Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following would not be counted as part of working capital?

A) inventory

B) cash

C) accounts payable

D) accounts receivable

E) equipment

2) Net working capital can be found by subtracting

A) current assets from total liabilities.

B) total liabilities from total assets.

C) current liabilities from total assets.

D) current assets from current liabilities.

E) current liabilities from current assets.

3) Which of the following is true about disbursement float?

A) Funds are collected and credited to an account.

B) Funds are collected and debited to an account.

C) Funds are deposited to a checking account immediately when a check is written.

D) Funds are removed from the checking account immediately when the check is written.

E) none of the above

4) All of the following accounts are part of cash management except

A) cash on hand.

B) petty cash.

C) cash in a savings account.

D) cash invested in a stock mutual fund.

E) cash in a checking account.

5) Collection float is the amount of time that elapses between ________ a check in an account and the

check's ________, at which point the funds are actually placed in the account.

A) depositing; clearing

B) issuing; clearing

C) writing; being deposited

D) receiving; being deposited

E) A and B above

6) Which of the following is a method used to speed up cash receipts?

A) lock box

B) electronic funds transfer

C) writing a check

D) A and B above

E) B and C above

7) Marketable securities

A) normally pay a higher rate of interest than checking accounts.

B) never offer any risk.

C) never require an investment strategy.

D) consist of government securities only.

8) The goal of accounts receivable management is to

A) have a department of its own in a company.

B) increase sales by offering credit to customers.

C) collect money as fast as possible.

D) give credit to every customer.

9) Factoring is the process of selling accounts receivable to another firm at

A) a price equal to the sales price. B) a discount off of the original sales price.

C) a premium above the original sales price. D) the prime lending rate.

10) The credit decision involves

A) granting credit to all applicants.

B) making sure that the customer is a good credit risk.

C) looking at the borrower's collateral.

D) investigating the customer.

E) all of the above.

11) Credit departments are normally found in

A) most retail firms.

B) most manufacturing firms.

C) most wholesale firms.

D) A and B above.

E) B and C above.

12) Prior to making a credit decision we should always check the applicant's

A) character, capacity, and collateral. B) collateral, credit, and cash.

C) collateral, character, and current assets. D) capacity, cash, and collateral.

13) When evaluating credit, a customer who has paid all bills on time and has favorable credit

references from other creditors is said to have

A) collateral. B) creditworthiness.

C) character. D) capacity.

14) When evaluating credit, a customer who has sufficient disposable income and cash flow to pay off

a loan is said to have

A) capacity. B) creditworthiness.

C) character. D) collateral.

15) When evaluating credit, a customer who could sell assets to pay off a loan is said to have

A) character. B) capacity.

C) creditworthiness. D) collateral.

16) If a firm has $400,000 in credit sales and $80,000 in average accounts receivable, average days

collections is approximately

A) 182. B) 11. C) 8. D) 73.

17) Sarah's Computer City sells 5,000 boxes of CD-RW compact discs per year. She determined that she

pays $50 to process an order for discs. Her purchase price is $6 for each box of discs and she has

determined that storage costs for one year are 25 percent of the purchase price. What is her

approximate economic order quantity?

A) 577 boxes

B) 409 boxes

C) 289 boxes

D) 2,890 boxes

E) 5,770 boxes

18) Sarah's Computer City sells 5,000 boxes of CD-RW compact discs per year. She determined that she

pays $50 to process an order for discs. Her purchase price is $6 for each box of discs and she has

determined that storage costs for one year are 25 percent of the purchase price. What is her

approximate total carrying cost?

A) $216.75 B) $306.75 C) $432.75 D) 2,167.50 E) $4,327.50

19) Sarah's Computer City sells 5,000 boxes of CD-RW compact discs per year. She determined that she

pays $50 to process an order for discs. Her purchase price is $6 for each box of discs and she has

determined that storage costs for one year are 25 percent of the purchase price. What is her

approximate total ordering cost?

A) $611 B) $43 C) $87 D) $433 E) $865

20) Sarah's Computer City sells 5,000 boxes of CD-RW compact discs per year. She determined that she

pays $50 to process an order for discs. Her purchase price is $6 for each box of discs and she has

determined that storage costs for one year are 25 percent of the purchase price. Sarah's vendor said

that if she purchased 1,000 boxes at a time, she would receive a 10 percent discount. What is her

total cost with the discount if the formula for total cost is TC = DP +

QIP

2

+

DS

Q

?

A) $27,866 B) $27,925 C) $30,866 D) $28,000

21) Which of the following is true when calculating Economic Order Quantity?

A) Ordering cost is greater than carrying cost.

B) Total cost is equal to price times quantity.

C) Ordering cost is less than carrying cost.

D) Ordering cost is equal to carrying cost.

22) If a fast food restaurant has hamburger patties in the freezer, these would be classified as ________

inventory.

A) finished goods B) work in progress

C) maintenance, repair and operating D) raw materials

23) If a fast food restaurant has hamburger patties on the grill, these would be classified as ________

inventory.

A) finished goods B) work in progress

C) raw materials D) maintenance, repair and operating

24) When using an ABC inventory analysis, the inventory items that make up approximately ________

percent but account for approximately ________ percent of total costs are classified as A items.

A) 75-80; 10-15 B) 10-15; 75 C) 10-15; 10-15 D) 75-80; 75-80

25) A bank loan that only incurs finance charges and payment obligations when used for a business is a

A) promissory note. B) line of credit.

C) note payable. D) all of the above.

26) Business obligations that are normally paid within one year are

A) mortgages. B) long-term debt.

C) equipment loans. D) short-term debt.

27) The primary concern in current liabilities management is to pay obligations

A) when they are due. B) after they are due.

C) before they are due. D) All of the above are concerns.

28) The obligations of a business that are accumulated during the normal course of a business are

A) short-term debt. B) long-term debt.

C) accrued liabilities. D) actual liabilities.

29) The largest part of business accounts payable are normally

A) obligations of a firm that were accumulated and are owed to governmental agencies.

B) the monthly payroll owed to employees.

C) obligations of our firm that were obtained by purchasing inventory on credit.

D) the monthly obligations that were contracted for, like mortgage payments, insurance, and

utilities.

30) Proper management of accounts payable will guarantee that a firm

A) pays the maximum due to each vendor.

B) pays each bill early to avoid penalties and interest.

C) pays the minimum due to each vendor.

D) pays some bills early and some late to obtain an average payment of on time.

31) The best way to pay the minimum price to a vendor is to take advantage of

A) cash discounts, but not trade discounts.

B) both trade discounts and cash discounts.

C) trade discounts, but not cash discounts.

D) neither discount, but to pay the invoice price on the due date.