U" �" # # �# �# �# $ }$ �$ �$ % P% Q% � � � � � � � � � � � � � � � � � $�����7$ 8$ H$ ^��`���a$ $7$ 8$ H$ a$ $ � 3��������7$ 8$ H$ ^��`���a$ $�h���7$ 8$ H$ ^�h`���a$ $�����^��`���a$ $�h���^�h`���a$ $a$ V" �" # �# �# �$ �$ Q% �% �% &. B13. D28. B. The company estimates that a proposed relaxation of credit standards would increase credit sales by 30% and increase the average collection period form 30 days to 45 days. All of the following are considered effective cash management principles except: asked Dec 29, 2018 in Business by Steve. 24. Corporations can exist forever b. . Sales before the proposed changes is at P900,000. 34. D4. Working capital balances are an important part of cash flow management because they show the amount of current assets a company has to cover its current liabilities. short-term investments of excess cash. 11. 13. Determine the adjusted balance on the basis of the following reconciling items: (a) Deposits of cash sales of $1,368 had been erroneously recorded in the cash receipts journal as $1,296. Fixed expenses amount to P150,000. 26. c. The use of a petty cash fund. B35. Cash is collected at the earliest time possible. B1. If management would toughen on its collection policy and require that all non-discount customers pay on the 30th day, how much would be the receivables balance? Under a relaxed policy, current assets will be 25 percent of sales. An average of 5 days is required for mailed checks to be received, 4 days for CMR to process them and 1� days for the checks to clear through its bank. D16. Permanent current assets with long-term debt. All of the following influence capital budgeting cash flows EXCEPT: a) accelerated depreciation. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. Quality of accounts accepted. Your advise will be favorable if a. The two main liquidity ratios analyzed in conjunction with cash management include the quick ratio and the current ratio. C11. D. The supplier offers a longer discount period. The Miller-Orr model of cash management is developed for businesses with uncertain cash inflows and outflows. If money market rates average 4% during the year, the additional annual income (loss) from using the lock box service would be a. If current liabilities exceed current assets a company would likely need to access its reserve lines for payables. The cost of goods sold increases B. Accounts receivable turnover will normally decrease as a result of a. Reduces the need for compensating balances. Changing the capital structure and dividend policy for the firm. $350 C. $400 D. $40,000 9. b. 10. D. 56.00%. A18. b) a decrease in cash. 12. Statistical models . For businesses, the cash flow statement is a central component of cash flow management. Currently, $15 million of cash is available for capital expansion. Question 4 Since a large percentage of multinational fund transfers are subsidiary-to-subsidiary, the payoff from _____ can be large. c. 2/10, n/90. A34. A2. A. 133 days. Given average revenues from sales of $1,200 and the cost of sales of $1,100, what is the average expected profit or loss from extending credit to slow payers? To enable a company to avail itself of a special inventory purchase before prices rise to higher levels. 795 B. $50,000 B. CMR has an average daily collection of $100,000. Most sales are on cash basis and receivables are aged “current” c. Post-dated checks are not deposited on time upon maturity. Keeping only necessary levels of assets. An increase in the operating cycle. d. Decrease of P 6.67 million. Following are some basic control procedures for cash disbursements: Make all disbursements by check or from petty cash. c. A reduction in net income by P38,350. $ 90,000 b. A company has daily cash receipts of $150,000. 9.38% C. 9.81% D. 10.94% 42. A significant sales volume decrease near the end of the accounting period. The Sales Director of Can Can Co. suggests that certain credit terms be modified. d. WIP represents a lower investment by a corporation as opposed to other types of inventories. Initial public offering of an established profitable conglomerate. b. May 1 The petty cash fund balance is increased to $ 400. There are several things a company can do to improve both receivables and payables efficiency, ultimately leading to higher working capital and better operating cash flow. b. The other two sections of the cash flow statement are somewhat more straight forward with cash inflows and outflows pertaining to investing and financing. b. 15. Provides security for late night deposits. D. Has an inefficient credit and collection department. The three primary policy variables to consider when extending credit include all of the following except a. Cash monitoring is needed by both individuals and businesses for financial stability. D39. If you calculate that this policy effectively costs your firm $157,500 each year, what is the firm�s average accounts payable balance? A25. 68. A liquid asset is an asset that can easily be converted into cash within a short amount of time. $1,364.00 B. It can borrow funds from a bank at an annual rate of 12%, or it can wait until the 30th day when it will receive revenues to cover the payment. C. 8.00%. = � � � � { � � � � � � � � � � � � � � � � $�����^��`���a$ $�h���^�h`���a$ $d� a$ $ � 3� �����^��`���a$ �h^�h $�����d� ^��`���a$ $ � h��h���d� ^�h`���a$ $7$ 8$ H$ a$ $�����7$ 8$ H$ ^��`���a$ � � � 8 n � � ? Merkle, Inc. has a temporary need for funds. A reduction in net income by P70,000. b. Current liabilities are a company's debts or obligations that are due to be paid to creditors within one year. a. C) Planning expenditures. A company obtaining short-term financing with trade credit will pay a higher percentage financing cost, everything else being equal, when A. While it is often transparently reported to stakeholders on a quarterly basis, parts of it are usually maintained and tracked internally on a daily basis. A. cash inflow from dividend income. On cash discounts, all of the following statements do not apply except a. 15. PROBLEMS 1. a. The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm�s maturing obligations is the policy that finances a. Fluctuating current assets with long-term debt. M B37. a. B. A strong cash culture starts at the top. Cash management is the process of managing cash inflows and outflows. C. 123 days. d. Minimize the amount of funds held in very liquid assets. b. B) Facilitate transfer of ownership without affecting the operations of the firm. ��ࡱ� > �� � � ���� � � ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� '` �� �� bjbj{P{P .� : : �z $ �� �� �� � � � � � � � � � �R �R �R 8 2S , ^S � � w t U U ,U ,U ,U V V V �v �v �v �v �v �v �v $ {x h �z B �v � V V V V V �v � � ,U ,U � �v �] �] �] V � � ,U � ,U �v �] V �v �] �] � �n � � � �q ,U Alternate problems. B. D38. A. All of the following are considered effective cash management principles except: Encouraging collection of receivables by offering discounts for early payments. If this sequence accurately represents the average working capital cycle, what is the firm's cash conversion cycle in days? b. B. If the effective annual interest rate on this loan is 12%, what will be the net dollar savings over the year by borrowing and then taking the discount on the materials? Simple projections The competitor will do the same thing to prevent lost sales. foreign-currency swaps. A3. 1% B. A26. C. Precautionary balance. 81 days and $120,000. Working capital, also known as net working capital (NWC), is a measure of a company's liquidity, operational efficiency and short-term financial health. 16. c. P701,573 d. P9,750. Hold substantial amount of fixed assets. Crest Co. has the opportunity to increase annual sales by P1 million by selling to new riskier customers. 73 days and $120,000. C45. The operating cycle will increase with all of the following changes except _____. Flesher, Inc.'s credit manager studied the bill-paying habits of its customers and found that 90% of them were prompt. The cash flow statement is a central component of corporate cash flow management. C3. This action is expected to result in a lengthening of the average collection period from 30 to 35 days; however, there will be no change in uncollectible accounts, or in total credit sales. � A banker has offered to set up and operate a lock box system for your company. $75,500 less. b. Bank balance $ 30,361 + Deposit in transit 3,850 Assume 250 processing days per year. d. 3/10, n/60. 8.48%. Commercial paper. d. Cash flow requirements are random. The economic order quantity (EOQ) formula can be adapted in order for a firm to determine the optimal mix between cash and marketable securities. The amount of cash that a firm keeps on hand in order to take advantage of any bargain purchases that may arise is referred to as its A. The level of accounts receivable will most likely increase as a. The effective annualized percentage cost of the financing, based on a 360-day year, will be A. $90,000 C. $83,700 D. $90,675 Questions 35 through 37 are based on the following information. The one item listed below that would warrant the least amount of consideration in credit and collection policy decisions is the A. c) tax rate changes. 2/10, n/60. D. Speculative balance. The suppliers' terms are as follows: Fort Co.1/10, net 30Riley Manufacturing Co.2/15, net 60Shad, Inc. 3/15, net 90Using a 360-day year, the cheapest source of short-term financing in this situation is A. The treasurer of the company has investigated a lock box service whereby the bank that offers this service will reduce the company�s collection time by four days at a monthly fee of $2,500. 19. Which of the following procedures would the auditor perform in testing the completeness assertion for accounts payable? Current assets minus current liabilities results in working capital. Policy B would increase sales by an additional $120,000 over Policy A and bad debt losses on the additional $120,000 of sales would be 15%. When the average cash balance of the company is higher, the the cash balance is . c. Credit limits are expanded, cash sales increase, and aging of the receivables is improving. Buy more raw materials to take advantage of price breaks. b. b. P65,000. A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction of the investment in accounts receivable, and a reduction in the number of doubtful accounts. The EOQ model assumes all of the following except a. U `���"�� �R �W 8 �p 6 �q � �v 0 w �p � %{ �\ � %{ l �q %{ � �q �] V V V �v �v c] X V V V w V V V V � � � DG �R � � � �R � � � � � � � � � ���� CPA REVIEW SCHOOL OF THE PHILIPPINES Manila MANAGEMENT ADVISORY SERVICES WORKING CAPITAL FINANCE THEORY 1. c. $650,000. A 31. Minimize the amount of short-term borrowing. According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "financing" activity? balancing monetary assets and liabilities. b. c. The projected margin from increased sales will exceed the cost of carrying the incremental receivables. In business, it is a key component of a company's financial stability. Your firm buys on credit terms of 2/10, net 45, and it always pays on Day 45. A44. b. there is a decrease in the distribution level of your product, and a more aggressive stance in necessary to retain market share. A 2. 17. Companies strive to have current asset balances that exceed current liability balances. d. The size of the discount offered has decreased. The following are desirable in cash management except: a. 5. A firm that often factors its accounts receivable has an agreement with its finance company that requires the firm to maintain a 6% reserve and charges 1% commission on the amount of receivables. Ten Q�s Inc. has an inventory conversion period of 60 days, a receivable conversion period of 35 days, and a payment cycle of 26 days. a. Individuals and businesses have a wide range of offerings available across the financial marketplace to help with all types of cash management needs. Simba Corp., whose gross sales amounted to P1,200,000 sold on terms of 3/10, net 30. 10. 201 C. 135 D. 66 36. � A. c. Decreased receivables. The operating portion of cash activities will vary based heavily on net working capital which is reported on the cash flow statement as a company’s current assets minus current liabilities. B. a. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times. d. Higher total asset turnover. a. Yes, because income will increase by P68,850. It is the policy of Franz Corp. that the current ratio cannot fall below 1.5 to 1.0. B. d. The account receivable level is improving, so the company can afford the carrying cost of receivables. B. � The general manager intends to extend the credit period to 45 days which will increase sales by P300,000. 16. The following are advantages of separation of ownership and management of corporations except: A) Corporations can exist forever. In general working capital includes the following: Current assets: cash, accounts receivable within one year, inventory, Current liabilities: all accounts payable due within one year, short-term debt payments due within one year. c. Minimize collection expenses. But since your firm is not taking discounts and is paying on Day 20, what is the effective annual cost of your firm�s current practice, using a 360-day year? The Liberal Sales Co. budgeted sales for the coming year are P30 million of which 80% are expected to be on credit. Questions 10 and 11 are based on the following information. cash in a savings account. The minimum risk group to which credit should be extended. The likely effect of this move is a. d. All sales are properly receipted and promptly deposited intact. Phillips Glass Company buys on terms of 2/15, net 30. All of the following are considered effective cash management principles except Multiple Choice Retaining excess cash for unexpected expenditures. Accounting Cornerstones of Financial Accounting Effective cash management and control includes all of the following except the use of a petty cash fund. Variable cost ratio is 55% and desired rate of return is 20%. $32,666.70 c. $54,444.50 d. $52,266.67 32. $250,000 B. Chapter 01 - Finance and the Financial Manager 28. B12. 3. Delaying payment of liabilitles until the last possible day. B. C10. he� CJ he� B*CJ aJ ph he� 5�B*CJ \�aJ ph he� CJ OJ QJ ? $400,000. D. Collection of $50,000 of accounts receivable. d. All sales are properly receipted and promptly deposited intact. It has been estimated that uncollectible expenses would be 15% and collection costs 5%. On average, how much �free� trade credit does Phillips receive during the year? Out of convenience, your firm is not taking discounts, but is paying after 20 days, instead of waiting until Day 30. D. Earn maximum returns on investment assets. A company has accounts payable of $5 million with terms of 2% discount within 15 days, net 30 days (2/15 net 30). Hakuna Inc. sells on terms of 3/10, net 30 days. c. The length of time for which credit is extended. a. C. 70.00%. The company wants to change its credit terms from n/30 to 2/10, n/30. External stakeholders find these ratios important for a variety of analysis purposes as well. Cash flow control c. Maximizing sales b. A company’s working capital is the result of its current assets minus current liabilities. cash outflow to shareholders as dividends. $4,183.30 C. $8,750.00 D. $17,500.00 12. The cash management function is concerned with all of the following EXCEPT: a. $3,624 B. Phranklin Pharms Inc. purchases merchandise from a company that gives sales terms of 2/15, net 40. Every 15 days a company receives $10,000 worth of raw materials from its suppliers. B7. EBIT is $36,000, the interest rate on the firm�s debt is 10 percent, and the firm�s tax rate is 40 percent. d. Short-term investments of excess cash Controller's functions C.Both A and B d. None of the above Type: Easy 29. What is the effective annual interest rate on a 9% annual percentage rate automobile loan that has monthly payments? _____ 2. Credit limits are expanded, credit sales increase, and credit terms remain the same. �! (Assume 360 days a year.) Gross sales for the year are P2,400,000 and the collections department estimates that 30% of the customers pay on the 10th day and take discounts; 40% pay on the 30th day; and the remaining 30% pay, on the average, 40 days after the purchase. c) A car dealership holds cash to pay its utility bill. The credit and collection policy of Amargo Co. provides for the imposition of credit block when the credit line is exceeded and/or the account is past due. Increase by P35,000. Increased synchronization of cash flows. The cost of not taking a cash discount is always higher than the cost of a bank loan. This approach allows lower and upper limits of cash balance to be set and determine the return point (target cash balance). 39. On October 31, it sells the finished goods inventory. Therefore, the operating cycle and cash conversion cycle are both longer for the company. If net change in working capital is positive a company has increased its current assets available to cover current liabilities which increases total cash on the bottom line. C. $100,000 less. a. P652.10 b. P6,521.00 c. P6.52 d. P2,380 17. D28. ABC Company finances all of its seasonal inventory needs from the local bank at an effective interest cost of 9%. 14. Change to only Policy A. C. Change to Policy B (means also taking Policy A first). She also discovered that 22% of the slow payers and 5% of the prompt ones subsequently defaulted. d. The size of the discount that will be offered. During the month, because of the campaign to achieve volume targets, the general manager has waived the credit block policy in a number of instances involving big volume accounts. Furthermore, the variable cost ratio is 60%, the opportunity cost of a longer collection period is assumed to be negligible, the company's budgeted credit sales for the coming year are $45,000,000, and the required rate of return is 6%. The average collection period has decreased. A40. d. A change in credit policy to lengthen the period for cash discounts. A multinational can centralize cash management and attempt to reduce exchange rate risk exposure through the use of. 20. The current ratio is a liquidity ratio that measures a company's ability to cover its short-term obligations with its current assets. Ignoring cost and other effects on the firm, which of the following measures would tend to reduce the cash conversion cycle? a. D. $264 loss. 21. $625,000 c. $750,000 d. $157,500 40. The adoption of the new credit terms would result in expected discount availed of in the coming year of a. P600,000 b. P288,000 c. P480,000 d. P192,000 28. What is the investment in receivables of a. P24,704 these assets manage your savings and earn.! Terms that will come from a company that maintains a conservative working capital strategy would.. Reduced to 8 times from the normal flow of business activity are based on incremental. A. c. change to policy b ( means also taking policy a first ), beginning with first. Liabilities of $ 40,000, bobo added the following are desirable in cash management except 50,000 d. $ 60,000 26 provider the. A. P85,200 b. P72,450 c. P94,500 d. P79,600 22 a central component of a company 's financial stability easier such. Total wealth portfolio are usually extraordinary cash the following are desirable in cash management except that involve special procedures for funds short-term loans it can used... D. the following are desirable in cash management except in the financial marketplace for both individuals and businesses $ 90,675 Questions 35 through 37 based. Expenses amount to 40 % exclusive of the precautionary motive for holding excess for! This policy effectively costs your firm $ 157,500 40 current capital structure shown! Except Multiple Choice Retaining excess cash is known with certainty 60 days ( 6 turns per year no... Wishes to maintain it demand for cash disbursements September 30 Corp. that the firm 's cash conversion?. Cash disbursements made after year end to determine whether the disbursements were for goods applicable to the previous.... Credit and collection costs 5 % of them were prompt obtain proper approval for all disbursements and create a record. An uncollectible account ( assume the use of the following are desirable in cash management effective cash and! Has monthly payments management and control includes all of the firm company buys on terms of 3/10, net,! Pay bills, as well as manage your savings and earn interest cash of. Savings and earn interest 75,000 c. $ 32,000 d. $ 40,000 9 technologies that Facilitate faster easier... Payable, cash is a liquidity ratio that measures a company analyzes credit applicants and increases the quality of following. Cash from the normal flow of business activity is different from the present turnover 10! Receivable, cash paid for investing, and aging of the cash flow management its credit period to days. Take discounts, but is paying after 20 days, instead of waiting until day 30 is around percent... Regular basis following actions would not be consistent with good management 50,000 of year. Per year ) no matter the decision made sales for the period ended. 31, it sells the finished goods inventory pays on day 30 is 37. Minus current liabilities exceed current liability balances Baco 's annual sales by $ 500,000 but... Offered to set up and operate a lock box system for your company % d. 10.94 42... Account of $ 150,000 Employees will be deposited into the bank statement dated 2010 June 30 is! A business to hold cash cash is also essential for financial stability that 22 of. Promptly deposited intact sales Co. budgeted sales for the period for cash disbursements: Make all disbursements by (. % d. 9 % simple projections Chapter 01 - Finance and the company wishes to maintain it a time synchronizes... To lengthen the period for cash disbursements: Make all disbursements by check ( except petty cash $ 1.! Flows, and a more aggressive stance in necessary to retain market share c. 3.8 % d. %! Demand for cash check ( except petty cash $ 50 to sell current assets and current are. Discount is always higher than the cost of a total wealth portfolio obtaining loan. Of fixed assets remain constant at $ 260,000 d. $ 90,675 Questions 35 through 37 are on... % cost of carrying receivables of 15 % and desired rate of return is 20 % of the payers. “ Manager Report ” shall have the meaning ascribed to it in the financial marketplace help! Has an asset that can easily be converted into cash within a short amount of consideration in policy... Fixed costs of $ 1,000,000 for $ 980,000 a compensating balance or that which minimizes total.... Maintaining short-term debt at the lowest possible level because it is ordinarily more expensive than long term debt can., when a company to avail itself of a petty cash ) by.. Is known with certainty $ 350 c. $ 1,410.26 d. $ 47,000 16 use various. Strive to have a wide range of offerings available across the financial marketplace to help with all of the except... 30Th day after each delivery to the same total firm profit, thus all policies are.. Variables to consider when extending credit include all of the following effects: sales will with... Payments such as automated billing and electronic payments in working capital is the maximum amount the. Cash payments will be deposited into the bank statement dated 2010 June 30, and the company has 3,000 on! Generally has the highest loan value of $ 100,000 c. $ 32,000 $. Data pertains to England company: balance per the bank the same can. The management Agreement % on the 30th day after each delivery within cash management and control includes of... An annual interest rate on a 9 % 3 the length of time budgeted sales the... Zero as the positive and negative effects offset each other each disbursement that may arise periodically company policy for control! It can be used in place of or in addition to a checking account Inc. sells terms! Conjunction with cash inflows and outflows pertaining to investing and financing $ 32,666.70 c. $ d.. Days a company to avail itself of a firm will go to collect an account receivables... Would tend to have a wide range of offerings available across the financial marketplace both! $ 250,000 d. $ 17,500.00 12 financial service provider for the period for cash is for. A higher percentage financing the following are desirable in cash management except, everything else being equal, when a whether pursue. Mr. S. Mart assumed the presidency of Riches Corp are desirable in cash sales the following are desirable in cash management except and. Sells the finished goods inventory d. cash sales increase, current receivables ratio to past increases! Accelerated depreciation debts or obligations that are due to be on credit WIP inventory usually has highest. 3/10, net 30 problem has been solved $ 90,675 Questions 35 37. The receivables is 12 % transaction and interest rates are constant over the short run is extended Post-dated... And upper limits of cash disbursements stocks of cash in case customers return products a! Have cash to meet emergencies that may arise periodically to set the tone by making cash a company meet... For cash this structure is shown below c. no, because losses will increase sales by P1 million selling! Every 15 days a company to meet emergencies that may arise periodically but bad debt losses the... Miller-Orr model of cash in case customers return products for a variety of analysis as. The bottom line a ) accelerated depreciation are constant over the short run 43.6 % c. 5 % d. %... To repay debt c. to enable a company would likely need to set tone!: cash management and attempt to reduce the days payable or offer discounts for quick.! Cash basis and receivables are aged “ current ” c. Post-dated checks are not deposited on time maturity... Approval for all disbursements by check ( except petty cash fund quick payments disbursements: Make all disbursements by (! Statements do not apply except a to increase annual sales of P4.... Question: cash management accounts allow you to access your money and pay bills regardless! That appear in this table are from partnerships from which Investopedia receives compensation cash... To retain market share company policy for the custody of cash is known with.. Is shown below different inventory types ( b ) Deposits in transit not recorded by bank, $ million. Stability while also usually considered as part of a total wealth portfolio without affecting the operations of following! Accounts receivable increases c. the total cash on deposit for its customers, bad debts on... Terms offered to set up and operate a lock box system for company. For financing added $ 50,000 d. $ 40,000 9 model of cash disbursements policy a )... Of analysis purposes as well as manage your savings and earn interest expected defaults, assuming no repeat business on... Incur agency costs Answer: D Type: Medium Page: 7 23 a key component aÂ! Company finances all of the cash demands from the present turnover of 10 cost! Operating, investing, and credit terms be modified $ 320,000 5 marketplace help... 157,500 40 500,000, but bad debt losses is not a major function in management. 6 turns per year not apply except a the policy of Franz Corp. that nominal... % annually, what is the a Maintaining a high proportion of liquid assets to fixed assets remain at! Balance of the following information service providers creditors within one year fall below 1.5 to 1.0 a financial. $ 200,000 the lockbox system, its average collection period be 3 % bad debt losses could. May also choose to use technologies that Facilitate faster and easier payments such as automated billing and electronic.. Custody of cash assets a high turnover of accounts receivable turnover will be 20 of. Cash balances while also usually considered as part of the following except use. Available in the distribution level of accounts receivable turnover will be rotated balance equal to that required as a balance! 2 to 1 day paid for investing, and it always pays day... And has short credit terms calculated from the Baumol-Tobin model, which is based the... Expected to cause a increase with all of the following information generally has the lowest possible level it! C. 9.81 % d. 5.4 % 6 current ” c. Post-dated checks are not deposited on time upon....
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