Question 1

Which of these is the most ethical practice related to cash disbursement management?

Accepted Answer

A)  Intentionally delaying payments by creating a complex accounts payable system
B)  Taking the cash discount but paying after the discount period
C)  Paying a supplier from a zero-balance account
D)  Purposely losing a supplier's invoice and requiring the supplier to submit another copy
E)  Mailing a check from the most remote location possibleF) B) and C)
G) A) and B)

Question 2

The checks received in a lockbox are deposited:

Accepted Answer

A)  into a local bank and then transferred electronically to a concentration account.
B)  into a local bank and immediately invested in short-term investments.
C)  as soon as they are posted to the customer's account.
D)  the following day and immediately invested.
E)  directly into an investment account.F) B) and C)
G) None of the above

Question 3

Alicia wrote a check for $18 on Friday, May 6.The check cleared the bank on Wednesday, May 11.There were no other checks or deposits outstanding during the month.Given this, which one of the following statements is correct?

Accepted Answer

A)  On May 6, the available balance decreased by $18.
B)  On May 11, the available balance was $18 less than the ledger balance.
C)  On May 12, the ledger balance was $18 less than the available balance.
D)  On May 14, the available balance increased by $18.
E)  On May 10, the ledger balance was $18 less than the available balance.F) D) and E)
G) A) and C)

Question 4

A firm offers terms of 2/5, net 30.What effective annual interest rate does the firm earn when a customer does not take the discount?

Accepted Answer

A)  21.69 percent
B)  24.42 percent
C)  28.97 percent
D)  31.08 percent
E)  34.31 percentF) B) and E)
G) None of the above

Question 5

Which of these will tend to decrease the credit period?

Accepted Answer

A)  Perishable product
B)  Long production and sales cycle
C)  Well-established customer
D)  Heavy reliance on sales to that particular customer
E)  Specialized new productF) A) and E)
G) C) and E)

Question 6

A firm uses the extended economic order quantity approach to inventory management.Which one of the following inventory levels is considered to be the minimum inventory level given this approach?

Accepted Answer

A)  Zero inventory
B)  Reorder point level
C)  Safety stock level
D)  50 percent of the reorder quantity
E)  Safety stock plus the reorder quantityF) All of the above
G) B) and C)

Question 7

The Pet Emporium offers credit terms of 2/10, net 20 to all of its customers.Historically, 79 percent of its customers take advantage of the discount.What is the firm's average collection period?

Accepted Answer

A)  12.1 days
B)  14.2days
C)  9.73 days
D)  11.83days
E)  9.08 daysF) A) and C)
G) A) and B)

Question 8

Cash concentration accounts:

Accepted Answer

A)  are no longer needed since the Check Clearing Act for the 21st Century has been passed.
B)  eliminate the need for lockboxes.
C)  decrease a firm's disbursement float by reducing mail and processing delays.
D)  allow firms to more efficiently handle cash.
E)  tend to decrease a firm's investment income.F) B) and E)
G) A) and C)

Question 9

A firm offers credit terms of 1/5, net 25.How long is the net credit period?

Accepted Answer

A)  1 day
B)  5 days
C)  20 days
D)  25 days
E)  30 daysF) All of the above
G) A) and E)

Question 10

Which one of the following is a system for managing demand-dependent inventories that minimizes the amount of inventory on hand?

Accepted Answer

A)  Inventory flow log
B)  Materials requirements planning
C)  Just-in-time inventory system
D)  Kanban
E)  KeiretsuF) C) and D)
G) None of the above

Question 11

You have $32,618 on deposit at the bank with no outstanding checks or deposits.If you write a check for $8,900, what will be your book balance on that day if the check will take 3 days to clear?

Accepted Answer

A)  $23,718
B)  $29,651
C)  $41,518
D)  $30,022
E)  $32,618F) B) and C)
G) All of the above

Question 12

Which of the following characteristics will tend to cause a firm to adopt a more liberal credit policy?
I.Repeat customers
II.Excess capacity
III.High variable costs
IV.Limited competition

Accepted Answer

A)  I and II only
B)  III and IV only
C)  I, II, and III only
D)  II, III, and IV only
E)  I, II, III, and IVF) C) and D)
G) D) and E)

Question 13

A (n)  _____ is a subsidiary of a firm that exists solely to handle the credit functions of the parent company.

Accepted Answer

A)  internal credit organization
B)  bank
C)  credit association
D)  captive finance company
E)  credit unionF) A) and D)
G) B) and C)

Question 14

Kate's Korner Market monitors 3 percent of its inventory on a daily basis, another 20 percent on a weekly basis, and the remaining inventory on a quarterly basis.What inventory management approach is being used?

Accepted Answer

A)  ABC
B)  EOQ
C)  MRP
D)  Q*
E)  JITF) B) and C)
G) A) and D)

Question 15

The set of procedures used to determine the inventory levels for demand-dependent inventories is called:

Accepted Answer

A)  the inventory flow log.
B)  materials requirements planning.
C)  a just-in-time inventory system.
D)  the kanban.
E)  the keiretsu.F) All of the above
G) B) and E)

Question 16

On April 14, Dominic's purchased $7,800 worth of inventory.The terms of sale were 1.5/10, net 30.The implicit interest is _____ and the effective annual rate is _____ percent.

Accepted Answer

A)  $100; 68.24
B)  $117; 31.76
C)  $117; 15.82
D)  $200; 31.76
E)  $200; 15.82F) A) and D)
G) C) and D)

Question 17

Which statement is true concerning a controlled disbursement account?

Accepted Answer

A)  The number of checks that can be disbursed on any one day is limited.
B)  The bank will inform the firm of the amount that needs to be transferred on a daily basis.
C)  The amount that can be disbursed on any given day is limited to the balance in the account when the bank opens in the morning.
D)  The total number of checks that can be written in any one month is limited.
E)  The amount of the disbursements is limited to the amount the firm has available on its bank line of credit.F) None of the above
G) B) and C)

Question 18

Which one of the following is a special post office mailbox that is used to speed up the collection of accounts receivable payments?

Accepted Answer

A)  Separation box
B)  Cash box
C)  Concentration account
D)  Lockbox
E)  Float boxF) B) and E)
G) C) and D)

Question 19

Stinkey sells 2,250 units of its perfume collection each year at a price per unit of $199.All sales are on credit with terms of 2/7, net 30.The discount is taken by 91 percent of the customers.What is the average amount of the company's accounts receivable?

Accepted Answer

A)  $11,126
B)  $11,246
C)  $11,003
D)  $14,815
E)  $14,778F) B) and E)
G) B) and C)

Question 20

Which statement is correct?

Accepted Answer

A)  Disbursement float is the period of time between a firm making a bank deposit and the funds from that deposit being available to the firm.
B)  Disbursement float decreases when a check is delayed in the mail due to an extended holiday weekend.
C)  Disbursement float causes the available balance to exceed the ledger balance.
D)  Disbursement float is being totally eliminated by the Check Clearing Act for the 21st Century.
E)  Disbursement float exists when the available balance is less than the book balance.F) A) and B)
G) C) and E)

Exam 17: Working Capital Management

Which statement is correct?

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Which statement is true concerning a controlled disbursement account?

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The checks received in a lockbox are deposited:

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A (n) _____ is a subsidiary of a firm that exists solely to handle the credit functions of the parent company.

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The set of procedures used to determine the inventory levels for demand-dependent inventories is called:

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Which of these is the most ethical practice related to cash disbursement management?

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Alicia wrote a check for $18 on Friday, May 6.The check cleared the bank on Wednesday, May 11.There were no other checks or deposits outstanding during the month.Given this, which one of the following statements is correct?

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Which of the following characteristics will tend to cause a firm to adopt a more liberal credit policy? I.Repeat customers II.Excess capacity III.High variable costs IV.Limited competition

Correct AnswerverifiedShow Answer

The Pet Emporium offers credit terms of 2/10, net 20 to all of its customers.Historically, 79 percent of its customers take advantage of the discount.What is the firm's average collection period?

Correct AnswerverifiedShow Answer

Stinkey sells 2,250 units of its perfume collection each year at a price per unit of $199.All sales are on credit with terms of 2/7, net 30.The discount is taken by 91 percent of the customers.What is the average amount of the company's accounts receivable?

Correct AnswerverifiedShow Answer

A firm uses the extended economic order quantity approach to inventory management.Which one of the following inventory levels is considered to be the minimum inventory level given this approach?

Correct AnswerverifiedShow Answer

A firm offers terms of 2/5, net 30.What effective annual interest rate does the firm earn when a customer does not take the discount?

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Which one of the following is a system for managing demand-dependent inventories that minimizes the amount of inventory on hand?

Correct AnswerverifiedShow Answer

Which of these will tend to decrease the credit period?

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Which one of the following is a special post office mailbox that is used to speed up the collection of accounts receivable payments?

Correct AnswerverifiedShow Answer

On April 14, Dominic's purchased $7,800 worth of inventory.The terms of sale were 1.5/10, net 30.The implicit interest is _____ and the effective annual rate is _____ percent.

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A firm offers credit terms of 1/5, net 25.How long is the net credit period?

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Kate's Korner Market monitors 3 percent of its inventory on a daily basis, another 20 percent on a weekly basis, and the remaining inventory on a quarterly basis.What inventory management approach is being used?

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You have $32,618 on deposit at the bank with no outstanding checks or deposits.If you write a check for $8,900, what will be your book balance on that day if the check will take 3 days to clear?

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Cash concentration accounts:

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On April 14, Dominic's purchased $7,800 worth of inventory.The terms of sale were 1.5/10, net 30.The implicit interest is _ and the effective annual rate is _ percent.

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