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Answer Key For Working Capital

This document contains a theory test with multiple choice answers and sample accounting problems involving ratios, cash flows, receivables, and financial statement analysis. The problems calculate figures like current ratios, cash conversion periods, collection periods, savings from improved processes, and the effects of changes in accounts receivable policies on various financial metrics.

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lerryroyce
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180 views

Answer Key For Working Capital

This document contains a theory test with multiple choice answers and sample accounting problems involving ratios, cash flows, receivables, and financial statement analysis. The problems calculate figures like current ratios, cash conversion periods, collection periods, savings from improved processes, and the effects of changes in accounts receivable policies on various financial metrics.

Uploaded by

lerryroyce
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Theory

1.c
2.d
3.c
4.d
5.b

6.d
7.d
8.c
9.c
10.d

11.d
12.b
13.d
14.d
15.c

16.b
17.a
18.a
19 d
20.c

21.d
22.c
23.d
24.c
25.c

26.a
27.b
28.b
29.c
30.d

31.d

Problems:
1. A
Current Ratio = Current Assets/Current Liabilities
2 = Current Assets/ 400,000
Current Assets = Php 800,000
Current Ratio cannot be lower than 1.00 therefore the current liabilities can amount up to Php 800,000. Franz can secure a
liability amounting to Php 400,000 (800,000-400,000)
2. D.
Solution:
Php 320,000 (total assets) 260,000 (fixed assets)= 60,000 (current assets)
Long term financing = 260,000 +60,000
3. D
Solution:
Restristed
Current Assets
(400,000*.15)
(400,000*.25)
Fixed Assets
Total Assets

Relaxed

60,000
100,000
160,000

100,000
100,000
200,000

Debt (50% of TA)


Equity (50% of TA)
Total Debt and Equity

80,000
80,000
160,000

100,000
100,000
200,000

EBIT
Interest Rate
(.10*80,000)
(.10*100,000)
EBT
Tax (40%)
Net Income

36,000

36,000

(8,000)
28,000
(9,600)
16,800

(10,000)
26,000
(10,400)
15,600

Divide by Equity
Return to Equity

80,000
21%

80,000
15.6%

Difference (21%-15.6%) =5.4%


4. B
Solution:
Inventory Period = July 1 Sept 30 Average Collection Period =Oct 31 to Nov. 30 Deferral Period
= July 1 July 20
Cash Conversion Period

91 days
61 days
(19 days)
133 days

5. D
Solution:
Disbursement Float - (15,000 X 5)
Collection Float (17,000 x 3)
Net Float

75,000
(51,000)
24,000

6. D
Solution:
10 DAYS + 30 DAYS +40 DAYS / 3 = 26.67 days
7. A
8. A
Solution:
20,916.20 x 10% = 2,091.65
9. C
Solution:
Average collection period of CMR without central collection system (5+4+1.5) = 10.5 days
Average collection period of CMR with central collection system (3+1)
=4.0 days
Difference
6.5 days
Multiply by average daily collection
100,000
Increase in average cash balance
650,000
10. D
Solution:
Cost of Checks per day (200 x 500) =
Multiply by (reduction in processing time 2+.5)

Php100,000
2.5

Total
Multiply by annual interest rate
Annual Savings

Php 250,000
x
.06
Php 15, 000

11. B
Solution:
Daily Cash Receipts
Multiply by reduction in days
Savings
Multiply by money market rate
Interest Income
Less: Monthly fee (2500x12)
Additional Income (Loss)

Php 150,000
x
4
600,000
x
.04
24,000
(30,000)
(6,000)

12. B.
Solution:
Cost of daily payments ( 325 x 1,250)
Php406,250
Multiply: Saving in mailing and processing time (1.3 +0.9)
x 2.2 days
Total Gross Savings per day
893,750
Multiply by: daily interest rate
.021%
Total Daily Income
Php187.6875
Multiply by: Processing days in a year
x 250 days
Total Gross Annual Savings
Php46, 921.88
Less Annual Bank Charges: (.30*325*250)
(24,375.00)
Net Annual Savings
22,546.88
13. D
Solution:
Savings = 17,000 x 1 day = 17,000 x .14 = 2,380
14. A
15. C
16. D
Solution:
AR Turnover

Average Receivable

New
=360/50
=7.2 times

=(60M x .95)/7.2
=7,916,666.67
Difference = (14,583,333.33 7,916,666.67)
= 6,666,666.67 (decrease)

Old
=360/75
=4.8 times
=70M/4.8
= 14,583,333.33

17. D
Solution:
AR Turnover

Accounts Receivable

Old
=360/30
= 12 times

New
=360/45
= 8 times

=76,800,000/12
= 6,400,000

= (76,800,000x1.30)/8
= 12,480,000

Difference =12,840,000 6400,000 = 6,080,000


18. C
Solution:
Sales
Cost of sales
Gross Profit
Collection Costs
Uncollectible Expense
Net income before tax
Income Tax
Net Income after tax

1,000,000
700,000
300,000
50,000
150,000
100,000
35,000
65,000

19. B
Solution:
10% slow payers
.22 (.10) + .05(.90)
= .022+.045
=.067 x 3000 accounts = 201 accounts
20. C

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