Exam
Name___________________________________
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1)
Working capital consists of the total assets and total liabilities of a company.
1)
2)
Working capital consists of the current assets and current liabilities of a company.
2)
3)
Net working capital is the difference between total current assets and total current liabilities.
3)
4)
The current ratio is current liabilities divided by current assets.
4)
5)
The current ratio is current assets divided by current liabilities.
5)
6)
The disbursement float is the amount of time that elapses between depositing the debtor’s check in
an account and the check clearing the account.
6)
7)
The collection float is the amount of time that elapses between depositing the debtor’s check in an
account and the check clearing an account.
7)
8)
Factoring is the process of putting up accounts receivable as collateral to obtain cash.
8)
9)
Pledging is the process of putting up accounts receivable as collateral to obtain cash.
9)
10)
The three Cs of credit are character, capacity, and comedy.
10)
11)
The three Cs of credit are character, capacity, and collateral.
11)
12)
If credit sales remain the same and accounts receivable decrease, accounts receivable turnover will
increase.
12)
13)
If credit sales remain the same and accounts receivable increase, accounts receivable turnover will
increase.
13)
14)
The economic order quantity formula balances the cost of ordering an item against the cost of
storing an item.
14)
15)
Total ordering cost and total carrying cost are never equal at the EOQ.
15)
16)
Work in process inventory is made up of those items that are actually sold by the business.
16)
17)
Raw materials inventory is made up of those items that are actually sold by the business.
17)
18)
Finished goods inventory is made up of those items that are actually sold by the business.
18)
19)
When using an ABC inventory, A items are those 75 percent of the items that make up 5 to 10
percent of the total cost.
19)
20)
Short–term debt management consists of obligations that will be paid within the current
accounting period.
20)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
21)
Which of the following would NOT be counted as part of working capital?
21)
accounts payable
inventory
cash
accounts receivable
equipment
22)
All of the following are part of working capital EXCEPT
22)
mortgage.
inventory.
accounts receivable.
cash.
none of the above.
23)
Net working capital can be found by subtracting
23)
current liabilities from total assets.
current assets from current liabilities.
total liabilities from total assets.
current liabilities from current assets.
current assets from total liabilities.
24)
All of the following accounts are part of cash management EXCEPT
24)
cash in a checking account.
petty cash.
cash on hand.
cash in a savings account.
cash invested in a stock mutual fund.
25)
Which of the following is true about disbursement float?
25)
Funds are collected and debited to an account.
Funds are collected and credited to an account.
Funds are deposited to a checking account immediately when a check is written.
Funds are removed from the checking account immediately when the check is written.
None of the above.
26)
Which of the following is true about disbursement float?
26)
Funds are collected and credited to an account.
Funds are deposited to a checking account immediately when a check is written.
Funds are collected and debited to an account.
Funds are removed from the checking account immediately when the check clears the
checking account.
None of the above.
27)
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.
27)
depositing; clearing
issuing; clearing
receiving; being deposited
writing; being deposited
A and B above
28)
Which of the following is a method used to speed up cash receipts?
28)
lock box
electronic funds transfer
writing a check
A and B above
B and C above
29)
Marketable securities
29)
consist of government securities only.
normally pay a higher rate of interest than checking accounts.
never offer any risk.
never require an investment strategy.
30)
The goal of accounts receivable management is to
30)
give credit to every customer.
have a department of its own in a company.
collect money as fast as possible.
increase sales by offering credit to customers.
31)
Factoring is the process of selling accounts receivable to another firm at
31)
the prime lending rate.
a price equal to the sales price.
a discount off of the original sales price.
a premium above the original sales price.
32)
The practice of selling a firm’s accounts receivable to another firm at a discount is known as
32)
excising.
exporting.
crediting.
factoring.
33)
The credit decision involves
33)
looking at the borrower’s collateral.
making sure that the customer is a good credit risk.
investigating the customer.
granting credit to all applicants.
all of the above.
34)
Credit departments are normally found in
34)
most retail firms.
most manufacturing firms.
most wholesale firms.
A and B above.
B and C above.
35)
Prior to making a credit decision we should always check the applicant’s
35)
collateral, credit, and cash.
capacity, cash, and collateral.
character, capacity, and collateral.
collateral, character, and current assets.
36)
When evaluating credit, a customer who has paid all bills on time and has favorable credit
references from other creditors is said to have
36)
creditworthiness.
collateral.
capacity.
character.
37)
When evaluating credit, a customer who has sufficient disposable income and cash flow to pay off
a loan is said to have
37)
capacity.
creditworthiness.
collateral.
character.
38)
When evaluating credit, a customer who could sell assets to pay off a loan is said to have
38)
collateral.
creditworthiness.
character.
capacity.
39)
If a firm has $400,000 in credit sales and $80,000 in average accounts receivable, accounts receivable
turnover is
39)
32.
48.
0.20.
5.
40)
If a firm has $400,000 in credit sales and $80,000 in average accounts receivable, average days
collections is approximately
40)
11.
8.
182.
73.
41)
If a firm has $400,000 in credit sales and $80,000 in average accounts receivable, what will happen
to average days collections if accounts receivable increases?
41)
Average days collections will stay the same.
Average days collections will decrease.
Average days collections will increase.
Cannot tell with the information provided.
42)
If a firm has $400,000 in credit sales and $100,000 in average accounts receivable, accounts
receivable turnover is
42)
4.
5.
14.
25 percent.
43)
If a firm has $400,000 in credit sales and $50,000 in average account receivable, average days
collection is approximately
43)
29.2.
292.
45.63.
5.563.
44)
Which of the following would NOT be used in an aging schedule of accounts receivable?
44)
days outstanding
percentage outstanding
customer
percentage of cash sales
outstanding balance
45)
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?
45)
5,770 boxes
409 boxes
289 boxes
2,890 boxes
577 boxes
46)
The formula for calculating EOQ is
46)
DS
IP
2DS
IP
2DP
IS
2IS
DP
2IP
DS
47)
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?
47)
$216.75
$306.75
$432.75
$2,167.50
$4,327.50
48)
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?
48)
$611
$43
$433
$865
$87
49)
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 ?
49)
$27,925
$30,866
$27,866
$28,000
50)
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 if she orders her Economic Order Quantity without the discount if the formula for total
cost is TC = DP +QIP
2+DS
Q?
50)
$30,866
$28,000
$27,925
$27,866
51)
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 quantity
should Sarah order if the total cost formula is TC = DP +QIP
2+DS
Q?
51)
578
1,000
500
5,000
52)
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. The total cost
formula is TC = DP +QIP
2+DS
Q. What is Sarah’s annual carrying cost if she takes advantage of the
discount?
52)
$250
$578
$433
$675
53)
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. The total cost
formula is TC = DP +QIP
2+DS
Q. What is Sarah’s annual ordering cost if she takes advantage of the
discount?
53)
$250
$578
$433
$675
54)
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. The total cost
formula is TC = DP +QIP
2+DS
Q. What is Sarah’s annual ordering cost if she does NOT take
advantage of the discount?
54)
$250
$578
$433
$675
55)
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. The total cost
formula is TC = DP +QIP
2+DS
Q. What is Sarah‘s annual carrying cost if she does NOT take
advantage of the discount?
55)
$250
$578
$433
$675
56)
The total cost formula is TC = DP +QIP
2+DS
Q. Which of the following is true at the Economic
Order Quantity?
56)
EOQ =DS
Q
DP =QIP
2
QIP
2=DS
Q
EOQ =QIP
2
7
57)
Which of the following is true when calculating Economic Order Quantity?
57)
Ordering cost is greater than carrying cost.
Ordering cost is less than carrying cost.
Total cost is equal to price times quantity.
Ordering cost is equal to carrying cost.
58)
If a fast food restaurant has hamburger patties in the freezer, these would be classified as ________
inventory.
58)
finished goods
maintenance, repair, and operating
raw materials
work in progress
59)
If a fast food restaurant has hamburger patties on the grill, these would be classified as ________
inventory.
59)
finished goods
maintenance, repair, and operating
raw materials
work in progress
60)
If a fast food restaurant has hamburger patties on a serving tray at the cash register, these would be
classified as ________ inventory.
60)
finished goods
maintenance, repair, and operating
raw materials
work in progress
61)
If a fast food restaurant has a box of toilet tissue with 100 rolls stored on the same shelf as its paper
cups, the box of toilet tissue would be classified as ________ inventory.
61)
finished goods.
maintenance, repair, and operating
raw materials
work in progress
62)
If a fast food restaurant has a box of toilet tissue with 100 rolls stored with its paper cups, the box of
toilet tissue would be classified as ________ inventory and the paper cups would be classified as
________ inventory.
62)
finished goods; raw materials
maintenance, repair, and operating; raw materials
maintenance, repair, and operating; work in progress
finished goods; work in progress
63)
John assembles computers for the Computer Systems to Go Company. His company purchases
Pentium® MMX™ chips from Intel. When John is installing the chip it is ________ inventory, but
for Intel it is ________ inventory.
63)
work in process; finished goods
finished goods; raw material
raw material; finished goods
raw material; work in process
64)
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.
64)
10–15; 75
10–15; 10–15
75–80; 10–15
75–80; 75–80
65)
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 B items.
65)
10–15; 75
10–15; 10–15
75–80; 10–15
75–80; 75–80
66)
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 C items.
66)
10–15; 75
10–15; 10–15
75–80; 10–15
75–80; 75–80
67)
Randy Jones decided to run an ABC analysis of his 500 stock keeping inventory items. He found
that his average inventory was $200,000 and that there were 50 items out of the 500 that cost him
$153,000. These 50 items would be classified as ________ items.
67)
A
B
C
D
68)
Randy Jones decided to run an ABC analysis of his 500 stock keeping inventory items. He found
that his average inventory was $200,000 and that there were 50 items out of the 500 that cost him
$23,000. These 50 items would be classified as ________ items.
68)
A
B
C
D
69)
Randy Jones decided to run an ABC analysis of his 500 stock keeping inventory items. He found
that his average inventory was $200,000 and that there were 378 items out of the 500 that cost him
$24,000. These 378 items would be classified as ________ items.
69)
A
B
C
D
70)
Which of the following are similar?
70)
credit card
line of credit
short–term loan
A and B above
B and C above
71)
A bank loan that only incurs finance charges and payment obligations when used for a business is a
71)
promissory note.
line of credit.
note payable.
all of the above.
72)
Business obligations that are normally paid within one year are
72)
mortgages.
short–term debt.
long–term debt.
equipment loans.
73)
The primary concern in current liabilities management is to pay obligations
73)
before they are due.
after they are due.
when they are due.
All of the above are concerns.
74)
The primary difference between a line of credit and a short–term loan is
74)
we borrow the entire amount with both the short–term loan and the line of credit.
we borrow the entire amount with the short–term loan, but borrow only what we need with
the line of credit.
we borrow only what we need for the current month with both the short–term loan and the
line of credit.
we make payments on the line of credit every month to insure that we will have good credit.
75)
If we borrowed $10,000 on a line of credit September 1, and the bank charges 12 percent per
annum, compounded daily, the daily interest due on the line of credit is approximately
75)
$0.03
$3.28.
$4.00.
$10.00.
76)
If we borrowed $10,000 on a line of credit September 1, and the bank charges 12 percent per
annum, compounded daily, the interest due on October 1 is approximately
76)
$33.80.
$40.00.
$98.63.
$100.00.
77)
Which of the following typically is NOT classified as an accrued liability?
77)
state employment taxes
monthly sales tax owed to the city
monthly mortgage payments
federal employment taxes
78)
The obligations of a business that are accumulated during the normal course of a business are
78)
short–term debt.
accrued liabilities.
actual liabilities.
long–term debt.
79)
The largest part of business accounts payable are normally
79)
the monthly obligations that were contracted for, like mortgage payments, insurance, and
utilities.
the monthly payroll owed to employees.
obligations of our firm that were obtained by purchasing inventory on credit.
obligations of a firm that were accumulated and are owed to governmental agencies.
80)
Proper management of accounts payable will guarantee that a firm
80)
pays the maximum due to each vendor.
pays each bill early to avoid penalties and interest.
pays some bills early and some late to obtain an average payment of on time.
pays the minimum due to each vendor.
81)
The BEST way to pay the minimum price to a vendor is to take advantage of
81)
cash discounts, but not trade discounts.
neither discount, but to pay the invoice price on the due date.
trade discounts, but not cash discounts.
both trade discounts and cash discounts.
82)
Trade discounts are provided to our firm
82)
because we provided specific services for our vendor as specified by the vendor.
because we are smart enough to calculate the discount and take advantage of it.
because we provided specific services for our vendor as specified by us.
because we trade with the vendor.
83)
Sam’s Discount Appliance Company just received a shipment of 30 washing machines. The invoice
list price for each washing machine is $365. The manufacturer’s catalogue indicates that Sam can
take the following discounts: 30/15/10 with 30 percent being the normal markup, 15 percent for free
delivery and hookup, and 10 percent for local advertising and point–of–sale displays. If Sam
advertises these washers in the Sunday paper and has a prominent display in his store, but charges
$50 for delivery and setup, he will pay the vendor ________ for each washing machine.
83)
$217.18
$219.00
$229.95
$255.50
84)
Sam’s Discount Appliance Company just received a shipment of 30 washing machines. The invoice
list price for each washing machine is $365. The manufacturer’s catalogue indicates that Sam can
take the following discounts: 30/15/10 with 30 percent being the normal markup, 15 percent for free
delivery and hookup, and 10 percent for local advertising and point–of–sale displays. If Sam
provides free delivery and hookup, advertises these washers in the Sunday paper and has a
prominent display in his store, he will pay the vendor ________ for each washing machine.
84)
$255.50
$200.75
$229.95
$195.46
85)
Sam’s Discount Appliance Company just received a shipment of 30 washing machines. The invoice
list price for each washing machine is $365. The manufacturer’s catalogue indicates that Sam can
take the following discounts: 30/15/10 with 30 percent being the normal markup, 15 percent for free
delivery and hookup, and 10 percent for local advertising and point–of–sale displays. If Sam does
not advertise this brand of washer and charges $50 for delivery and setup, he will pay the vendor
________ for each washing machine.
85)
$219.00
$229.95
$255.50
$217.18
86)
Sam’s Discount Appliance Company just received a shipment of 30 washing machines. The invoice
list price for each washing machine is $365. The manufacturer’s catalogue indicates that Sam can
take the following discounts: 30/15/10 with 30 percent being the normal markup, 15 percent for free
delivery and hookup, and 10 percent for local advertising and point–of–sale displays. If Sam
performs all services required by the vendor, his single equivalent discount will be
86)
53.55%.
45.00%.
46.45%.
55.00%.
87)
Sam’s Discount Appliance Company just received a shipment of 30 washing machines. The invoice
list price for each washing machine is $365. The manufacturer’s catalogue indicates that Sam can
take the following discounts: 30/15/10 with 30 percent being the normal markup, 15 percent for free
delivery and hookup, and 10 percent for local advertising and point–of–sale displays. If Sam
performs all services required by the vendor, his net cost rate factor will be
87)
55.00%.
45.00%.
46.45%.
53.55%.
88)
Trade discounts are offered ________ and cash discounts are offered ________.
88)
for specific services performed by credit customers; for specific services performed by cash
customers
for specific services performed for the vendor; to speed up collection of credit sales
to speed up collection of credit sales; for specific services performed for the vendor
to speed up collection of credit accounts; to speed up collection of trade accounts
89)
Sarah just received an invoice for $12,000 with terms of 2/10, n/30. The invoice date was June 1. Her
contract with the vendor indicates a charge of 1.5 percent per month on late payments. If Sarah
pays this bill on June 15, she will send the vendor a check for
89)
$11,760.
$12,000.
$12,180.
Cannot answer without more information.
90)
Sarah just received an invoice for $12,000 with terms of 2/10, n/30. The invoice date was June 1. Her
contract with the vendor indicates a charge of 1.5 percent per month on late payments. If Sarah
pays this bill on June 5, she will send the vendor a check for
90)
$11,760.
$12,000.
$12,180.
Cannot answer without more information.
91)
Sarah just received an invoice for $12,000 with terms of 2/10, n/30. The invoice date was June 1. Her
contract with the vendor indicates a charge of 1.5 percent per month on late payments. If Sarah
pays this bill on July 15, she will send the vendor a check for
91)
$11,760.
$12,000.
$12,180.
Cannot answer without more information.
92)
Sarah just received an invoice for $12,000 with terms of 2/10, n/30. The invoice date was June 1. Her
contract with the vendor indicates a charge of 1.5 percent per month on late payments. If Sarah
pays this bill on June 30, she will pay effective annual interest on this account of approximately
92)
24%.
18%.
36.7%.
30%.