Name: ________________________________________ Score: __________
Section: __________
Instruction: Write your answers in the Answer Sheet through google form.
1. It is the process of determining appropriate level of receivable in handling and administering sales
credit, credit policies, and maintaining an appropriate level of receivable.
a. working capital management b. c. receivable management
receivable turnover d. answer not given
2. It is a measure of the rate of cash inflow from the collection of receivables.
a. aging of receivables c. average collection period
b. accounts receivable turnover d. average accounts receivable
3. It indicates the number of times an average amount of receivables is collected during the period and
the efficiency of collection.
a. aging of receivables c. average collection period
b. accounts receivable turnover d. average accounts receivable
4. It is a deduction in the invoice price of the merchandise.
a. trade discount c. cash discount
b. credit term d. answer not given
5. It is a deduction in the purchased price to serve as an incentive for prompt payment.
a. trade discount b. credit term d. answer not given
c. cash discount
6. Assuming that net credit sales is constant, an increase in average collection period is determined by?
a. decrease in accounts receivable c. increase in accounts receivable
b. a decrease in accounts receivable turnover d. none of the above
7. This is the effect on working capital and current ratio if the company issued a promissory note in
exchange for its accounts receivable.
Working capital Current ratio
a. decrease decrease
b. increase increase
c. no effect no effect
d. decrease no effect
8. This is the effect of an increased accounts receivable on the current ratio and net working capital
respectively.
Current Ratio Net working capital
a. no effect no effect
b. increase increase
c. increase no effect
d. no effect increase
9. Which of the following items is not included in determining the desired level of accounts receivable? a.
net sales
b. desired number of days of accounts receivable
c. number of days in a year
d. answer not given
10. This is likely to happen when the company decides to increase their discount rate.
Collection Receivable Turnover Collection Period
a. Faster Higher Shorter
b. Faster Higher Longer
c. Slower Higher Shorter
d. Slower Higher Longer
11. This/These statement/s is/are true when the company decides to decrease their discount rate.
I. Collection is slower
II. Receivable turnover is lower
III. Collection period is shorter
a. Statement I is false c. Statements I and II are false
b. Statement III is true d. Statements I and II are true
12. This is likely to happen when the company decides to extend their credit term.
Sales Receivable Turnover Collection Period
a. Higher Lower Shorter
b. Higher Lower Longer
c. Lower Higher Shorter
d. Lower Higher Longer
13. Which of the following statement/s is/are determined by the choices below when the company decides
to reduce their credit term?
I. Sales is higher Lower False
II. Receivable turnover is higher Higher True
III. Collection period is longer Shorter False
a. Statements I and II are true c. Statement II is false
b. All statements are true d. Statements I and III are false
14. Which of the following is likely to happen when the company decides to reduce their credit period?
Sales Receivable Turnover Collection Period
a. Higher Decrease Shorter
b. Higher Increase Longer
c. Lower Increase Shorter
d. Lower Decrease Longer
15. Which of the following statements is true/false when the company decides to increase their credit period?
I. Sales will be higher Higher
II. Receivable turnover lower Lower
III. Collection period is shorter Longer
a. Statement I is false c. Statements I, II are true
b. Statements I, II & III are true d. Statements II & III are false
16. Analyzing days sales outstanding (DSO) and the aging schedule are two common methods for
monitoring receivables. However, they can provide erroneous signals to credit managers when
a. Customers' payment patterns are changing.
b. Sales fluctuate seasonally.
c. Some customers take the discount and others do not.
d. Sales are relatively constant, either seasonally or cyclically.
17. The firm's receivables conversion period (measured in days) is equal to its accounts receivable
divided by its ____.
a. annual credit sales/360
b. annual credit sales
c. annual sales/360
d. none of the above
18. When factoring accounts receivables, the factor is the:
a. negotiated accounts receivable account.
b. the percent deduction in payment to the firm.
c. the financial institution that buys the accounts receivable.
d. the method of determining how much money is lent to the firm.
19. It is the average length of time required to convert a firm's receivables into cash.
a. cash conversion cycle
b. inventory conversion period
c. receivables collection period
d. payables deferral period
e. days sales outstanding
Since there is no choice “e” in the form, your answer should be choice “c”. Which is the Average Collection
Period. Days Sales Outstanding is an element of the cash conversion cycle and may also be referred to as days
receivables or average collection period.
20. All statements below are incorrect, except one
a. Other things held constant, the higher a firm's days sales outstanding (DSO), the better its credit
department.
b. If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then the firm probably has some
past due accounts.
c. If a firm that sells in terms of net 30 changes its policy to 2/10, net 30, and if no change in sales
volume occurs, then the firm's DSO will probably increase.
d. If a firm sells in terms of net 60, and if its sales are highly seasonal, with a sharp peak in
December, then its DSO as it is typically calculated (with sales per day = Sales for past 12
months/365) would probably be lower in January than in July.
21. Accounts receivable is P25,000 and the turnover rate is 15 times in one year. A turnover rate of 10 times in
one year is desired to increase sales by 20%. How much must be the increase or decrease in accounts
receivable?
a. P45,000, increase c. P25,000, increase
b. P40,000, decrease d. P20,000, decrease
Answers:
Sales = 25,000 x 15 = P375,000
Increase in sales = P375,000 x 1.20 = P450,000
Accounts receivable = 450,000/10 = 45,000
Change in accounts receivable = 45,000 – 25,000 = P20,000, decrease
22. Sales amount to P1,200,000. Sales terms are being revised from n/60 to n/45 and
sales are expected to decrease by 15%. How much would be the increase (decrease) in
receivables as a result of this change?
a. (P72,500) c. P50,000
b. (P52,500) d. (P27,500)
Answer:
Before = 1,200,000/360 x 60 = P200,000
After = (P1,200,000 x 1.15)/360 x 45 = 172,500
Change = P200,000 – P172,500 = P27,500 decrease in AR
23. The following information is available from Conan’s Corp. financial records for 2013.
Sales P750,000 Accounts Receivable
Net credit sales 66.67% Balance, January 1, 2013 P75,000
Net cash sales 33.33% Balance, December 31, 2013 50,000
What was accounts receivable turnover in 2013?
a. 15x c. 12x
b. 10x d. 7.41x
Answer: Accounts receivable turnover = (750,000 x 66.67%)/((75,000+60,000)/2) = 7.41x
Items 24 - 25
To improve the credit and collection policies of Bwang A. Co, the following data for 2013 were gathered
for study:
Accounts receivable, Jan. 1 P112,000
Accounts receivable, December 31 P140,000
Bad Debts losses 6,300
Allowance for uncollectible accounts, Jan. 1 10,500
Allowance for uncollectible accounts, Dec. 1 7,000
Sales (all sales were made on credit) P630,000
24. What was the total cash collected from customers during 2013?
a. P592,200
b. P599,200 d. P599,500
c. P598,500
Answer:
Write-off = 10,500 + 6,300 – 7,000 = P9,800
Collections = 112,000 + 630,000 -140,000 – 9,800 = P592,200
25. What was the accounts receivable turnover?
a. 5.37x c. 5.00x
b. 4.70x d. 4.23x
Answer: 630,000/((112,000 + 140,000)/2) = 5x
26. Brew Ca has an average payment period of 30 days, an average age of inventory of 20 days and a cash
conversion cycle of 30 days. What is Brew Ca’s average collection period?
a. 20 days c. 80 days
b. 40 days d. Answer not given
Answer 30 – 20 +30 = 40
27. For Mr. Hapal Moe, the average age of accounts receivable is 30 days, the average age of accounts
payable is 50 days, and the average age of inventory is 40 days. Assume a 360-day year. If Mr. Moe’s
annual sales are P900,000, what is the firm's average accounts receivable balance?
a. P 62,500 c. P100,000
b. P 75,000 d. P125,000
Answer: B
Sales per day = P900,000/360 = P2,500
Average accounts receivable balance = P2,500 x 30 days = P75,000
28. Cut Works expects to have sales this year of P20 million under its current credit policy. The present
terms are net 30; the days sales outstanding (DSO) is 60 days; and the bad debt loss percentage is 5 percent.
Since Cut Works wants to improve its profitability, the treasurer has proposed that the credit period be
shortened to 15 days. This change would reduce expected sales by P1,500,000, but it would also shorten the
DSO on the remaining sales to 30 days. Expected bad debt losses on the remaining sales would fall to 3
percent. The variable cost percentage is 60 percent, and the cost of capital is 15 percent. What would be the
increase (decrease) in bad debt losses if the change were made?
a. P445,000 increase c. P445,000 decrease
b. P555,000 increase d. P555,000 decrease
Answer: C
Bad debt losses old: (0.05)(P20,000,000) = P1,000,000.
Bad debt losses new: (0.03)(P18,500,000) = P555,000
Change in bad debt losses = P1,000,000 – 555,000 = P445,000.
29. Data on Underwood Inc. for 2013 are shown below, along with the days sales outstanding of the firms
against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables
enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables
increase (decrease)? Assume a 360-day year.
Sales P120,000
Accounts receivable P16,000
Days sales outstanding (DSO) 48.00
Benchmarks' days sales outstanding (DSO) 30.00
c. P 10,000
a. P 6,000 d. P(10,000)
b. P (6,000)
Answer
Original Proposed Difference
Accounts receivable P16,000 P10,000 (P6,000)
30. Yoyot buys on terms of 2/10, net 30. It does not take discounts, and it typically pays 60 days after the
invoice date. Net purchases amount to P500,000 per year. What is the nominal annual percentage cost of its
non-free trade credit, based on a 360-day year?
a. 24.00% c. 36.00%
b. 24.48% d. 36.73%
Answer: (0.02/0.98)/(360/(30 – 10)) = 36.73%
31. Which of the following factors is most likely to increase the size of a company's accounts
receivables on its balance sheet?
a) Offering cash discounts to customers for early payments
b) Tightening credit policies and reducing credit terms for customers
c) Extending longer credit periods to customers with good payment histories
d) Reducing sales volume to a select group of customers
It allows those customers more time to pay their invoices. While this can be a strategic move to
maintain good relationships with reliable customers, it can also increase the size of accounts
receivables on the balance sheet.
32. What is the primary objective of conducting credit analysis?
a. To ascertain the most suitable credit period.
b. To assess the efficiency of offering a cash discount.
c. To identify the ideal discount period, if applicable.
d. To assess the likelihood of a customer making timely payments.
to evaluate the creditworthiness of a customer, which involves assessing the likelihood of that
customer paying their obligations on time.
33. Among the following time periods, which one is part of the accounts receivable period but
not part of the cash collection period?
a. The time between receiving a check and the availability of those funds
b. The time it takes for a firm to process incoming receipts
c. The duration during which a check is in transit through the mail
d. The time it takes for an invoice to be delivered to a customer by mail
The accounts receivable period includes the time from when a sale is made on credit until the
customer pays. This period encompasses various processes such as invoicing, sending the
invoice to the customer, the customer's evaluation, and finally, the customer's payment.
However, the cash collection period only involves the time from when the payment is received
until the funds become available. The time it takes for a firm to process incoming receipts,
including the tasks related to handling payments and updating accounting records, is part of the
accounts receivable period but not part of the cash collection period.
34. A firm sells on 5/15, net 30 terms. Total sales for the year are P960,000. Forty
percent of the customers pay on the tenth day and take discounts; the other 60 percent pay, on
average, 45 days after their purchases.What is the average amount of receivables?
a. P82,000 c. P88,200
b . P88,000 d . P 77,500
Days Sales Outstanding (Average Age of Receivables) = (40%x15) + (60% x 45) = 33 days
Receivable Turnover = 360 days/31 days = 10.90909
Average AR= 960,000/10.90909
= 88,000
35. A Company has projected sales of P50,000,000 for the upcoming year, with 90% of these
sales expected to be on credit with a net 30 days payment term. Palm believes that if they ease
their credit standards, they can boost credit sales by 10% and extend the average collection
period from 30 days to 40 days. Using a 360-day accounting year, what would be the anticipated
rise in the average accounts receivable balance due to this proposed credit relaxation?
a. P 1,540,000 c. P2,750,000
b . P 1,750, 000 d. P1,620,000
Credit sale = 50,000,000 x 90% = 45,000,000
Increased credit sales: 45,000,000 x 1.1 = 49,500,000
New Average AR 49,500,000/360 x 40 = 5,500,000
Old Average AR 45,000,000/360 x 30 = 3,750,000
Increase in Average AR = 1,750,000
36. Weisbrough United currently has a cash sales only policy. Under this policy, the firm sells
410 units a month at a price of $219 a unit. The variable cost per unit is $140 and the carrying
cost per unit is $3.30. The monthly interest rate is 1.3 percent. The firm believes it can increase
its sales to 475 units a month if it institutes a net 30 credit policy. What is the net present value
of the switch using the one-shot approach?
a. $255,590
b. $296,110
c. $298,470
d. $302,233
Monthly benefit = [($219 × 475)/1.013] - [$140 × 475] - [($219 - $140) × 410] = $3,800.03;
NPV of switch = $3,800.03 + ($3,800.03/0.013) = $296,110
37. Under the current cash sales only policy Blue Bird, Inc., will sell 215 units a month at a
price of $469 each. The variable cost per unit is $305 and the monthly interest rate is 1.7
percent. Based on a recent survey, the firm believes it can sell an additional 36 units per month
if it offers a net 30 credit policy. What is the net present value of the switch using the one-shot
approach?
a. $212,806
b. $231,543
c. $235,479
d. $248,946
Monthly benefit = {[$469 × (215 + 36)]/(1 + 0.017)} - {$305 × (215 + 36)} - {($469 - $305) ×
215} = $3,936.23; NPV of switch = $3,936.23 + ($3,936.23/0.017) = $235,479
Items 38-40
The company, A Company, is contemplating altering its credit terms from 2/15, net 30 to 3/10,
net 30 as a means to accelerate the collection of payments. Currently, 40% of A Company's
customers take advantage of the 2% discount offered. With the new terms, it's anticipated that
the number of customers availing the discount will increase to 50%. Irrespective of the credit
terms, half of the customers who do not opt for the discount are expected to make timely
payments, while the remaining half will make payments 10 days after the due date. Importantly,
this change does not involve relaxing credit standards, so there is no anticipation of an increase
in bad debt losses above the current 2% level.
However, the more favorable cash discount terms are expected to boost annual sales from P2
million to P2.6 million. A Company's variable cost ratio stands at 75%, the interest rate on funds
invested in accounts receivable is 9%, and the company's income tax rate is 40%.
38. What are the days sales outstanding (DSO) before and after the change of credit policy?
a. 27.0 days and 22.5 days, respectively c. 22.5 days and 21.5 days, respectively
b. 22.5 days and 27.0 days, respectively d. 21.5 days and 22.5 days respectively
Oldpolicy: (.4x15)+(.3x30)+(.3x40) - 27 days
Newpolicy (.5x10) +(.25x30)+(.25x40) - 22.5 days
39. The incremental carrying cost on receivable is
a . P 843 .7 5 c . P 643 .75
b. P8,889.00 d. P6,667.00
New policy: 2.6M/360 x 22.5 - 162,500
Old policy: 2.0M/360 x 27 - 150,000
Incremental Accounts Receivable - 12,500
Incremental carrying cost on receivable 12,500 x 0.75 x 0.09 = 843.75
40. The incremental after tax profit from the change in credit terms is
a . P 68 ,493 c . P 60 ,615
b. P65,640 d. P57,615
Incremental sales - 600,000
Variable cost (.75 x 600,000) - (450,000)
Additional bad debts (600,000 x 2%) - (12,000)
Additional carrying cost - (844)
Additional discounts (2,600,000 x .5 x 03) -(2,000,000 x .4 x .02) - (23,000)
Before tax increase in income - 114,156
Less tax - 45,663
Incremental income = 68,493
