Commences on the Day Inventory - Assignment Example

ACCOUNTING ASSIGNMENT 7 Solve and select the correct answer Which one of the following commences on the day inventory is purchased and ends on the day the payment for that inventory is collected? Assume all sales and purchases are on credit. Inventory period Accounts receivable period Accounts payable period Operating cycle Cash cycle 2. The accounts receivable period is the time that elapses between the _____ and the ____. purchase of inventory; payment to the supplier purchase of inventory; collection of the receivable sale of inventory; payment to supplier sale of inventory; collection of the receivable sale of inventory: billing to customer 3. Which one of the following is the length of time that a retailer owes its supplier for an inventory purchase? Inventory period Accounts receivable period Accounts payable period Operating cycle Cash cycle 4. Which one of the following defines the cash cycle? Inventory period plus the accounts receivable period Inventory period plus the accounts payable period Operating cycle minus the inventory period Operating cycle minus the accounts payable period Operating cycle minus the accounts receivable period 5. Which one of the following activities is a source of cash? Decreasing long-term debt Increasing inventory Repurchasing shares of stock Increasing fixed assets Decreasing accounts receivable 6. Which one of the following is a use of cash? Issuing new shares of stock Increasing accounts payable Decreasing inventory Decreasing fixed assets Increasing accounts receivable 7. Which of the following are sources of cash? I. decreasing accounts receivable II. Increasing inventory III. Increasing accounts payable IV. Increasing common stock I and III only II and IV only II and III only I and IV only I, III, and IV only 8. Which one of the following will increase the operating cycle? Decreasing the accounts payable period Increasing the accounts payable turnover rate Increasing the cash cycle Decreasing the accounts receivable turnover rate Decreasing the inventory period 9. The operating cycle is equal to which one of the following? Inventory period plus the accounts payable period Accounts receivable period plus the cash cycle Inventory period minus the accounts payable period plus the accounts receivable period Accounts receivable period plus the inventory period Inventory period plus the cash cycle 10. The Road Kill Restaurant has the following current account values for the year. These accounts represent a net _____ of cash for the year in the amount of ____.    Source; $3,100 Source; $4,700 Use; $3,100 Use; $3,800 Use; $4,700 Source of cash -decrease in accounts receivable- 26400-24200=$ 2200 -increase in accounts payable-22600-18700=$3900 Total source of cash=2200+3900=$6100 Uses of cash -increase in inventory=40300-38900=$1400 This therefore represents a net cash source of 6100-1400=$4700 11. Wage Garnishers, Inc. has sales for the year of $50,300 and cost of goods sold of $23,700. The firm carries an average inventory of $4,800 and has an average accounts payable balance of $4,400. What is the inventory period? 12.39 days 18.68 days 31.29 days 73.92 days 81.36 days Inventory Period = 365 × (Average Inventory / Annual Cost of Goods Sold) =365× (4800/23700)= 73.92days 12. The local video store has to restock a popular video game every five days as it completely sells out in that period of time. What is the inventory turnover rate for this game? 5.00 times 5.25 times 57.14 times 60.00 times 73.00 times The rate at which inventory is turned over-5times(every 5days) 13. Jennifer has annual sales of $367,200 and cost of goods sold of $198,600. The average accounts receivable balance is $20,400. How many days on average does it take the firm to collect its accounts receivable? 16.08 days 16.30 days 17.27 days 18.00 days 20.28 days Average collection period=365*(average accounts receivable/annual sales) =365*(20400/367200)=20.28 14. Jennifer has annual sales of $367,200 and cost of goods sold of $198,600. The average accounts receivable balance is $20,400. How many days on average does it take the firm to collect its accounts receivable? 16.08 days 16.30 days 17.27 days 18.00 days 20.28 days Average collection period=365*(average accounts receivable/annual sales) =365*(20400/367200)=20.28 15. The accounts receivable turnover rate for Big Mens Wear has gone from an average of 10.8 times to 10.2 times per year. How has this change affected the firms accounts receivable period? Decrease of 1.98 days Increase of 1.98 days Decrease of 2.28 days Increase of 2.28 days Increase of 2.97 days Average collection period (Days sales outstanding) = 365 / Accounts Receivables Turnover Ratio 365/10.8=33.80 365/10.2=35.78 This shows an increase of 35.78-33.80=1.98days 16. Captain Kurts Enterprises have a receivables turnover rate of 12.8, a payables turnover rate of 11.9, and an inventory turnover rate of 15.6. What is the length of the firms operating cycle? 24.89 days 39.80 days 51.92 days 62.56 days 83.77 days Operating Cycle = Days Sales of Inventory (inventory period) + Days Sales Outstanding Inventory Period = 365 / Inventory Turnover =365/15.6=23.40days Average collection period (Days sales outstanding) = 365 / Accounts Receivables Turnover Ratio =365/12.8=28.52days Operating cycle=23.40+28.52=51.92days 17. Michael Jackson, Inc. currently has an operating cycle of 154 days and a cash cycle of 38 days. The firm is implementing some changes that will reduce the inventory period by 16 days and decrease the receivables period by 4 days on average. The accounts payable period will be decreased by 4 days. How many days will be in the new cash cycle once all of these changes become effective? 15 days 16 days 22 days 55 days 61 days Cash Cycle = Days Sales Outstanding + Days Inventory Outstanding – Days Payable Outstanding. Cash Cycle = DSO + DIO – DPO Operating cycle=DSO+DIO Cash Cycle = Operating Cycle− DPO DPO=Operating Cycle-Cash Cycle 154-38=116DAYS New DPO=116-4=112days New Operating Cycle=154-16-4=134days Therefore, New Cash Cycle=134-112= 22days 18. Consider the following financial statement information for Kirkwood United.    Assume all sales are on credit. How long is the cash cycle? 28.21 days 33.25 days 51.03 days 51.58 days 53.57 days Cash Cycle = DSO + DIO – DPO =17.63+46.96-31.34= 33.25days DSO= = 365 / ( Net sales/ Average accounts receivables) =365/[146400/7070.5)=17.63days DIO= 365 / (cost of goods sold/average inventory) =365/(82500/10614.5)=46.96days DPO= (average accounts payable/ cost of goods sold)*365 =(7084.5/82500)*365=31.34days Reference Ross, S. A., Trayler, R. M., & Bird, R. G. (2008). Essentials of corporate finance. North Ryde, N.S.W: McGraw-Hill Australia Read More