51) Money deposited by a borrower with a bank in a low or non-interest-bearing account as a
condition of a loan agreement is called a:
A) compensating balance.
B) secured credit deposit.
C) letter of credit.
D) line of cash.
E) pledge.
52) Brustle’s Pottery either factors or assigns all of its receivables to other firms. This is known
as:
A) accounts receivable financing.
B) pledged financing.
C) capital funding.
D) daily funding.
E) capital financing.
53) Rose’s Gift Shop borrows money on a short-term basis by pledging its inventory as
collateral. This is an example of a(n):
A) debenture.
B) line of credit.
C) banker’s acceptance.
D) working loan.
E) inventory loan.
54) The most common way to finance a temporary cash deficit is with a:
A) long-term secured bank loan.
B) short-term secured bank loan.
C) short-term issue of corporate bonds.
D) long-term unsecured bank loan.
E) short-term unsecured bank loan.
55) 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) loan’s classification as either a committed or a non-committed loan.
56) A compensating balance:
A) is required when a company acquires any bank financing other than a line of credit.
B) is often used by banks as a means of rewarding their best credit customers.
C) decreases the cost of short-term bank financing.
D) only applies to zero-interest rate loans.
E) may be required even if a company never borrows funds.
57) High Point Hotel (HPH) has $218,000 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 $218,000 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.
58) Which one of the following statements is correct?
A) The assignment of receivables involves selling accounts receivables at full price.
B) Lines of credit frequently require a cleanup period.
C) With maturity factoring, the borrower receives the loan amount immediately.
D) Commercial paper is short-term financing offered to highly rated corporations by major
banks.
E) Credit card receivables funding is a relatively inexpensive method of borrowing on a short-
term basis.
59) Which type of arrangement is a hardware store most apt to use to finance its inventory?
A) Accounts receivable assignment
B) Blanket inventory lien
C) Trust receipt
D) Commercial paper
E) Field warehouse financing
60) An orange grower is most apt to use which type of financing for its crop?
A) Accounts receivable assignment
B) Blanket inventory lien
C) Trust receipt
D) Commercial paper
E) Field warehouse financing
61) All of the following are benefits derived from short-term financial planning with the
exception of:
A) having advance notice of when your firm should require external financing.
B) knowing for certain what your cash balance will be six months in advance.
C) knowing if excess funds should be available for investing.
D) being able to determine the approximate extent of time for which a loan is required.
E) having the ability to time capital expenditures in order to place the least financial burden
possible on a firm.
62) Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working
capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the
company have?
A) $3,900
B) $4,800
C) $4,300
D) $3,400
E) $3,700
63) New Products has sales of $749,500 and cost of goods sold of $368,600. Beginning
inventory is $54,700 and ending inventory is $58,200. What is the length of the inventory
period?
A) 15.01 days
B) 17.89 days
C) 55.90 days
D) 90.53 days
E) 113.67 days
64) Mid-Western Markets has sales of $1,389,400 and costs of goods sold of $892,700.
Beginning inventory is $94,300 and ending inventory is $110,200. What is the inventory
turnover rate?
A) 8.73 times
B) 10.78 times
C) 13.59 times
D) 11.37 times
E) 12.64 times
65) North Side Wholesalers has sales of $1,648,900. The cost of goods sold is equal to 71
percent of sales and the average inventory is $75,800. How many days on average does it take to
sell the inventory?
A) 28.30 days
B) 23.63 days
C) 20.48 days
D) 33.28 days
E) 21.68 days
66) The Bear Rug has sales of $647,000. The cost of goods sold is equal to 66 percent of sales.
Accounts receivable has a beginning balance of $53,400 and an ending balance of $49,600. How
long on average does it take to collect the receivables?
A) 12.56 days
B) 29.05 days
C) 18.58 days
D) 20.44 days
E) 19.17 days
67) Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average
accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long
does it take Morning Star’s credit customers to pay for their purchases?
A) 11.97 days
B) 39.24 days
C) 30.50 days
D) 21.88 days
E) 19.56 days
68) The Mountain Top Shoppe has sales of $828,000, average accounts receivable of $64,100
and average accounts payable of $72,700. The cost of goods sold is equivalent to 68 percent of
sales. How long does it take The Mountain Top Shoppe to pay its suppliers?
A) 69.31 days
B) 68.38 days
C) 47.13 days
D) 35.89 days
E) 36.97 days
69) HG Livery Supply has a beginning accounts payable balance of $68,800 and an ending
accounts payable balance of $72,700. Sales for the period were $942,800 and costs of goods sold
were $534,200. What is the payables turnover rate?
A) 7.55 times
B) 8.39 times
C) 7.02 times
D) 13.33 times
E) 12.85 times
70) Bradley’s has an inventory turnover rate of 7.6, a payables turnover rate of 11.4, and a
receivables turnover rate of 12.6. How long is the operating cycle?
A) 20.20 days
B) 76.99 days
C) 70.63 days
D) 30.13 days
E) 24.11 days
71) Meryl Enterprises currently has an operating cycle of 76.4 days. The company is
implementing some operational changes that are expected to increase the accounts receivable
period by 2.2 days, decrease the inventory period by 5.3 days, and increase the accounts payable
period by 1.5 days. What is the new operating cycle expected to be?
A) 78.0 days
B) 74.8 days
C) 73.3 days
D) 79.5 days
E) 71.8 days
72) On average, Furniture & More is able to sell its inventory in 54.2 days and takes 65.3 days
on average to pay for its purchases. Its average customer pays with a credit card which allows the
company to collect its receivables in 2.9 days. Given this information, what is the length of
operating cycle?
A) 57.1 days
B) 88.3 days
C) −8.2 days
D) 116.6 days
E) 122.4 days
73) Interior Designs has an inventory period of 84.6 days, an accounts payable period of 43.2
days, and an accounts receivable period of 41.7 days. Management is considering an offer from
their suppliers to pay within 10 days and receive a discount of 2 percent. If the new discount is
taken, the accounts payable period is expected to decline by 30.4 days. What will be the new
operating cycle given the change in the payables period?
A) 95.9 days
B) 115.0 days
C) 97.4 days
D) 126.3 days
E) 139.1 days
74) Metal Products Co. has an inventory period of 94.2 days, an accounts payable period of 40.4
days, and an accounts receivable turnover rate of 17.6. What is the length of the cash cycle?
A) 71.40 days
B) 74.54 days
C) 96.28 days
D) 114.94 days
E) 108.28 days
75) West Chester Automation has an inventory turnover of 9.1 and an accounts payable turnover
of 10.6. The accounts receivable period is 32.8 days. What is the length of the cash cycle?
A) 35.67 days
B) 38.48 days
C) 41.02 days
D) 46.47 days
E) 48.81 days
76) Peterson’s Antiquities currently has a 32.6-day cash cycle. Assume the company changes its
operations such that it decreases its receivables period by 3.1 days, increases its inventory period
by 1.8 days, and increases its payables period by 2.2 days. What will the length of the cash cycle
be after these changes?
A) 33.5 days
B) 36.1 days
C) 30.2 days
D) 29.1 days
E) 27.6 days
77) Rossiter’s currently has a cash cycle of 43.4 days. Assume the operations are changed such
that the receivables period decreases by 2.6 days, the inventory period by increases by 1.3 days,
and the payables period increases by 3.4 days. What will be the length of the cash cycle after
these changes?
A) 39.2 days
B) 45.5 days
C) 38.7 days
D) 41.3 days
E) 48.1 days
78) AC Corporation has beginning inventory of $11,062, accounts payable of $8,010, and
accounts receivable of $7,844. The end of year values are $11,362 for inventory, $7,898 for
accounts payable, and $8,029 for accounts receivable. Net sales are $109,100 and costs of goods
sold are $56,220. How many days are in the cash cycle?
A) 47.7 days
B) 80.2 days
C) 55.8 days
D) 97.9 days
E) 67.8 days
79) Wake-Up Coffee has projected next year’s quarterly sales at $960, $890, $980, and $1,050
for Quarters 1 to 4, respectively. Accounts receivable at the beginning of the year are $212 and
the collection period is 18 days. What is the amount of the accounts receivable balance at the end
of Quarter 2? Assume a year has 360 days.
A) $212
B) $207
C) $178
D) $184
E) $167
80) Tall Guys Clothing has a 30-day collection period. Sales for the next calendar year are
estimated at $1,950, $2,100, $2,650 and $3,200, respectively, by quarter, starting with the first
quarter of the year. Given this information, which one of the following statements is correct?
Assume a year has 360 days.
A) The Quarter 2 collections will be $2,000.
B) The accounts receivable balance at the beginning of Quarter 4 will be $940.
C) The Quarter 3 collections will be $2,375.
D) The end of Quarter 4 accounts receivable balance will be $2,133.
E) The Quarter 4 collections will be $3,017.
81) Plant Mart has a beginning receivables balance on February 1 of $1,648. Sales for February
through May are $2,670, $2,940, $3,820, and $4,450, respectively. The accounts receivable
period is 15 days. What is the amount of the April collections? Assume a year has 360 days.
A) $3,010
B) $3,380
C) $2,805
D) $3,545
E) $3,470
82) S&S Sporting Goods has expected sales of $970, $910, $840, and $920 for the months of
January through April, respectively. The accounts receivable period is 33 days. What is the
accounts receivable balance at the end of February? Assume each month has 30 days.
A) $1,007
B) $989
C) $1,102
D) $910
E) $1,068
83) The Sports Store has a beginning receivables balance on January 1 of $2,640. Sales for
January through April are $3,440, $3,590, $2,690, and $4,720, respectively. The accounts
receivable period is 45 days. How much did the store collect in the month of April? Assume a
year has 360 days.
A) $3,515
B) $3,445
C) $3,140
D) $3,690
E) $3,705
84) Breakwater Aquatics has an accounts receivable period of 36 days. The estimated quarterly
sales for this year, starting with the first quarter, are $6,800, $7,100, $8,200, and $6,400,
respectively. What is the accounts receivable balance at the beginning of the third quarter?
Assume a year has 360 days.
A) $3,644
B) $2,840
C) $3,308
D) $2,560
E) $3,280