1.

Stoney Brooke, Inc. has sales of $890,000 and cost of goods sold of $640,000. The firm had a beginning inventory of $36,000 and an ending inventory of $46,000. What is the length of the inventory period? a. b. c. d. e. 15.24 days 15.61 days 21.19 days 21.71 days 23.38 days

Inventory turnover = $640,000 [($36,000 + $46,000) 2] = 15.61; Inventory period = 365 15.61 = 23.38 days 2. A firm has sales of $720,000. The cost of goods sold is equal to 70 percent of sales. The firm has an average inventory of $6,500. How many days on average does it take the firm to sell its inventory? a. b. c. d. e. 3.30 days 4.71 days 67.29 days 77.54 days 110.77 days

Inventory turnover = ($720,000 .70) $6,500 = 77.54; Inventory period = 365 77.54 = 4.71 days 3. Weson, Inc. has sales of $462,000, costs of goods sold of $308,000 and average accounts receivable of $48,900. How long does it take their credit customers to pay for their purchases? a. b. c. d. e. 36.09 days 38.63 days 41.23 days 44.20 days 57.95 days Receivables turnover = $462,000 $48,900 = 9.4479 Receivables period = 365 9.4479

= 38.63 days

4.

LoDo, Inc. has sales of $642,000 and average accounts payable of $36,400. The cost of goods sold is equivalent to 65 percent of sales. How long does it take LoDo to pay their suppliers? a. b. c. d. e. 11.46 days 13.45 days 20.69 days 26.18 days 31.84 days Payables turnover = ($642,000 .65) $36,400 = 11.464; Payables period = 365 11.464 = 31.84 days

5.

Dallas and More (D&M) sells their inventory in 82 days on average. Their average customer charges their purchase on a credit card whereby payment is received in ten days. On the other hand, D&M takes 56 days on average to pay for their purchases. Given this information, what is the length of D&Ms operating cycle? a. b. c. d. e. 26 days 36 days 66 days 92 days 128 days Operating cycle = 82 + 10 = 92 days

6.

Drefus, Inc. has an inventory turnover of 15 and an accounts receivable turnover of 9. The accounts payable period is 51 days. What is the length of the cash cycle? a. b. c. d. e. 13.89 days 14.07 days 14.23 days 18.79 days 23.00 days

Cash cycle = (365 15) + (365 9) 51 = 13.89 days 7. On April 1st, your firm had a beginning cash balance of $280. Your sales for March were $460 and your April sales were $510. During April you had cash expenses of $130 and payments on your accounts payable to $210. Your accounts receivable period is 30 days. What is your firms beginning cash balance on May 1st? a. b. c. d. e. $400 $430 $450 $860 $910 Cash balance = $280 $130 $210 + $460 = $400 8. Your firm has a line of credit with your local bank for $50,000. The loan agreement calls for interest of 9 percent with a 5 percent compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need $42,750 for one year to cover your operating expenses? a. b. c. d. e. 8.55 percent 9.00 percent 9.13 percent 9.38 percent 9.47 percent Amount borrowed = $42,750 (1 .05) = $45,000; Annual interest = $45,000 .09 = $4,050; Effective interest rate = $4,050 $42,750 = .0947 = 9.47 percent

9. Mercer, Inc. had the following sales for the past six months. Mercer collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale. Cash Sales Credit Sales January $50,000 $50,000 February $70,000 $110,000 March $55,000 $95,000 April $78,000 $130,000 May $80,000 $105,000 June $75,000 $148,000 What are Mercer's total cash receipts for the month of March?

A) $99,500 B) $119,000 C) $150,000 D) $154,500 Answer: D

Total cash receipts for the month of March = (30% x 95,000) + (60% x 110,000) + (10% x 50,000) + $55,000 = $154,500

10) Buster Enterprises projected sales for the first six months of 2010 are given below: Jan. Feb. Mar. April May June $500,000 $740,000 $380,000 $490,000 $740,000 $610,000

40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2010 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). Buster Enterprises has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is Buster Enterprises total cash receipts for April 2010? A) $460,000 B) $490,000 C) $524,000 D) $560,000 Answer: A
Total cash receipts for the month of April = (40% x 490,000) + (50% x 380,000) + (10% x 740,000) = $460,000

What is Buster Enterprises total cash disbursements for April 2010? A) $294,000 B) $334,000 C) $374,000 D) $414,000 Answer: B
Total cash disbursements for the month of April = (60% x 490,000) +40,000 = $334,000

What is Buster Enterprises projected cash balance at the end of March 2010?

A) $301,000 B) $329,000 C) $352,000 D) $361,000 Answer: B cash balance at the end of March = (40% x 380,000) + (50% x 740,000) + (10% x 500,000)- (60% x
$380,0000) 40,000 + 25,000 = $329,500

11) Dorian Industries' projected sales for the first six months of 2010 are given below: Jan. Feb. Mar. April May June $250,000 $340,000 $280,000 $300,000 $350,000 $380,000

20% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2010 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Dorian has no short term borrowing as of February 28, 2010. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. What is Dorian Industries' total cash receipts for April 2010? A) $340,000 B) $326,000 C) $302,000 D) $300,000 Answer: C
Total cash receipts for the month of April = (20% x 300,000) + (50% x 280,000) + (30% x 340,000) = $302,000

What is Dorian Industries' total disbursement in May? A) $367,500 B) $348,000 C) $425,500 D) $324,000 Answer: A
Total cash disbursements for the month of May = (85% x 350,000) +70,000 = $367,500

What is Dorian Industries' ending cash balance (before borrowing) in March? A) $12,000 B) $8,000 C) $3,000 D) ($28,000) Answer: C ending cash balance (before borrowing) in March = (20% x 280,000) + (50% x 340,000) + (30% x
250,000)- (85% x $280,0000) 70,000 + 10,000 = $3,000

12) Dorian Industries' projected sales for the first six months of 2010 are given below: Jan. Feb. Mar. April May June $250,000 $340,000 $280,000 $300,000 $350,000 $380,000

20% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2010 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Dorian has no short term borrowing as of February 28, 2010. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. Dorian's projected cumulative short-term borrowing as of April 30, 2010? A) $25,000 B) $33,000 C) $50,000 D) $60,000 Answer: D
cumulative short-term borrowing as of April 30, 2010= $302,000 (85% x 300,000) 70,000 + 40,000= 17,000 40,000 17, 000 = 23, 000 23,000 + 37,000 = 60,000

Ending of March balance $3,000 therefore borrow 37,000 + 23, 000 from April = 60,000

13) CBD Computer Inc. is attempting to estimate its needs for funds during each of the months covering the third quarter of 20XX. Pertinent information is given below: a. Past and estimated future sales for 20XX: April $80,000 July $ 90,000 May 95,000 August 130,000 June 70,000 September 110,000 October 140,000 b. Rent expense is $2,500 per month. c. A quarterly interest payment on $100,000 in 7% notes payable is to be paid during Aug, 20XX. d. Wages and salaries are estimated as follows: July $ 8,000 August 10,000 September 12,000 Payments are made within the month in which the wages are earned. e. Sixty percent of sales are for cash, with the remaining 40% collected in the month following the sale. f. CBD pays 80% of the sales price for merchandise and makes payment in the same month in which the sales occur, although purchases are made in the month prior to the anticipated sales. g. CBD plans to pay $7,500 in cash for a new forklift truck in July. h. Short-term loans can be obtained at the end of each month at 13% annual interest with interest paid during each month for which the loan is outstanding. i. CBD's ending cash balance for June 30, 200X is $67,000: the minimum balance the firm wishes to have in any month is $35,000. Required: Set up a cash budget for CBD for the quarter ended September 30, 20XX.

Answer: Worksheet June July $70,000 $90,000 54,000 28,000 $82,000 Cash Budget $82,000 (72,000) (2,500) (8,000) 0 (7,500) 0 90,000 (8,000) 67,000 0 $59,000 August $130,000 78,000 36,000 $114,000 September $110,000 66,000 52,000 $118,000

Sales Cash sales Collections (40% 1 month later) Total cash collection

Cash receipts from sales Cash disbursements Payments on purchases Rent Wages and salaries Interest (0.07 100,000 1/4) Purchase of forklift truck Short-term-borrowing interest (0.13) Total cash disbursement Net Beginning cash balance Borrowing (repayment) Ending balance Diff: 3 Keywords: Cash Budget

$114,000 (104,000) (2,500) (10,000) (1,750) 0 (118,250) (4,250) 59,000 0 $54,750

$118,000 (88,000) (2,500) (12,000) 0 0 (102,500) 15,500 54,750 0 $70,250