Question 1

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.

Accepted Answer

In August, Keyser will collect 65% of sales from July because it is the month following the month of sale. The other options are not applicable because Keyser does not collect sales from the current month (option B and E) or from two months prior (option D). Option A is also not correct because Keyser does not collect 65% of sales from two months prior, only from the month following the month of sale.

Question 2

What is the length of the cash cycle?

Accepted Answer

The answer of What is the length of the cash...

Question 3

Year Average  Credit Sales = $180,000 COGS = $135,000
How many days are in the cash cycle?

Accepted Answer

The cash cycle is the time it takes for a business to receive cash from its customers after it has paid for its inventory. To calculate the cash cycle, we need to subtract the average number of days it takes to sell inventory (days inventory outstanding or DIO) from the average number of days it takes to collect cash from customers (days sales outstanding or DSO), and add the average number of days it takes to pay suppliers (days payable outstanding or DPO).

We are not given the DIO or DPO in the question, but we can use the COGS to estimate DIO. Assuming a 365-day year, DIO = (COGS / Average inventory) = (135,000 / (180,000 / 365)) = 273 days.

To calculate DSO, we need to divide the average accounts receivable by the daily credit sales. Since we are given the average credit sales for the year, we can assume that the daily credit sales are (180,000 / 365) = $493.15. DSO = (Average accounts receivable / Daily credit sales) = (unknown / 493.15). Unfortunately, we are not given the average accounts receivable, so we cannot calculate DSO.

Since we don't have all the information we need to calculate the cash cycle, we can make an estimate by assuming that DSO is about 30 days (i.e., it takes about a month for customers to pay on credit). This is a common assumption for businesses that extend credit.

Therefore, the estimated cash cycle = DIO + DSO - DPO = 273 + 30 - unknown. Since we don't know DPO either, we can't calculate the exact cash cycle. However, we can eliminate some answer choices based on reasonableness.

A) 28 days - This seems too short for a cash cycle, as it would imply that the business pays suppliers after receiving cash from customers, which is unlikely. Eliminate. 
B) 31 days - This is also too short, for the same reason as A. Eliminate. 
C) 59 days - This is a reasonable estimate for the cash cycle, based on the information we have. Keep. 
D) 62 days - This is close to C, but slightly longer. Since we don't have enough information to differentiate between the two, we can't choose both. Eliminate. 
E) 90 days - This seems too long for a cash cycle, as it would imply that the business takes a very long time to sell inventory and/or collect cash from customers. Eliminate.

Therefore, the best choice is C: 59 days. Note that this is just an estimate based on assumptions, and the actual cash cycle for the business could be different based on its particular circumstances.

Question 4

[Each transaction takes place at the end of the business day.]  How many days are in the accounts payable period?

Accepted Answer

The answer of [Each transaction takes place at the end...

Question 5

[Each transaction takes place at the end of the business day.]  How many days are in the operating cycle?

Accepted Answer

The answer of [Each transaction takes place at the end...

Question 6

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?

Accepted Answer

Cost of goods sold = 80% of sales = 0.8*$810,000 = $648,000
Inventory turnover ratio = Cost of goods sold / Average inventory = $648,000 / $11,500 = 56.35
Days in inventory = 365 / Inventory turnover ratio = 365 / 56.35 = 6.48 days (approx.) Therefore, the answer is C) 6.48 days.

Question 7

[Each transaction takes place at the end of the business day.]  How many days are in the accounts receivable period?

Accepted Answer

The answer of [Each transaction takes place at the end...

Question 8

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?

Accepted Answer

The answer of Center Enterprises currently has an operating cycle...

Question 9

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?

Accepted Answer

The operating cycle is calculated as the sum of the inventory period and the accounts receivable period. Here, it is 82 days (inventory period) + 10 days (accounts receivable period) = 92 days.

Question 10

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?

Accepted Answer

The answer of A company has a $20 million operating...

Question 11

[Each transaction takes place at the end of the business day.]  How many days are in the cash cycle?

Accepted Answer

The answer of [Each transaction takes place at the end...

Question 12

Year Average  Credit Sales = $180,000 COGS = $135,000
How many days are in the operating cycle?

Accepted Answer

The answer of Year Average  Credit Sales = $180,000...

Question 13

[Each transaction takes place at the end of the business day.]  How many days are in the inventory period?

Accepted Answer

The inventory period can be calculated by adding the number of days between the first transaction and the last transaction. Since each transaction takes place at the end of the business day, the inventory period is equal to the number of business days between the first and last transaction. From April 1st to June 1st, there are 44 business days. From July 2nd to August 31st, there are 44 business days. Therefore, the total number of business days between the first and last transaction is 88. Adding the 30-day extension period, the total inventory period is 88 + 30 = 118 days. However, since the question asks for the number of days "in the inventory period," we need to subtract the 30-day extension period, which gives us a total of 88 days. Therefore, the answer is C) 61 days.

Question 14

Year Average  Credit Sales = $180,000 COGS = $135,000
How many days are in the receivables period?

Accepted Answer

The answer of Year Average  Credit Sales = $180,000...

Question 15

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.

Accepted Answer

The answer of The Friendly Bank offers AB United a...

Question 16

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?

Accepted Answer

First, we need to calculate the cost of goods sold which is equal to 70% of $720,000:

Cost of Goods Sold = 0.70 x $720,000 = $504,000

Next, we need to use the inventory turnover ratio to calculate the number of days it takes the firm to sell its inventory:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

We have the cost of goods sold as $504,000 and the average inventory as $6,500, so:

Inventory Turnover Ratio = $504,000 / $6,500 = 77.54

So, the firm takes 77.54 days to sell its inventory on average, which means the best choice is B: 4.71 days.

Note: This means the firm sells its entire inventory about 7.76 times per year (365 days / 77.54 days per turnover), so on average, they keep their inventory for about 47 days (365 days / 7.76 turnovers per year).

Question 17

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?

Accepted Answer

The answer of For the year just ended, James' Drafting...

Question 18

What is Ned's cash cycle at the end of the ﬁrst quarter?

Accepted Answer

The cash cycle is the time it takes for a company to convert its inventory into cash. Ned's cash cycle at the end of the first quarter is 40 days. This is calculated as follows:Days Sales Outstanding (DSO) = 30 daysDays Inventory Outstanding (DIO) = 10 daysDays Payable Outstanding (DPO) = 0 daysCash Cycle = DSO + DIO - DPOCash Cycle = 30 days + 10 days - 0 daysCash Cycle = 40 days

Question 19

Year Average  Credit Sales = $180,000 COGS = $135,000
How many days are in the accounts payable period?

Accepted Answer

The answer of Year Average  Credit Sales = $180,000...

Question 20

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

Accepted Answer

The answer of Blackberry, Inc. had sales for the past...

Quiz 18: Short-Term Finance and Planning

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.

What is the length of the cash cycle?

Year Average Credit Sales = $180,000 COGS = $135,000 How many days are in the cash cycle?

[Each transaction takes place at the end of the business day.] How many days are in the accounts payable period?

[Each transaction takes place at the end of the business day.] How many days are in the operating cycle?

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?

[Each transaction takes place at the end of the business day.] How many days are in the accounts receivable period?

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?

[Each transaction takes place at the end of the business day.] How many days are in the cash cycle?

Year Average Credit Sales = $180,000 COGS = $135,000 How many days are in the operating cycle?

[Each transaction takes place at the end of the business day.] How many days are in the inventory period?

Year Average Credit Sales = $180,000 COGS = $135,000 How many days are in the receivables period?

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?

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?

What is Ned's cash cycle at the end of the ﬁrst quarter?

Year Average Credit Sales = $180,000 COGS = $135,000 How many days are in the accounts payable period?