying costs
8. Costs that decrease as a firm acquires additional current assets are called _____ costs.
A. carrying
B. shortage
C. debt
D. equity
E. payables
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Shortage costs
9. Steve has estimated the cash inflows and outflows for his hardware store for next year. The report that he has prepared recapping these cash flows is called a:
A. pro forma income statement.
B. sales projection.
C. cash budget.
D. receivables analysis.
E. credit analysis.
Refer to section 18.4
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash budget
10. Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year. This arrangement is called a(n):
A. floor loan.
B. open loan.
C. compensating balance.
D. line of credit.
E. bank note.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Line of credit
11. Money deposited by a borrower with the bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:
A. compensating balance.
B. secured credit deposit.
C. letter of credit.
D. line of credit.
E. pledge.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Compensating balances
12. Brustle's Pottery either factors or assigns all of its receivables to other firms. This is known as:
A. accounts receivable financing.
B. pledged financing.
C. capital funding.
D. daily funding.
E. capital financing.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Accounts receivable financing
13. Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n):
A. debenture.
B. line of credit.
C. banker's acceptance.
D. working loan.
E. inventory loan.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Inventory loan
14. Which one of the following increases cash?
A. granting credit to a customer
B. purchasing new machinery
C. making a payment on a bank loan
D. purchasing inventory
E. accepting credit from a supplier
Refer to section 18.1
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-4
Section: 18.1
Topic: Sources and uses of cash
15. Which of the following are uses of cash?
I. collecting a receivable
II. increasing inventory
III. obtaining a bank loan
IV. paying a supplier for previous purchases
A. I and III only
B. II and IV only
C. I and II only
D. I, II, and IV only
E. II, III, and IV only
Refer to section 18.1
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-4
Section: 18.1
Topic: Sources and uses of cash
16. Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.
A. paying a supplier for a previous purchase
B. paying off a long-term debt
C. selling inventory at cost
D. purchasing inventory on credit
E. selling inventory at a profit on credit
Refer to section 18.1
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-4
Section: 18.1
Topic: Net working capital
17. Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0.
A. selling inventory at cost
B. collecting payment from a customer
C. paying a payment on a long-term debt
D. selling a fixed asset for book value
E. paying a supplier for the purchase of an inventory item
Refer to section 18.1
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-4
Section: 18.1
Topic: Net working capital
18. Which of the following are sources of cash?
I. decrease in inventory
II. increase in accounts receivable
III. repayment of a bond
IV. sale of preferred stock
A. I and III only
B. I and IV only
C. II and III only
D. I, II, and III only
E. I, III, and IV only
Refer to section 18.1
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-4
Section: 18.1
Topic: Sources of cash
19. Which of the following will increase the operating cycle?
I. increasing the inventory turnover rate
II. increasing the payables period
III. decreasing the receivable turnover rate
IV. decreasing the inventory level
A. I only
B. III only
C. II and IV only
D. I and IV only
E. II and III only
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
20. Which one of the following equals the operating cycle?
A. cash cycle plus accounts receivable period
B. inventory period plus the accounts receivable period
C. inventory period plus the accounts payable period
D. accounts payable period minus the cash cycle
E. accounts payable period plus the accounts receivable period
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
21. Which one of the following will decrease the operating cycle?
A. decreasing the inventory turnover rate
B. decreasing the accounts payable period
C. increasing the accounts receivable turnover rate
D. increasing the accounts payable period
E. increasing the accounts receivable period
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
22. The operating cycle describes how a product:
A. is priced.
B. is sold.
C. moves through the current asset accounts.
D. moves through the production process.
E. generates a profit.
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
23. Which of the following determines the length of the operating cycle?
I. cash cycle
II. inventory period
III. accounts payable period
IV. accounts receivable period
A. I and III only
B. II and IV only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
24. Which of the following will increase the cash cycle, all else constant?
I. increasing the inventory period
II. decreasing the accounts receivable turnover rate
III. increasing the accounts payable period
IV. decreasing the accounts receivable period
A. I and II only
B. III and IV only
C. I and IV only
D. I, II, and III only
E. I, III, and IV only
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
25. An increase in which one of the following will decrease the cash cycle, all else equal?
A. payables turnover
B. days sales in inventory
C. operating cycle
D. inventory turnover rate
E. accounts receivable period
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
26. Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will:
A. increase the operating cycle.
B. lengthen the accounts receivable period.
C. shorten the accounts payable period.
D. decrease the cash cycle.
E. decrease the inventory turnover rate.
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
27. Which of the following statements are correct?
I. An increase in the accounts payable period shortens the cash cycle.
II. The cash cycle is equal to the operating cycle minus the inventory period.
III. A negative cash cycle is preferable to a positive cash cycle.
IV. The cash cycle plus the accounts receivable period is equal to the operating cycle.
A. I only
B. III and IV only
C. I and III only
D. I and IV only
E. I, II, and III only
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
28. Which one of the following statements is correct concerning the cash cycle?
A. The longer the cash cycle, the more likely a firm will need external financing.
B. Increasing the accounts payable period increases the cash cycle.
C. A positive cash cycle is preferable to a negative cash cycle.
D. The cash cycle can exceed the operating cycle if the payables period is equal to zero.
E. Offering early payment discounts to customers will tend to increase the cash cycle.
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
29. 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 needed for the manufacturing process
IV. producing goods on demand versus for inventory
A. I and III only
B. II and IV only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Inventory period
30. Which one of the following actions will tend to increase the accounts receivable period? Assume the accounts receivable period is currently 34 days.
A. tightening the standards for granting credit to customers
B. refusing to grant additional credit to any customer who pays late
C. increasing the finance charges applied to all customer balances outstanding over thirty days
D. granting discounts for cash sales
E. eliminating the discount for early payment by credit customers
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts receivable period
31. An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?
A. bad debts
B. accounts receivable turnover rate
C. accounts receivable period
D. credit sales
E. operating cycle
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts receivable period
32. If you pay your suppliers five days sooner, then:
A. your payables turnover rate will decrease.
B. you may require additional funds from other sources to fund the cash cycle.
C. the cash cycle will decrease.
D. your operating cycle will increase.
E. the accounts receivable period will decrease.
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts payable period
33. Which one of the following will increase the accounts payable period, all else constant?
A. an increase in the cost of goods sold account value
B. an increase in the ending accounts payable balance
C. an increase in the cash cycle
D. a decrease in the operating cycle
E. an increase in the accounts payable turnover rate
Refer to section 18.2
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts payable period
34. Which one of the following managers determines which customers must pay cash and which can charge their purchases?
A. purchasing manager
B. credit manager
C. controller
D. production manager
E. payables manager
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Organizational chart
35. Which one of the following managers determines when a supplier will be paid?
A. controller
B. payables manager
C. credit manager
D. purchasing manager
E. production manager
Refer to section 18.2
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Organizational chart
36. A firm with a flexible short-term financial policy will:
A. maintain a low balance in accounts receivables.
B. only have minimal amounts, if any, invested in marketable securities.
C. invest heavily in inventory.
D. have low cash balances.
E. have tight restrictions on granting credit to customers.
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Short-term financial policy
37. Which one of the following is indicative of a short-term restrictive financial policy?
A. purchasing inventory on an as-needed basis
B. granting credit to all customers
C. investing heavily in marketable securities
D. maintaining a large accounts receivable balance
E. keeping inventory levels high
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Short-term financial policy
38. Which of the following are associated with a restrictive short-term financial policy?
I. little, if any, investment in marketable securities
II. liberal credit terms for customers
III. low cash balances
IV. increasing inventory levels
A. I and III only
B. II and IV only
C. I and IV only
D. III and IV only
E. I, II, and III only
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Short-term financial policy
39. The Lumber Mart recently replaced its management team. As a result, the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating. Which of the following should the employees expect as a result of this policy change?
I. reduction in sales due to stock outs
II. greater inventory selection
III. decreased sales due to the new accounts receivable credit policy
IV. decreased investment in marketable securities
A. I and II only
B. II and IV only
C. I, II, and IV only
D. I, III, and IV only
E. I, II, III, and IV
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Short-term financial policy
40. A flexible short-term financial policy:
A. increases a firm's need for long-term financing.
B. minimizes net working capital.
C. avoids bad debts by only selling items for cash.
D. maximizes fixed assets and minimizes current assets.
E. is most appropriate for a firm with relatively high carrying costs and relatively low shortage costs.
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Short-term financial policy
41. A flexible short-term financial policy:
I. increases shortage costs due to frequent cash-outs.
II. tends to increase sales as compared to a restrictive policy.
III. requires a sizeable investment in current assets.
IV. incurs more carrying costs than a restrictive policy.
A. I and IV only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Short-term financial policy
42. Shortage costs include which of the following?
I. disruption of production schedules
II. inventory ordering costs
III. lost customer goodwill
IV. brokerage costs
A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Shortage costs
43. The optimal investment in current assets for an operating firm occurs at the point where:
A. both shortage costs and carrying costs equal zero.
B. shortage costs are equal to zero.
C. carrying costs are equal to zero.
D. carrying costs exceed shortage costs.
E. the total costs of holding current assets is minimized.
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Optimal point
44. Which one of the following statements is correct?
A. A firm with a restrictive financing policy secures sufficient long-term financing to fund all its assets.
B. A firm with a flexible financing policy frequently invests in marketable securities.
C. A firm with a flexible financing policy tends to use short-term financing on a frequent basis.
D. Firms tend to avoid short-term financing under both restrictive and flexible financing policies.
E. Firms with seasonal sales select flexible financing policies.
Refer to section 18.3
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Asset financing policies
45. Which one of the following statements is correct?
A. Seasonal needs are financed externally when firms adhere to a flexible financing policy.
B. A flexible financing policy tends to increase the risk of encountering financial distress.
C. Long-term interest rates tend to be less volatile than short-term rates.
D. Most firms tend to finance inventory with long-term debt.
E. Short-term interest rates are generally higher than long-term rates.
Refer to section 18.3
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-2
Section: 18.3
Topic: Financing policies
46. Assume each month has 30 days and a firm has a 60-day accounts receivable period. During the second calendar quarter of the year, that firm will collect payment for the sales it made during which of the following months?
A. October, November, and December
B. November, December, and January
C. December, January, and February
D. January, February, and March
E. February, March, and April
Refer to section 18.4
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
47. The Harvester collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect:
A. 60 percent of February sales.
B. 15 percent of April sales.
C. 60 percent of March sales.
D. 15 percent of March sales.
E. 25 percent of February sales.
Refer to section 18.4
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
48. 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 fourth 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. the first quarter.
B. the second quarter.
C. the third quarter.
D. the fourth quarter.
E. any quarter with equal probabilities of occurrence.
Refer to section 18.4
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
49. Jill is the CFO of Summertime Adventures which is a seasonal firm specializing in products related to water sports. The firm purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date. Sales are highest during July and August. Currently, Jill is preparing the cash disbursements section of the firm's cash budget. Which one of the following statements is supported by this information?
A. Inventory purchases will be highest during the months of July and August.
B. Inventory purchases will be highest during the months of May and June.
C. Payments to suppliers will be highest during the months of June and July.
D. Payments to suppliers will be highest during the months of July and August.
E. Payments to suppliers will be highest during the months of August and September.
Refer to section 18.4
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash disbursements
50. Which two of the following are most apt to cause a cash-out for a firm that is generally financially sound?
I. fixed expenses
II. fixed asset purchases
III. flexible financing policy
IV. highly seasonal sales
A. I and III only
B. II and IV only
C. III and IV only
D. I, II, and III only
E. II, III, and IV only
Refer to section 18.4
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash-out
51. Which one of the following statements is correct concerning the cash balance of a firm?
A. Most firms attempt to maintain a zero cash balance at all times.
B. The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance.
C. On a cash balance report, the cumulative cash surplus at the end of May is used as June's beginning cash balance.
D. A cumulative cash deficit indicates a borrowing need.
E. The ending cash balance must equal the minimum desired cash balance.
Refer to section 18.4
Дата добавления: 2015-11-04; просмотров: 17 | Нарушение авторских прав
| <== предыдущая лекция | | | следующая лекция ==> |