Accounting Working Capital Questions
|1.?Which of the following assets are not included as part of a company's working capital? |
|Q2.?Patti's Prunes net working capital in 2010 was $56,000. This means? |
a. current assets were $56,000?
|Q3.?If Patti's Prunes had a loan agreement with its bank specifying that its quick ratio be kept above 1.2, during which years would it have been in violation of the minimum liquidity ratio requirements? (Reminder Quick ratio =[(current assets-inventory)/current liabilities], Current ratio = current assets/current liabilities)? |
a. 2010 only?
|Q4.?If a company takes out a mortgage of interest only payments with a balloon payment in 6 years, when does the balloon payment become a current liability? |
a. When the mortgage balloon payment is paid
|Q5.?Patti's Prunes receives an order for 15,000 10-pound boxes of prunes. She needs four weeks to process the order (because of drying time), and total labor costs of $22,500 paid in 2 bi-weekly installments of $11,250. She needs $30,000 worth of prunes to fill the order. Her supplier grants her 4 weeks trade credit. She must also extend 4 weeks trade credit to Health Clubs of Arizona. How much working capital would she need to handle the order and how long would it take her from order to payment?? |
a. $11,250 and 4 weeks?
|Q6.?What was the cash conversion cycle for Patti's Prunes in FYE11 if its payables deferral period was 19 days? (Reminder Cash Conversion cycle = Inventory conversion period (= 360 days /[sales/inventory]) + Receivables Conversion period(= Receivable/[Sales/360]) - Payables Deferral period) |
a. 101.8 days?
|Q7.?Patti's Prunes had a cash conversion cycle of 108 days at FYE10. If Patti wants to expand production by $300,000 next year and she must pay her bank 9% for short-term credit, what would be the interest cost for the additional production? (Reminder Additional working capital cost = (additional production) x (cash conversion cycle/360) x rate of interest)? |
|Q8.?If a small business tries to cut its cash conversion cycle by reducing its inventory conversion period, what is a likely result? |
a. The cash conversion cycle will not be affected?
|Q9.?When is a business more likely to choose a "tight" or restricted working capital policy? |
a. When interest rates are high?
|Q10.?If a company pays its suppliers very late, the suppliers are not likely to be sympathetic because |
a. They don't believe in special orders
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