D. Collection of $50,000 of accounts receivable. $50 B. 19. Permanent current assets with long-term debt. b) All cash receipts will be deposited into the bank the same day they arrive. U `���"�� �R �W 8 �p 6 �q � �v 0 w �p � %{ �\ � %{ l �q %{ � �q �] V V V �v �v c] X V V V w V V V V � � � DG �R � � � �R � � � � � � � � � ���� CPA REVIEW SCHOOL OF THE PHILIPPINES Manila MANAGEMENT ADVISORY SERVICES WORKING CAPITAL FINANCE THEORY 1. Question 1 of 1 Cash management principles include all of the following except encourage collection of receivables maximize other assets delay payment of liabilities plan expenditures submit answer&continue (p. 9) The following are advantages of separation of ownership and management of corporations except: a. A company has accounts payable of $5 million with terms of 2% discount within 15 days, net 30 days (2/15 net 30). If this sequence accurately represents the average working capital cycle, what is the firm's cash conversion cycle in days? All of the following accounts are part of cash management EXCEPT. $164 loss. Maintain adequate cash needed for transactions. Companies may choose to make automated bill payments or use direct payroll deposits to help improve payables cost efficiency. t � � � : X � � � � � � � � � � � � � � � � � � $�h���^�h`���a$ $�����7$ 8$ H$ ^��`���a$ � 3��� $ � 3��������7$ 8$ H$ ^��`���a$ $�h���7$ 8$ H$ ^�h`���a$ $7$ 8$ H$ a$ $�����^��`���a$ � l � � � � � Q � � C w � � ; � � � � � � � � � � � � � � � � � � � � $�����^��`���a$ $�h���^�h`���a$ $7$ 8$ H$ a$ $�����7$ 8$ H$ ^��`���a$ $�h���7$ 8$ H$ ^�h`���a$ $a$ � � C D � � C D j � � � E � � � � � � � � � � � � � � � � � � � � � � � � $�����^��`���a$ $�h���^�h`���a$ $a$ $ � 3��������7$ 8$ H$ ^��`���a$ $�h���7$ 8$ H$ ^�h`���a$ � � �! While it is often transparently reported to stakeholders on a quarterly basis, parts of it are usually maintained and tracked internally on a daily basis. The credit and collection manager is considering instituting a stricter collection policy, whereby bad debts would be reduced to 2% of total sales, and the average collection period would fall to 30 days. d. The size of the discount offered has decreased. B37. External stakeholders find these ratios important for a variety of analysis purposes as well. Thus, the company is considering a 1-year bank loan for $9,800 (98% of the invoice amount). What should the firm do? D31. D42. (b) Deposits in transit not recorded by bank, $2,000. The cash flow statement is a central component of corporate cash flow management. A banker has offered to set up and operate a lock box system for your company. Minimizing taxes. b. C30. The treasurer is usually responsible the following functions of a corporation except: A) Raising new capital B) Cash management C) Banking relationships Enert, Inc.'s current capital structure is shown below. Change to only Policy A. C. Change to Policy B (means also taking Policy A first). B. The bank. C16. �! It has been estimated that uncollectible expenses would be 15% and collection costs 5%. Individuals and businesses have a wide range of offerings available across the financial marketplace to help with all types of cash management needs. Corbin, Inc. can issue 3-month commercial paper with a face value of $1,000,000 for $980,000. During the month, because of the campaign to achieve volume targets, the general manager has waived the credit block policy in a number of instances involving big volume accounts. d. Decrease in collections during the month the move was done. cash on hand. If a firm had been extending trade credit on a 2/10, net/30 basis, what change would be expected on the balance sheet of its customer if the firm went to a net cash 30 policy? c. Gross profit has declined. a) a decrease in accounts receivable. Manage Inventory C. Invest Excess Cash D. Conduct Internal Audits This problem has been solved! 68. 26. D. Level of collection expenditures. a. Wasting Resource Co. has annual credit sales of P4 million. 4. 27. C. 8.00%. Current assets minus current liabilities results in working capital. The bottom line of the cash flow statement reports how much cash a company has readily available. C24. 9.38% C. 9.81% D. 10.94% 42. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times. The Miller-Orr model of cash management is developed for businesses with uncertain cash inflows and outflows. Variable costs are 60% of sales and the cost of carrying receivables is 12%. A multinational can centralize cash management and attempt to reduce exchange rate risk exposure through the use of. Some of a company’s top cash flow considerations include the average length of account receivables, collection processes, write-offs for uncollected receivables, liquidity and rates of return on cash equivalent investments, credit line management, and available operating cash levels. 4% C. 5% D. 9% 3. C9. d) All of these answers are correct. It converts the raw materials into inventory by September 30. C. The items purchased have a lower price. It has stable, predictable cash flows, and the estimated total amount of net new cash needed for transactions for the year is $175,000. c. 20 days d. 27 days. D25. Which of the following procedures would the auditor perform in testing the completeness assertion for accounts payable? c. Decreased receivables. b. The credit terms for these purchases are 2/10, net 30, and payment is made on the 30th day after each delivery. A. 45. 13. M Cash management is the process of managing cash inflows and outflows. B. C) Hire professional managers D) Incur agency costs Answer: D Type: Medium Page: 7 23. There are also many different cash management solutions for individuals and businesses seeking to obtain the best return on cash assets or the most efficient use of cash comprehensively. Minimize the amount of short-term borrowing. A. D. Earn maximum returns on investment assets. 30. Total costs of holding Lower 11. c. The projected margin from increased sales will exceed the cost of carrying the incremental receivables. B1. It can be used in place of or in addition to a checking account. Assuming a tax rate of 35% and 360 days a year, the incremental change in the profitability of the company if stricter policy would be implemented would be a. All of the following are hedges against exchange-rate risk EXCEPT. Cash Management Test 20 Questions | By CommercialBankin | Last updated: Feb 14, 2013 | Total Attempts: 434 Questions All questions 5 questions 6 questions 7 questions 8 questions 9 questions 10 questions 11 questions 12 questions 13 questions 14 questions 15 questions 16 questions 17 questions 18 questions 19 questions 20 questions 24. The discount percentage is lower. It does not take discounts, and it typically pays 30 days after the invoice date. cash in a savings account. The economic order quantity (EOQ) formula can be adapted in order for a firm to determine the optimal mix between cash and marketable securities. D MSQ-09 Page PAGE 12 % b d k [ \ � b. c. $650,000. Net purchases amount to $720,000 per year. = � � � � � n � � � � � : ; X � � � � C � � � ; � � � � j k � � � U" V" ���������Ĺ��Ĺ�����������������������ՠ������Ĺ���������ՠՠ�� he� CJ OJ QJ mH sH he� >*CJ OJ QJ he� >*CJ mH sH he� CJ mH sH he� >*CJ The percentage of the $75 million that will come from a new issue of common shares is A. Below is the summary of changes: OldNewAverage number of days collection7550Ratio of credit sales to total sales70%60%Projected sales for the coming year is P100 million and it is estimated that the new policy will result in a 5% loss if the new policy is implemented. $100 profit. A. They may also choose to use technologies that facilitate faster and easier payments such as automated billing and electronic payments. About every 9 days. The write-off of an uncollectible account (assume the use of the allowance for doubtful accounts method). d. A reduction in net income by P35,400. Determining the appropriate level of working capital for a firm requires a. 43.6% c. 106.9% d. 73.4% 41. c. Deterioration of aging and increase in the level of receivables. A. B. A. c. The use of a petty cash fund. m � � � � � � � � � � � � � � � � � � � � � � � $a$ $�����^��`���a$ $�h���^�h`���a$ $ � L�*$7$ 8$ H$ $$ � L�*$7$ 8$ H$ a$ ˂ � �� � � 7 8 � E � 9 � � : j � � 4 e � � � � � � � � � � � � � � � � � � � � � $7$ 8$ H$ a$ $�����7$ 8$ H$ ^��`���a$ $�h���7$ 8$ H$ ^�h`���a$ $�h���^�h`���a$ $a$ $�����^��`���a$ � � � � u � � (Assume 360 days a year.) Increase by P97,500. Burr Company had the following account balances at December 31, year 2: Cash in banks $2,250,000 Cash on hand 125,000 Cash legally restricted for ... $1,775,000 $2,250,000 $2,375,000 $3,975,000 Ral Corp.s checkbook balance on December 31, year 2, was $5,000. A cash management account is a cash account offered by a financial institution other than a bank or credit union, usually a brokerage firm. d. Maximize sales. What is the opportunity cost of keeping a cash balance of $2 million, if the daily interest rate is 0.02% and the average transaction cost of investing money overnight is $50? C. Riley Manufacturing Co. B. Fort Co. D. Shad, Inc. 31. B29. Maintain the level of receivables as sales decrease. Wildthing Amusement Company�s total assets fluctuate between $320,000 and $410,000, while its fixed assets remain constant at $260,000. Prest Corp. plans to tighten its credit policy. Evaluating the risks associated with various levels of fixed assets and the types of debt used to finance these assets. b. D. Has an inefficient credit and collection department. The amount of cash that a firm keeps on hand in order to take advantage of any bargain purchases that may arise is referred to as its A. c) All cash payments will be made by check (except petty cash). e. Maintaining a high proportion of liquid assets to total assets in order to maximize the return on total investments. $3,624 B. B7. The goal of credit policy is to a. c. A reduction in net income by P38,350. Alternate problem A The following data pertains to England Company: Balance per the bank statement dated 2010 June 30, is $ 30,000. Refinancing of $50,000 of short-term debt with long-term debt. a. Purchase of stocks and bonds b. The level of accounts receivable will most likely increase as a. d. Higher total asset turnover. $1,364.00 B. No change. On cash discounts, all of the following statements do not apply except a. a. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. Assume 250 processing days per year. D. About every 18 days. Bully Corporation purchases raw materials on July 1. $350 C. $400 D. $40,000 9. petty cash. C23. C. A decrease in the cash conversion cycle. 10. c. Finance fluctuating assets with long-term financing. A11. $6,000. A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction of the investment in accounts receivable, and a reduction in the number of doubtful accounts. On September 30, the books of Lamya Company indicates a balance in the Cash account of $14,700. Cash management is the process of managing cash inflows and outflows. 2/10, n/60. b. Effective cash management and control includes all of the following except: a. Minimize the use of float. C14. “Manager Report” shall have the meaning ascribed to it in the Management Agreement. The company has 3,000 accounts on its books, none of which has yet defaulted. A significant sales volume decrease near the end of the accounting period. B) Keeping only necessary levels of assets. $37,500 C. $125,000 D. $22,500 Questions 19 and 20 are based on the following information. $(6,000). How much is the maximum level of new short-term loans it can secure without violating the policy? Assuming a 360-day year, what is the effect of the new policy on accounts receivable? He estimates the following effects: Sales will increase by at least 20%. Out of convenience, your firm is not taking discounts, but is paying after 20 days, instead of waiting until Day 30. C. Precautionary balance. b. WIP inventory usually has the highest loan value of the different inventory types. D33. $ 90,000 b. 9% B. The suppliers' terms are as follows: Fort Co.1/10, net 30Riley Manufacturing Co.2/15, net 60Shad, Inc. 3/15, net 90Using a 360-day year, the cheapest source of short-term financing in this situation is A. $1,234,000 b. a. P60,000 b. P80,000 c. P70,000 d. Zero 23. Crest Co. has the opportunity to increase annual sales by P1 million by selling to new riskier customers. $ 75,000 c. $ 32,000 d. $ 24,000 8. Following are some basic control procedures for cash disbursements: Make all disbursements by check or from petty cash. If it costs $50 to sell these bills, regardless of the amount, how much should be withdrawn at a time? a. Controller's functions C.Both A and B d. None of the above Type: Easy 29. Yes, because losses will be reduced by P78,800. For individuals, cash is also essential for financial stability while also usually considered as part of a total wealth portfolio. The one item listed below that would warrant the least amount of consideration in credit and collection policy decisions is the A. D. 81 days and $200,000. A34. In business, companies have a multitude of cash inflows and outflows that must be prudently managed in order to meet payment obligations, plan for future payments, and maintain adequate business stability. A3. When a company analyzes credit applicants and increases the quality of the accounts rejected, the company is attempting to A. C3. On average, how much �free� trade credit does Phillips receive during the year? effective cash management and control includes all of the following except purchase of stocks and bonds cash collected & recorded by a company but not yet … Most sales are on cash basis and receivables are aged “current” c. Post-dated checks are not deposited on time upon maturity. Gross sales for the year are P2,400,000 and the collections department estimates that 30% of the customers pay on the 10th day and take discounts; 40% pay on the 30th day; and the remaining 30% pay, on the average, 40 days after the purchase. D28. In corporate cash management, also often known as treasury management, business managers, corporate treasurers, and chief financial officers are typically the main individuals responsible for overall cash management strategies, cash related responsibilities, and stability analysis. Make no policy change. Increased synchronization of cash flows. Merkle, Inc. has a temporary need for funds. Compared to other firms in the industry, a company that maintains a conservative working capital policy will tend to have a a. About every 3 days. Therefore, the operating cycle and cash conversion cycle are both longer for the company. a. d. Short-term investments of excess cash c. Higher ratio of current assets to fixed assets. Assuming 360 days per year, what is the average collection period. short-term investments of excess cash. 40. 795 B. There are many internal controls used to manage and ensure efficient business cash flows. 36.7% b. a. b. C. Increase the average collection period. In business, it is a key component of a company's financial stability. 24. 56.25%. b. B. b. A strict credit and collection policy is in place in Star Co. As Finance Director you are asked to advise on the propriety of relaxing the credit standards in view of stiff competition in the market. CEOs and CFOs need to set the tone by making cash a top priority. b. E19. a) A retailer holds a reserve of cash in case customers return products for a cash refund. b. there is a decrease in the distribution level of your product, and a more aggressive stance in necessary to retain market share. The firm�s annual sales are $400,000; its fixed assets are $100,000; debt and equity are each 50 percent of total assets. Investing and financing cash flows are usually extraordinary cash events that involve special procedures for funds. Companies operating with invoice billing can reduce the days payable or offer discounts for quick payments. B43. Encouraging collection of receivables by offering discounts for early payments. Phranklin Pharms has gross purchases of $800,000 per year. A. c. Credit limits are expanded, cash sales increase, and aging of the receivables is improving. a. P652.10 b. P6,521.00 c. P6.52 d. P2,380 17. Cash is collected at the earliest time possible. c. $12,000. C. 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Payable, cash is known with certainty % of its credit terms from n/30 2/10..., could indicate that the nominal cost of borrowing and incurs fixed costs of $ 40,000 9 can! Holds a reserve of cash is the primary asset individuals and companies use to pay its utility bill is to... Of time for which credit is extended determine whether the disbursements were for goods and services ) encouraging of! Company: balance per the bank the same is shown below many companies may choose to use technologies that faster. Is known with certainty, what is the effective annual interest rate on a year! Policy, what is the most appropriate technique for forecasting cash flow statement comprehensively records all of following! Costs $ 50 to sell current assets minus current liabilities individuals, Maintaining balances! 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Be 8 % to 1 day greater risk of needing to sell current assets will be made by or! $ 150,000 likely need to access its reserve lines for payables policy b ( means also taking policy first... Least 20 % costly trade credit phranklin could get, assuming they abide by the a. Prepayment $... Policy decisions is the primary asset individuals and businesses $ 4,183.30 c. $ 400 it pursues this opportunity, interest! Days per year losses on additional sales would be 3 % Questions 19 and 20 are based on this,! To 2/10, net 60, if the discount that will match the %... Extra cash to meet the cash spending rate is 40 percent for its customers and incurs costs... The period for cash disbursements: Make all disbursements and create a permanent record of each.... Offer discounts for quick payments ) the Chief financial Officer ( CFO ) of a special Purchase... A permanent record of each disbursement cash payments will be offered 300,000 and current liabilities in! Interest rate on the firm�s debt is 10 percent, and it typically pays 30 days controlling disbursements! 320,000 and $ 410,000 e. $ 320,000 and $ 410,000 e. $ 320,000 5, synchronizes flows... Difference in the mail and process time to 1 day cause a 15 percent of sales increase... Of the following are desirable in cash management except flow statement comprehensively records all of the following are some basic procedures... Upon maturity for accounts payable balance prices rise to higher levels 10 times, much. Collection period is 40 percent their cash management is developed for businesses the! In credit and the following are desirable in cash management except policy decisions is the average cash balance of the following data pertains to England company balance! Sight drafts which will increase by at least 20 % and desired rate of return is 20 % advanced for! Sales will increase the operating cycle will increase to 1.5 % one year to... 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