Question 1

Check kiting has been a means, although neither an ethical nor legal means, of allowing a firm to use its uncollected cash. How did the Check Clearing Act for the 21st Century (Check 21) affect this practice?

Accepted Answer

Kiting is the writing of checks on a fir...

Question 2

Which one of the following statements concerning money market securities is correct?

Accepted Answer

A)   Commercial paper is highly marketable.
B)   All T-bills are issued with 90-day maturities.
C)   A certificate of deposit is a short-term loan to the government.
D)   Any CD with a face amount of $10,000 or more is classified as a jumbo CD.
E)   Money market preferred is less volatile than ordinary preferred.F) A) and B)
G) A) and C)

Question 3

In a typical month, Abbot Tours received 60 checks totaling $139,000. These are delayed 3.5 days on average. What is the average daily float? Assume 30 days in a month.

Accepted Answer

A)   $12,500
B)   $13,333
C)   $14,528
D)   $16,217
E)   $16,667F) C) and E)
G) All of the above

Question 4

Which one of the following best represents the transaction motive for holding cash?

Accepted Answer

A)   Buying extra inventory in response to an unexpected sale offered by a supplier
B)   Distributing the weekly paychecks
C)   Increasing the minimum cash balance for the firm's main bank account
D)   Unexpectedly purchasing a competitor's firm
E)   Holding cash in anticipation that the firm may need to close for a few days if floodwaters keep risingF) A) and C)
G) A) and D)

Question 5

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) All of the above
G) A) and D)

Question 6

Which one of the following terms refers to the basic factors that are reviewed when evaluating the creditworthiness of a potential customer?

Accepted Answer

A)   Terms of sale
B)   Cash concentration
C)   Five Cs of credit
D)   Collection policy
E)   Credit scoreF) C) and D)
G) A) and C)

Question 7

As of Monday morning, the ledger balance and the available balance for a firm was $3,600. During the day, the firm wrote 3 checks in the amounts of $230, $590, and $870. The firm deposited a check for $360 and a check for $910. What is the amount of the collection float as of the end of the day?

Accepted Answer

A)   $420
B)   $580
C)   $840
D)   $1,270
E)   $1,690F) A) and B)
G) B) and E)

Question 8

Rossiter's generally receives 3 checks a month in the amounts of $46,500, $32,000, and $63,800. On average, it takes 1.5 days for the funds from these checks to be added to the firm's available balance at the bank once they have been deposited. What is the amount of the average daily float?

Accepted Answer

A)   $4,743
B)   $7,115
C)   $14,209
D)   $21,506
E)   $47,433F) A) and E)
G) A) and D)

Question 9

Identify some of the specific costs firms incur if their current asset levels are either too high or too low.

Accepted Answer

Student answers will vary but ...

Question 10

Which of the following practices will reduce a firm's collection float? I. installing a lockbox system
II)  utilizing zero-balance accounts
III)  depositing checks daily rather than weekly
IV)  reducing the processing delay by one day

Accepted Answer

A)   I and III only
B)   II and IV only
C)   I, II, and III only
D)   I, III, and IV only
E)   I, II, III, and IVF) None of the above
G) B) and E)

Question 11

Charlies' writes 135 checks a day for an average amount of $480 each. These checks generally clear the bank in 3 days. In addition, the firm generally receives an average of $159,000 a day in checks that are deposited immediately. Deposited funds are available in 1.5 days. What is the firm's net float?

Accepted Answer

A)   Net disbursement float of $94,200
B)   Net disbursement float of $44,100
C)   Net disbursement float of $34,750
D)   Net collection float of $44,100
E)   Net collection float of $94,200F) B) and D)
G) A) and E)

Question 12

Which one of the following will tend to decrease the length of the credit period?

Accepted Answer

A)   Decrease in default risk
B)   Increase in the cost of the product
C)   Increase in competition
D)   Decrease in the size of the account
E)   Decrease in turnover rateF) A) and C)
G) A) and D)

Question 13

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) A) and E)
G) C) and D)

Question 14

The optimal credit policy will do which one of the following?

Accepted Answer

A)   Maximize sales
B)   Minimize bad debts
C)   Maximize units sold
D)   Minimize the total costs of granting credit
E)   Minimize carrying costsF) A) and D)
G) B) and D)

Question 15

Fischer's Furniture sells 2,400 sofas a year at an average price per sofa of $1,250. The carrying cost per unit is $11.60. The company orders 80 sofas at a time and has a fixed order cost of $52 per order. The sofas are sold out before they are restocked. What is the economic order quantity?

Accepted Answer

A)   147 sofas
B)   162 sofas
C)   171 sofas
D)   188 sofas
E)   211 sofasF) C) and E)
G) A) and B)

Question 16

How are checks which are deposited into a typical lockbox handled?

Accepted Answer

A)   The checks are deposited into a local bank which then overnights one check for the entire amount to the firm.
B)   The checks are collected once a day, normally in the early morning, by a bank employee.
C)   The checks are posted to the customer's account prior to being deposited.
D)   The checks are collected throughout the day and immediately deposited into the firm's account.
E)   The checks are collected and sent overnight to the firm's main office for processing.F) B) and D)
G) A) and D)

Question 17

On April 14, Brewster's purchased $9,800 worth of inventory. The terms of sale were 2/10, net 30. The implicit interest is _____ and the effective annual rate is _____ percent.

Accepted Answer

A)   $196; 14.95
B)   $196; 44.59
C)   $392; 14.95
D)   $392; 27.38
E)   $392; 44.59F) None of the above
G) A) and B)

Question 18

Which one of the following is evidence of indebtedness?

Accepted Answer

A)   Terms of sale
B)   Credit cost curve
C)   Credit instrument
D)   Concentration policy
E)   Credit policyF) A) and D)
G) B) and C)

Question 19

Electronics and More offers credit terms of 1/5, net 20. What is the effective annual rate on a $12,000 purchase if you forgo the discount?

Accepted Answer

A)   0 percent
B)   8.59 percent
C)   14.99 percent
D)   27.71 percent
E)   32.58 percentF) C) and D)
G) None of the above

Question 20

Kay's House of Sound sells 520 musical instruments a year at an average price per instrument of $580. All sales are credit sales with terms of 2/10, net 25. Hogan's has found that 78 percent of its customers take advantage of the discounted price. What is the amount of the firm's average accounts receivables?

Accepted Answer

A)   $9,560
B)   $10,990
C)   $11,280
D)   $12,440
E)   $12,620F) A) and B)
G) A) and C)

Exam 17: Working Capital Management

The optimal credit policy will do which one of the following?

Correct Answer
verified

Electronics and More offers credit terms of 1/5, net 20. What is the effective annual rate on a $12,000 purchase if you forgo the discount?

Correct Answer
verified

In a typical month, Abbot Tours received 60 checks totaling $139,000. These are delayed 3.5 days on average. What is the average daily float? Assume 30 days in a month.

Correct Answer
verified

Which one of the following statements concerning money market securities is correct?

Correct Answer
verified

Identify some of the specific costs firms incur if their current asset levels are either too high or too low.

Correct Answer
verified
Student answers will vary but ...
View Answer

Fischer's Furniture sells 2,400 sofas a year at an average price per sofa of $1,250. The carrying cost per unit is $11.60. The company orders 80 sofas at a time and has a fixed order cost of $52 per order. The sofas are sold out before they are restocked. What is the economic order quantity?

Correct Answer
verified

As of Monday morning, the ledger balance and the available balance for a firm was $3,600. During the day, the firm wrote 3 checks in the amounts of $230, $590, and $870. The firm deposited a check for $360 and a check for $910. What is the amount of the collection float as of the end of the day?

Correct Answer
verified

Which one of the following is evidence of indebtedness?

Correct Answer
verified

On April 14, Brewster's purchased $9,800 worth of inventory. The terms of sale were 2/10, net 30. The implicit interest is _ and the effective annual rate is _ percent.

Correct Answer
verified

Which one of the following will tend to decrease the length of the credit period?

Correct Answer
verified

Rossiter's generally receives 3 checks a month in the amounts of $46,500, $32,000, and $63,800. On average, it takes 1.5 days for the funds from these checks to be added to the firm's available balance at the bank once they have been deposited. What is the amount of the average daily float?

Correct Answer
verified

Which of the following practices will reduce a firm's collection float? I. installing a lockbox system II) utilizing zero-balance accounts III) depositing checks daily rather than weekly IV) reducing the processing delay by one day

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

The checks received in a lockbox are deposited:

Correct Answer
verified

Correct Answer
verified

Check kiting has been a means, although neither an ethical nor legal means, of allowing a firm to use its uncollected cash. How did the Check Clearing Act for the 21st Century (Check 21) affect this practice?

Correct Answer
verified
Kiting is the writing of checks on a fir...
View Answer

Which one of the following terms refers to the basic factors that are reviewed when evaluating the creditworthiness of a potential customer?

Correct Answer
verified

Which one of the following best represents the transaction motive for holding cash?

Correct Answer
verified

How are checks which are deposited into a typical lockbox handled?

Correct Answer
verified

Exam 17: Working Capital Management

The optimal credit policy will do which one of the following?

Correct AnswerverifiedShow Answer

Electronics and More offers credit terms of 1/5, net 20. What is the effective annual rate on a $12,000 purchase if you forgo the discount?

Correct AnswerverifiedShow Answer

In a typical month, Abbot Tours received 60 checks totaling $139,000. These are delayed 3.5 days on average. What is the average daily float? Assume 30 days in a month.

Correct AnswerverifiedShow Answer

Which one of the following statements concerning money market securities is correct?

Correct AnswerverifiedShow Answer

Identify some of the specific costs firms incur if their current asset levels are either too high or too low.

Correct AnswerverifiedStudent answers will vary but ...View AnswerShow Answer

Fischer's Furniture sells 2,400 sofas a year at an average price per sofa of $1,250. The carrying cost per unit is $11.60. The company orders 80 sofas at a time and has a fixed order cost of $52 per order. The sofas are sold out before they are restocked. What is the economic order quantity?

Correct AnswerverifiedShow Answer

As of Monday morning, the ledger balance and the available balance for a firm was $3,600. During the day, the firm wrote 3 checks in the amounts of $230, $590, and $870. The firm deposited a check for $360 and a check for $910. What is the amount of the collection float as of the end of the day?

Correct AnswerverifiedShow Answer

Which one of the following is evidence of indebtedness?

Correct AnswerverifiedShow Answer

On April 14, Brewster's purchased $9,800 worth of inventory. The terms of sale were 2/10, net 30. The implicit interest is _____ and the effective annual rate is _____ percent.

Correct AnswerverifiedShow Answer

Which one of the following will tend to decrease the length of the credit period?

Correct AnswerverifiedShow Answer

Rossiter's generally receives 3 checks a month in the amounts of $46,500, $32,000, and $63,800. On average, it takes 1.5 days for the funds from these checks to be added to the firm's available balance at the bank once they have been deposited. What is the amount of the average daily float?

Correct AnswerverifiedShow Answer

Which of the following practices will reduce a firm's collection float? I. installing a lockbox system II) utilizing zero-balance accounts III) depositing checks daily rather than weekly IV) reducing the processing delay by one day

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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 checks received in a lockbox are deposited:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Check kiting has been a means, although neither an ethical nor legal means, of allowing a firm to use its uncollected cash. How did the Check Clearing Act for the 21st Century (Check 21) affect this practice?

Correct AnswerverifiedKiting is the writing of checks on a fir...View AnswerShow Answer

Which one of the following terms refers to the basic factors that are reviewed when evaluating the creditworthiness of a potential customer?

Correct AnswerverifiedShow Answer

Which one of the following best represents the transaction motive for holding cash?

Correct AnswerverifiedShow Answer

How are checks which are deposited into a typical lockbox handled?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Student answers will vary but ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

On April 14, Brewster's purchased $9,800 worth of inventory. The terms of sale were 2/10, net 30. The implicit interest is _ and the effective annual rate is _ percent.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Kiting is the writing of checks on a fir...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified