Question 1

Collections float tends to offsets disbursement float. If a firm's average collection float exceeds its average disbursement float, then it is said to be operating with positive net float.

Accepted Answer

A) True 
 B)False

Question 2

The principal goal of most inventory management systems is to balance the costs of ordering, shipping, and receiving goods against the cost of carrying those goods, while simultaneously meeting the firm's policy with respect to avoiding running short of stock and thus disrupting production schedules or losing sales.

Accepted Answer

A) True 
 B)False

Question 3

An increase in a current asset must be accompanied by a corresponding increase in a current liability.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is NOT a situation that might lead a firm to hold marketable securities?

Accepted Answer

A)   The firm has replaced an obsolete machine with a new model; a large write-off must be taken on the old machine.
B)   The firm must meet a known financial commitment, such as financing an ongoing construction project.
C)   The firm must finance seasonal operations.
D)   The firm has just sold long-term securities and has not yet invested the proceeds in earning assets.E) None of the above
F) All of the above

Question 5

A firm's investment in accounts receivable is largely influenced by production process and the requirements imposed by competition.

Accepted Answer

A) True 
 B)False

Question 6

Bello Inc. had sales of $2,500,000 per year (all credit,)  and its DSO was 35 days. What was its average amount of accounts receivable outstanding, based on a 365-day year?

Accepted Answer

A)   $239,726
B)   $251,712
C)   $264,298
D)   $277,513
E)   $291,388F) C) and D)
G) A) and E)

Question 7

Which of the following is NOT commonly regarded as being a credit policy variable?

Accepted Answer

A)   credit period
B)   collection policy
C)   cash discounts
D)   payments deferral periodE) A) and B)
F) B) and C)

Question 8

A firm's credit policy consists of which of the following items?

Accepted Answer

A)   credit period, cash discounts, credit standards, receivables monitoring
B)   credit period, cash discounts, credit standards, collection policy
C)   credit period, cash discounts, receivables monitoring, collection policy
D)   cash discounts, credit standards, receivables monitoring, collection policyE) C) and D)
F) B) and D)

Question 9

Which of the following statements best describes cash balances?

Accepted Answer

A)   Most firms' cash balances consist of transactions and compensating and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them.
B)   The easier a firm's access to borrowed funds, the higher its precautionary balances will be in order to protect against sudden increases in interest rates.
C)   For some firms, holding highly liquid marketable securities is a substitute for holding cash, because the marketable securities accomplish the same objective as cash.
D)   All companies hold the same percentage of funds for transaction balances.E) A) and B)
F) A) and C)

Question 10

If your firm's DSO and/or or aging schedule deteriorates from the first quarter of the year to the second quarter, this is proof positive that your firm's credit policy has weakened.

Accepted Answer

A) True 
 B)False

Question 11

Lockbox arrangements are one way for a firm to speed up collection of payments from customers.

Accepted Answer

A) True 
 B)False

Question 12

If sales are seasonal, the DSO will fluctuate from month to month, even if the amount of time customers take to pay remains unchanged.

Accepted Answer

A) True 
 B)False

Question 13

If a firm's terms are 2/10, net 30 days, and its DSO is 28 days, we can be certain that the credit department is functioning efficiently and that the percentage of past due accounts is minimal.

Accepted Answer

A) True 
 B)False

Question 14

Although firms do not segregate funds for various motives of holding cash, they do consider them in setting their overall cash positions.

Accepted Answer

A) True 
 B)False

Question 15

The economic ordering quantity will rise due to an increase in which of the following variable(s) ?

Accepted Answer

A)   product demand (sales) .
B)   ordering costs
C)   both a and b
D)   neither a nor bE) B) and C)
F) A) and D)

Question 16

A lockbox plan is one method of speeding up the cheque-clearing process for customer payments, and as such it decreases the firm's net positive float position.

Accepted Answer

A) True 
 B)False

Question 17

What would be the incremental bad debt losses if the change were made?

Accepted Answer

A)   $130,000
B)   $250,000
C)   -$250,000 (bad debt losses would decline) 
D)   -$130,000 (bad debt losses would decline) E) C) and D)
F) A) and B)

Question 18

The four major elements in a firm's credit policy are (1) credit standards,(2) discounts offered, (3)
credit period, and (4) collection policy.

Accepted Answer

A) True 
 B)False

Question 19

Inventory management is largely self-contained in the sense that very little coordination among the sales, purchasing, and production personnel is required for successful inventory management.

Accepted Answer

A) True 
 B)False

Question 20

What is a lockbox plan?

Accepted Answer

A)   It is used for safe-keeping cash and marketable securities.
B)   It is used to identify inventory safety stocks.
C)   It is used to slow down the collection of cheques a firm writes.
D)   It is used to speed up the collection of cheques received.E) A) and D)
F) C) and D)

Exam 18: Current Asset Management

Lockbox arrangements are one way for a firm to speed up collection of payments from customers.

Correct Answer
verified

A firm's investment in accounts receivable is largely influenced by production process and the requirements imposed by competition.

Correct Answer
verified

Although firms do not segregate funds for various motives of holding cash, they do consider them in setting their overall cash positions.

Correct Answer
verified

An increase in a current asset must be accompanied by a corresponding increase in a current liability.

Correct Answer
verified

A lockbox plan is one method of speeding up the cheque-clearing process for customer payments, and as such it decreases the firm's net positive float position.

Correct Answer
verified

The economic ordering quantity will rise due to an increase in which of the following variable(s) ?

Correct Answer
verified

Inventory management is largely self-contained in the sense that very little coordination among the sales, purchasing, and production personnel is required for successful inventory management.

Correct Answer
verified

What is a lockbox plan?

Correct Answer
verified

Which of the following is NOT commonly regarded as being a credit policy variable?

Correct Answer
verified

Which of the following is NOT a situation that might lead a firm to hold marketable securities?

Correct Answer
verified

The four major elements in a firm's credit policy are (1) credit standards,(2) discounts offered, (3) credit period, and (4) collection policy.

Correct Answer
verified

If your firm's DSO and/or or aging schedule deteriorates from the first quarter of the year to the second quarter, this is proof positive that your firm's credit policy has weakened.

Correct Answer
verified

Collections float tends to offsets disbursement float. If a firm's average collection float exceeds its average disbursement float, then it is said to be operating with positive net float.

Correct Answer
verified

Which of the following statements best describes cash balances?

Correct Answer
verified

What would be the incremental bad debt losses if the change were made?

Correct Answer
verified

If sales are seasonal, the DSO will fluctuate from month to month, even if the amount of time customers take to pay remains unchanged.

Correct Answer
verified

Correct Answer
verified

If a firm's terms are 2/10, net 30 days, and its DSO is 28 days, we can be certain that the credit department is functioning efficiently and that the percentage of past due accounts is minimal.

Correct Answer
verified

A firm's credit policy consists of which of the following items?

Correct Answer
verified

Bello Inc. had sales of $2,500,000 per year (all credit,) and its DSO was 35 days. What was its average amount of accounts receivable outstanding, based on a 365-day year?

Correct Answer
verified

Exam 18: Current Asset Management

Lockbox arrangements are one way for a firm to speed up collection of payments from customers.

Correct AnswerverifiedShow Answer

A firm's investment in accounts receivable is largely influenced by production process and the requirements imposed by competition.

Correct AnswerverifiedShow Answer

Although firms do not segregate funds for various motives of holding cash, they do consider them in setting their overall cash positions.

Correct AnswerverifiedShow Answer

An increase in a current asset must be accompanied by a corresponding increase in a current liability.

Correct AnswerverifiedShow Answer

A lockbox plan is one method of speeding up the cheque-clearing process for customer payments, and as such it decreases the firm's net positive float position.

Correct AnswerverifiedShow Answer

The economic ordering quantity will rise due to an increase in which of the following variable(s) ?

Correct AnswerverifiedShow Answer

Inventory management is largely self-contained in the sense that very little coordination among the sales, purchasing, and production personnel is required for successful inventory management.

Correct AnswerverifiedShow Answer

What is a lockbox plan?

Correct AnswerverifiedShow Answer

Which of the following is NOT commonly regarded as being a credit policy variable?

Correct AnswerverifiedShow Answer

Which of the following is NOT a situation that might lead a firm to hold marketable securities?

Correct AnswerverifiedShow Answer

The four major elements in a firm's credit policy are (1) credit standards,(2) discounts offered, (3) credit period, and (4) collection policy.

Correct AnswerverifiedShow Answer

If your firm's DSO and/or or aging schedule deteriorates from the first quarter of the year to the second quarter, this is proof positive that your firm's credit policy has weakened.

Correct AnswerverifiedShow Answer

Collections float tends to offsets disbursement float. If a firm's average collection float exceeds its average disbursement float, then it is said to be operating with positive net float.

Correct AnswerverifiedShow Answer

Which of the following statements best describes cash balances?

Correct AnswerverifiedShow Answer

What would be the incremental bad debt losses if the change were made?

Correct AnswerverifiedShow Answer

If sales are seasonal, the DSO will fluctuate from month to month, even if the amount of time customers take to pay remains unchanged.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm's terms are 2/10, net 30 days, and its DSO is 28 days, we can be certain that the credit department is functioning efficiently and that the percentage of past due accounts is minimal.

Correct AnswerverifiedShow Answer

A firm's credit policy consists of which of the following items?

Correct AnswerverifiedShow Answer

Bello Inc. had sales of $2,500,000 per year (all credit,) and its DSO was 35 days. What was its average amount of accounts receivable outstanding, based on a 365-day year?

Correct AnswerverifiedShow Answer

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verified

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