Working Capital: Cash, Ledger and Available Balances

Question 21
21. Which of the following statements is true?
d. None of the above.
b. Buying sandbags to protect the firm's property from floodwaters represents the transaction motive for a company to hold cash.
a. That an employee needs cash to buy sandwiches for employees who are working overtime to finish a rush job can be a speculative motive for a company to hold cash.
c. Don, a local building contractor, keeps an extra $5,000 in his checking account simply for any emergency which might arise. This is an example of the daily motive for holding cash.

Question 22
22. Which one of the following statements concerning a firm's ledger and available balances is correct?
d. When a firm receives a check from a customer, its available balance tends to increase before its ledger balance.
a. If all of a firm's deposits consist of checks and all of its withdrawals are made in cash, then the firm's available balance will exceed its ledger balance.
c. When a bank applies interest income to a firm's account, the firm's available balance and its ledger balance will change simultaneously.
b. On the day when a firm writes a check and mails it to a supplier, the firm's available balance declines by the amount of the check.
e. The Check Clearing Act for the 21st Century will affect a firm's available balance, but not its ledger balance.

Question 23
23. The ABC Co. wrote a check and mailed it to the XYZ Co. When the XYZ Co. went to deposit the check, they discovered that their bank was closed due to some potential flooding in the area. It was 3 days before XYZ could deposit the check from ABC. Because XYZ's bank was closed:
d. XYZ's disbursements float increased.
c. ABC's disbursement float increased.
b. XYZ's collection float decreased.
e. the ledger balance of XYZ was less than it would have been otherwise.
a. ABC's collection float decreased.

Question 24
24. Which one of the following will reduce the disbursement float of a firm?
d. requiring that all checks be held one day before mailing so that they can be reviewed by a manager
a. mailing a check from a very remote location
b. mailing an unsigned check so that it must be returned for a signature
e. writing checks on a zero-balance account rather than the master account
c. delivering a check to a supplier rather than mailing it

Question 25
25. Davis International has revised its office practices such that it now takes 1 day to process the daily deposit, rather than 2 days. Accounts payables are processed in 5 days, rather than 7 days. The company also changed banks so that deposits would be available 1 day sooner. These changes:
b. increase the disbursement float by 1 day.
d. decrease the collection float by 2 days.
c. increase the collection float by 2 days.
e. decrease the collections float by 4 days.
a. reduce the disbursement float by 3 days.

Question 26
26. A firm's float management policy is most apt to include which one of the following statements?
d. All incoming checks are to be deposited into the bank the same day they are received.
a. All invoices are to be paid the same day they are received.
c. Any bank which delays implementation of the Check Clearing Act for the 21st Century is preferred over any bank which is already complying with the act.
b. All outgoing checks are to be delivered by the fastest means possible.
e. Check kiting is encouraged, whenever possible.

Question 27
27. Which one of the following is most apt to delay the collection of cash?
e. supplying customers with bar coded payment slips
b. depositing checks throughout the day
a. having customers mail their checks to a post office box rather than the physical office location
c. posting payments to customer accounts prior to making a deposit
d. collecting mail twice a day

Question 28
28. The checks mailed to a lockbox are deposited:
b. into a local bank and immediately invested in short-term assets.
a. into a local bank and then transferred electronically to a concentration account.
e. into a local bank the day after they are received with the funds immediately transferred to the firm's concentration account.
d. directly into the receiving firm's main concentration account by the local bank.
c. as soon as they are posted to the customer's account.

Question 29
29. The West Chester Co. sells handmade cotton goods to national retail chains, to regional wholesale firms, and to small specialty shops. You would expect West Chester to:
a. lengthen its credit period for a regional wholesaler who is experiencing financial distress.
e. offer the least favorable credit terms to the small specialty shops.
d. offer longer credit periods in the geographic areas that represent the least competitive markets.
b. demand a shorter credit period for any new product it brings to market.
c. offer the same credit terms to both the retail chains and the small specialty shops.

Question 30
30. The optimal credit policy:
a. is the one which offers credit to the largest number of customers.
e. is the policy that eliminates all potential bad debts.
c. minimizes the carrying costs associated with granting credit.
d. is the policy that produces the largest amount of sales for a firm.
b. minimizes the total cost of granting credit.

Question 31
31. The basic goal of inventory management is to minimize the:
a. number of units ordered.
b. level of inventory.
c. costs of holding inventory.
e. restocking costs.
d. sum of the carrying costs and the shortage costs.

Question 32
32. On any given day, your firm receives numerous checks totaling $2,700 on average. The funds from the deposited checks are generally available to you after 2 days. Everyday, your firm mails out checks totaling $2,500, which generally take 3 days to clear the bank. What is the amount of the collection float?
e. $6,750
c. $4,050
b. $2,700
d. $5,400
a. $1,350

Question 33
33. The Catnip Co. writes 20 checks a day for an average amount of $600 each. These checks generally clear the bank in 2 days. In addition, the firm generally receives an average of $25,000 a day in checks which it deposits immediately. Deposited amounts are made available the following day. What is the amount of the firm's disbursement float?
d. $24,000
e. $26,000
c. $13,000
b. $12,000
a. $11,000

Question 34
34. The Brunswick Co. writes 300 checks a day for an average amount of $200 each. These checks generally clear the bank in 3 days. In addition, the firm generally receives an average of $75,000 a day in checks which it deposits immediately. Deposited funds are made available in 2 days. What is the firm's net float?
a. net disbursement float of $15,000
b. net disbursement float of $30,000
d. net collection float of $15,000
c. net disbursement float of $42,000
e. net collection float of $30,000

Question 35
35. The Sedgewick Co. generally receives 3 checks a month in the amounts of $13,000, $28,000, and $55,000. On average, it takes 2 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?
e. $12,800
b. $3,200
d. $6,400
c. $4,800
a. $1,600

Question 36
36. On Thursday, May 11, the ABC Co. purchased $25,000 worth of inventory. The terms of sale were 2/5, net 45. The implicit interest is _____ and the effective annual rate is:
b. $250; 18.36 percent.
c. $500; 10.12 percent.
e. $500; 20.24 percent.
a. $250; 10.12 percent.
d. $500; 18.36 percent.

Question 37
37. Mandalay, Inc., sells 1,500 musical instruments a year at an average price per instrument of $900. All sales are credit sales with credit terms of 2/10, net 30. Mandalay has found that 80 percent of its customers take advantage of the discounted price. What is the amount of the firm's accounts receivable?
d. $89,090
b. $60,602
a. $51,781
e. $110,959
c. $77,778

Question 38
38. Abco International offers credit terms of 2/7, net 20. What is the effective annual rate on a $13,000 purchase if you forgo the discount?
a. 21.18 percent
d. 36.50 percent
b. 28.88 percent
c. 31.03 percent
e. 76.34 percent

Question 39
39. Taylor Doors sells 15,000 doors a year at an average price per door of $200. The carrying cost per unit is $2.80. The company orders 200 doors at a time and has a fixed order cost of $45 per order. The doors are sold out before they are restocked. What is the economic order quantity?
c. 804 doors
a. 482 doors
e. 1,023 doors
d. 919 doors
b. 694 doors

Question 40
40. Hanging Greens, Inc., buys hanging plants for $4.50 each and resells them for $7.95 each. The firm sells 6,000 plants per year. The firm orders 500 plants at a time and has a fixed cost per order of $39. The carrying cost per unit is $.45. To avoid newer plants mixing with older plants, the inventory is totally sold out before it is restocked. The total annual carrying cost is ____ and the total annual restocking cost is:
c. $112.50; $468.00.
b. $112.50; $319.00.
e. $225.00; $319.00.
d. $225.00; $234.00.
a. $112.50; $234.00.