1. The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle. 2. Central Supply purchased a toboggan for inventory this morning and paid cash for it. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle. 3. Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year. This arrangement is called a(n): A. floor loan. B. open loan. C. compensating balance. D. line of credit. E. bank note. 4. Which one of the following increases cash? A. granting credit to a customer B. purchasing new machinery C. making a payment on a bank loan D. purchasing inventory E. accepting credit from a supplier 5. Which of the following are uses of cash? I. collecting a receivable II. increasing inventory III. obtaining a bank loan IV. paying a supplier for previous purchases A. I and III only B. II and IV only C. I and II only D. I, II, and IV only E. II, III, and IV only 6. Which of the following are sources of cash? I. decrease in inventory II. increase in accounts receivable III. repayment of a bond IV. sale of preferred stock A. I and III only B. I and IV only C. II and III only D. I, II, and III only E. I, III, and IV only 7. Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will: A. increase the operating cycle. B. lengthen the accounts receivable period. C. shorten the accounts payable period. D. decrease the cash cycle. E. decrease the inventory turnover rate. 8. Which one of the following statements is correct concerning the cash cycle? A. The longer the cash cycle, the more likely a firm will need external financing. B. Increasing the accounts payable period increases the cash cycle. C. A positive cash cycle is preferable to a negative cash cycle. D. The cash cycle can exceed the operating cycle if the payables period is equal to zero. E. Offering early payment discounts to customers will tend to increase the cash cycle. 9. Which one of the following actions will tend to increase the accounts receivable period? Assume the accounts receivable period is currently 34 days. A. tightening the standards for granting credit to customers B. refusing to grant additional credit to any customer who pays late C. increasing the finance charges applied to all customer balances outstanding over thirty days D. granting discounts for cash sales E. eliminating the discount for early payment by credit customers 10. The Lumber Mart recently replaced its management team. As a result, the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating. Which of the following should the employees expect as a result of this policy change? I. reduction in sales due to stock outs II. greater inventory selection III. decreased sales due to the new accounts receivable credit policy IV. decreased investment in marketable securities A. I and II only B. II and IV only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV 11. Assume each month has 30 days and a firm has a 60-day accounts receivable period. During the second calendar quarter of the year, that firm will collect payment for the sales it made during which of the following months? A. October, November, and December B. November, December, and January C. December, January, and February D. January, February, and March E. February, March, and April 12. The Harvester collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect: A. 60 percent of February sales. B. 15 percent of April sales. C. 60 percent of March sales. D. 15 percent of March sales. E. 25 percent of February sales. 13. Jill is the CFO of Summertime Adventures which is a seasonal firm specializing in products related to water sports. The firm purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date. Sales are highest during July and August. Currently, Jill is preparing the cash disbursements section of the firm's cash budget. Which one of the following statements is supported by this information? A. Inventory purchases will be highest during the months of July and August. B. Inventory purchases will be highest during the months of May and June. C. Payments to suppliers will be highest during the months of June and July. D. Payments to suppliers will be highest during the months of July and August. E. Payments to suppliers will be highest during the months of August and September. 14. Which one of the following statements is correct concerning the cash balance of a firm? A. Most firms attempt to maintain a zero cash balance at all times. B. The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance. C. On a cash balance report, the cumulative cash surplus at the end of May is used as June's beginning cash balance. D. A cumulative cash deficit indicates a borrowing need. E. The ending cash balance must equal the minimum desired cash balance. 15. The primary difference between a line of credit and a revolving credit arrangement is the: A. type of collateral used to secure the loan. B. length of the credit period. C. fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured. D. fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured. E. classification as either a committed or a noncommitted loan. 16. High Point Hotel (HPH) has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction? A. HPH will immediately receive $165,000 and will have no further obligation related to these receivables. B. HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables. C. Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables. D. Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed. E. HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account. 17. Which of the following are benefits derived from short-term financial planning? I. having advance notice of when your firm will require external financing II. being able to determine the extent of time for which a loan is required III. having the ability to time capital expenditures in order to place the least financial burden possible on a firm IV. knowing for certain what your cash balance will be six months in advance A. I and III only B. I, II, and III only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV