1. Bully Corporation purchases raw materials on July 1.

It converts the raw materials into

inventory by September 30. However, Bully pays for the materials on July 20. On October
31, it sells the finished goods inventory. Then, the firm collects cash from the sale 1 month
later on November 30. If this sequence accurately represents the average working capital
cycle, what is the firm's cash conversion cycle in days?
A. 92 days. B. 133 days. C. 123 days. D. 153 days.

2. Jumpdisk Company writes checks averaging $15,000 a day, and it takes five days for these
checks to clear. 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. What is the firm’s net
float in dollars?
a. $126,000 b. $ 75,000 c. $ 32,000 d. $ 24,000

3. 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?
A. $50 B. $350 C. $400 D. $40,000

4. Hakuna Inc. sells on terms of 3/10, net 30 days. 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. Assuming 360 days per year, what is the average collection period.
a. 40 days. b. 15 days. c. 20 days d. 27 days.

5. QRS makes large cash payments averaging P17,000 daily. The company changed from
using checks to sight drafts which will permit it to hold unto its cash for one extra day. If
QRS can use the extra cash to earn 14% annually, what annual peso return will it earn?
a. P652.10 b. P6,521.00 c. P6.52 d. P2,380

6. Sixty percent of Baco's annual sales of $900,000 is on credit. If its year-end receivables
turnover is 4.5, what is the average collection period and the year-end receivables,
respectively (assume a 365-day year)?
A. 81 days and $120,000. C. 73 days and $108,000.
B. 73 days and $120,000. D. 81 days and $200,000.

7. Ten Q’s Inc. has an inventory conversion period of 60 days, a receivable conversion period
of 35 days, and a payment cycle of 26 days. If its sales for the period just ended amounted to
P972,000, what is the investment in accounts receivable? (Assume 360 days a year.)
a. P85,200 b. P72,450 c. P94,500 d. P79,600

Numero 1 Co.’s budgeted sales for the coming year are P96 million, of which 80% are expected
to be credit sales at terms of n/30. The company estimates that a proposed relaxation of credit
standards would increase credit sales by 30% and increase the average collection period form 30
days to 45 days. Based on a 360-day year, the proposed relaxation of credit standards would
result to an increase in accounts receivable balance of
a. P6,880,000 b. P1,920,000 c. P2,880,000 d. P6,080,000
Questions 60 thru 63 are based on the following information.
You are requested to reconstruct the accounts of Angela Trading for analysis. The following
data were made available to you:
Gross margin for 19x8 P472,500
Ending balance of merchandise inventory P300,000
Total stockholders’ equity as of December 31, 19x8 P750,000
Gross margin ratio 35%
Debt to equity ratio 0.8:1
Times interest earned 10
Quick ratio 1.3:1
Ratio of operating expenses to sales 18%
Long-term liabilities consisted of bonds payable with interest rate of 20%
Based on the above information,

8. What was the operating income for 19x8?

a. P472,500 b. P243,500 c. P205,550 d. P229,500

61. How much was the bonds payable?

a. P400,000 b. P200,750 c. P114,750 d. P370,500

62. Total current liabilities would amount to

a. P600,000 b. P714,750 c. P485,250 d. P550,00

63. Total current assets would amount to

a. P630,825 b. P780,000 c. P580,000 d. P930,825

Questions 57 through 59 are based on the following information.

The condensed balance sheet as of December 31, 1982 of San Matias Company is given below.
Figures shown by a question mark (?) may be computed from the additional information given:
ASSETS LIAB. & STOCKHOLDERS’ EQUITY
Cash P 60,000 Accounts payable P ?
Trade receivable-net ? Current notes payable 40,000
Inventory ? Long-term payable ?
Fixed assets-net 252,000 Common stock 140,000
Retained earnings ?
Total Assets P 480,000 Total L & SHE P 480,000
Additional information:
Current ratio (as of Dec. 31, 1982) 1.9 to 1
Ratio of total liabilities to total stockholders’ equity 1.4
Inventory turnover based on sales and ending inventory 15 times
Inventory turnover based on cost of goods sold and ending inventory 10 times
Gross margin for 1982 P500,000

57. The balance of accounts payable of San Matias as of December 31, 1982 is
a. P40,000 b. P80,000 c. P95,000 d. P280,000
58. The balance of retained earnings of San Matias as of December 31, 1982 is
a. P60,000 b. P140,000 c. P200,000 d. P360,000

59. The balance of inventory of San Matias as of December 31, 1982 is

a. P68,000 b. P100,000 c. P168,000 d. P228,000

62. If a firm borrows $500,000 at 10% and is required to maintain $50,000 as a minimum compensating balance at the
bank, what is the effective interest rate on the loan?
a. 10.0%
b. 11.1%
c. 9.1%
d. 12.2%

**63. If a retailer’s terms of trade are 3/10, net 45 with aparticular supplier, what is the cost on an annual basis of not
taking the discount? Assume a 360-day year.
a. 24.00%
b. 37.11%
c. 36.00%
d. 31.81%

7. Eagle Sporting Goods has $2.5 million in inventory and $2 million in accounts receivable. Its average daily sales are
$100,000. The firm’s payables deferral period is 30 days and average daily cost of sales are $50,000. What is the length of
the firm’s cash conversion period?
a. 100 days.
b. 60 days.
c. 50 days.
d. 40 days.

8. Jones Company has $5,000,000 of average inventory and cost of sales of $30,000,000. Using a 365-day year, calculate
the firm’s inventory conversion period.
a. 30.25 days.
b. 60.83 days.
c. 45.00 days.
d. 72.44 days.

**55. A company with $4.8 million in credit sales per year plans to relax its credit standards, projecting that this will
increase credit sales by $720,000. The company’s average collection period for new customers is expected to be 75 days,
and the payment behavior of the existing customers is not expected to change. Variable costs are 80% of sales. The firm’s
opportunity cost is 20% before taxes. Assuming a 360-day year, what is the company’s benefit (loss) from the planned
change in credit terms?
a. $0
b. $ 28,800
c. $144,000
d. $120,000

56. Gild Company has been offered credit terms of 3/10, net 30. Using a 365-day year, what is the nominal cost of not
taking advantage of the discount if the firm pays on the 35th day after the purchase?
a. 14.2%
b. 32.2%
c. 37.6%
d. 45.2%

57. Newton Corporation is offered trade credit terms of 3/15, net 45. The firm does not take advantage of the discount, and
it pays the account after 67 days. Using a 365-day year, what is the nominal annual cost of not taking the discount?
a. 18.2%
b. 21.71%
c. 23.48%
d. 26.45%

**62. If a firm borrows $500,000 at 10% and is required to

maintain $50,000 as a minimum compensating balance at
the bank, what is the effective interest rate on the loan?
a. 10.0%
b. 11.1%
c. 9.1%
d. 12.2%
**63. If a retailer’s terms of trade are 3/10, net 45 with a
particular supplier, what is the cost on an annual basis of not
taking the discount? Assume a 360-day year.
a. 24.00%
b. 37.11%
c. 36.00%
d. 31.81%

37. The following information pertains to material X that is

used by Sage Co.:
Annual usage in units 20,000
Working days per year 250
Safety stock in units 800
Normal lead time in working days 30
Units of material X will be required evenly throughout the
year. The order point is
a. 800
b. 1,600
c. 2,400
d. 3,200

38. Firms that maintain very low or no inventory levels

a. Have higher ordering costs.
b. Have higher carrying costs.
c. Have higher ordering and carrying costs.
d. Have lower ordering and carrying costs.
**39. An example of a carrying cost is
a. Disruption of production schedules.
b. Quantity discounts lost.
c. Handling costs.
d. Obsolescence.

30. To determine the inventory reorder point, calculations

normally include the
a. Ordering cost.
b. Carrying cost.
c. Average daily usage.
d. Economic order quantity

1. Which of the following is not a function of financial

management?
a. Financing.
b. Risk-management.
c. Internal control.
d. Capital budgeting.

9. The length of time between the acquisition of inventory

and payment for it is called the
a. Operating cycle.
b. Inventory conversion period.
c. Accounts receivable period.
d. Accounts payable deferral period.
10. If everything else remains constant and a firm increases
its cash conversion cycle, its profitability will likely
a. Increase.
b. Increase if earnings are positive.
c. Decrease.
d. Not be affected.