If a company experiences a quicker inventory turnover rate and a quicker collect

Question

If a company experiences a quicker inventory turnover rate and a quicker collection experience for its accounts receivable, it can expect:

Select one:

a. No change in the time period in which it realizes its cash because the accounts receivable collections offset the inventory movement.

b. A quicker realization of cash because stock spends less time on the shelf and collections are more effective.

c. A longer realization of cash because stock spends less time on the shelf and collections are less effective.

d. A longer realization of cash because stock spends more time on the shelf and collections are less effective.

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The accounts receivable and inventory turnover rates remain the same. However a company negotiates with its major supplier of inventory to allow an extra 15 days in which to pay with no finance charge and with no loss of price discount.

Select one:

a. The company will realize a more efficient cash conversion.

b. The company will experience no change in an efficient cash conversion.

c. The company will have to wait an extra 15 days to collect on its accounts receivable.

d. The company will have to wait more than 15 days to collect on its accounts receivable.

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A company's accounts receivable turnover rate (its rate, not days) decreases. The company can expect to receive cash for its credit sales earlier than expected.

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True

False

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A company's accounts receivable turnover rate (its rate, not days) increases. The company can expect to receive cash for its credit sales earlier than expected.

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True

False

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A company's inventory turnover, as measured in days, decreases. This means the rate in which the company moves the inventory items it has in stock is becoming more rapid.

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True

False

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A company's inventory turnover, as measured in days, increases. This means the rate in which the company moves the inventory items it has in stock is becoming more rapid.

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True

False

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A quick ratio measures the ability of a firm to satisfy its short-term liabilities overnight.

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True

False

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Common stock is a short-term method of holding cash until it is needed.

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True

False

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A certificate of deposit of 6 months is a short-term method of holding cash until it is needed.

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True

False

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US treasury bills are a short-term method of holding cash until it is needed.

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True

False

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Preferred stock is a short-term method of holding cash until it is needed.

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True

False

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US treasury notes of 10 year duration are a short-term method of holding cash until it is needed.

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True

False

Question 13

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A corporate bond is a short-term method of holding cash until it is needed.

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True

False

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Commercial paper is a short-term method of holding cash until it is needed.

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True

False

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Money market funds are a short-term method of holding cash until it is needed.

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True

False

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Municipal bonds are a short-term method of holding cash until it is needed.

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True

False

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Interest bearing demand deposit accounts (DDA) are a short-term method of holding cash until it is needed.

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True

False

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Corporate debentures are a short-term method of holding cash until it is needed.

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True

False

Explanation / Answer

1) A quicker realization of cash because stock spends less time on the shelf and collections are more effective

Quicker inventory turnover ratio shows that goods are selling at quick rate further quicker collection experience shows that debtors are paing money quicky hence there will be quicker realization

2) the company will realize a more efficient cash conversion

Since company is getting credit period , cash conversion will become efficient

3) False

A high account receivable ratio indicates that the company is operatin on cash basis it shows that collection is efficeient, if it decreases than it can be said that company will not be able to realise cash quickly

4) True

A high account receivable ratio indicates that the company is operatin on cash basis it shows that collection is efficeient, if it decreases than it can be said that company will not be able to realise cash quickly

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