Management of Current Assets 7.

Means such assets can be easily and quickly converted

Name: into cash at a price close to its original purchase value
Write the letter of your answer on the space provided before a. Liquidity
each number. b. Risk
c. Maturity
1. Measures the amount of time, in days, it takes for a d. Return
company to turn its resources inputs into cash 8. Manoban Enterprise has Php 800,000 in excess cash that
a. Days sales outstanding it could invest in marketable securities. In order to buy
b. Cash conversion cycle and sell the securities, the firm will pay total transaction
c. Payables deferral period fees of 20,000. What minimum required yield would the
d. Cash budget securities have to return for the firm to hold them for
2. It is an estimation of the cash inflows and outflows for a
two months?
business over a specific period of time a. 18%
a. Optimal cash balance model b. 12%
b. Cash break-even chart c. 20%
c. Transaction motive d. 15%
d. Cash budget 9. These are inventories which are being moved or
3. It is necessary to assess whether or not a company has
transported from one location to another.
enough cash to operate a. Decoupling Inventories
a. Speculative motive b. Anticipation Stock
b. Contractual motive c. Pipeline Inventories
c. Cash budget d. Buffer Stocks
10. It includes those spent in placing an order, waiting for an
d. Cash break-even chart
order, inspection and receiving costs, setup costs, and
Leah Gotti Corp. Elsa Jean Corp.
Net Credit sales 50 M 60 M discounts lost.
COGS 15 M 40 M a. Ordering Cost
Ave. trade b. Carrying Cost
receivable 3M 3M c. Inventory Cost
Ave. Inventory 1M 1M d. Average Inventory
Ave. trade payable 2 M 2M 11. It is the point where the total ordering cost equals the
4. Determine the net cash cycle for Leah Gotti Corp. Use a total carrying cost.
360-day year. a. Economic Order Quantity
a. Negative net cash cycle of 6 days b. Reorder Point
b. Positive net cash cycle of 6 days c. Point of View
c. Negative net cash cycle of 2 days d. Boiling Point
d. Positive net cash cycle of 2 days 12. In 2018, UWU Company incurred a total of P800,000 for
inventory carrying costs with an average inventory of
5. Which of the following is a correct journal entry to record 200,000 units. What would be the total carrying costs in
the purchase of marketable securities? 2019 if the order size is 500,000 units assuming the
a. Dr. Cash & Cr. Marketable Securities company does not maintain safety stock quantity?
b. Dr. Marketable Securities & Cr. Assets a. P800,000
c. Dr. Marketable Securities & Cr. Cash b. P1,000,000
d. Dr. Marketable Securities & Cr. Accounts Receivable c. P2,000,000
6. Which of the following cannot be an example of d. P0
marketable securities?
a. Treasury bills 13. The following are the responsibilities of a financial officer,
b. Cash at bank except one:
c. Commercial paper a. To evaluate the pertinent benefits and costs related
d. Certificate of deposit to credit extension
 b. To finance the investment of the firms in accounts  Increase the ratio of cash sales to total sales from
receivable 20% to 30%
c. Execute the firm’s chosen credit policy  Decrease total sales by 10%
d. None of the above 18. What credit policy will James Moriarty implement?
14. The criteria that determine which customer will be a. Relaxation of credit standards
granted and how much b. Lengthening of credit period
a. Credit standards c. Intensified collection efforts
b. Credit policies d. Imposing strict credit standards
c. Credit evaluation 19. What is the impact of proposed credit policy on the
d. Five C’s of credit company’s accounts receivable turnover? (assume
15. It involves the length of credit period and discount given projected sales is 40M and 360-day year)
(e.g. 2/10, net 30). a. Decrease by 7.2
a. Credit days b. Increase by 4.8
b. Credit terms c. Decrease by 20 days
c. Credit policies d. Increase by 12
d. Credit, Kupit 20. John Hamish Watson has the following data:
16. The relaxation of credit standards will result to the Selling price/unit P70
following cost, which one is not? Variable cost/unit P45
a. Increase in credit processing costs Annual credit sales/unit 50,400
b. Increase in collection costs Collection period 30 days
c. Higher defaults costs Rate of return 20%
d. Lesser profit
17. Sherlock Holmes has an inventory conversion period of John Hamish Watson is considering easing its credit
60 days, a receivable conversion period of 30 days, and a standards. If it does, sales will increase by 25%; collection
payable payment period of 45 days. Sherlock’s variable period will increase to 45 days; bad debts losses are
cost ratio is 60 percent and annual fixed costs of anticipated to be 4% of the incremental sales; and
P600,000. The current cost of capital for Sherlock is 12%. collection costs will increase by P31,645.
If Sherlock’s annual sales are P3,375,000 and all sales are
on credit, what is the firm’s carrying cost on account If the proposed relaxation in credit standards is
receivable, using 360-day year? implemented, the net benefit (loss) for John Hamish
a. P281,250 Watson is
b. P168,750 a. P215,000
c. P20,250 b. P315,000
d. P33,750 c. (P33,075)
d. (P100,000)

For questions 18 and 19:

James Moriarty is making a cunning plan to change its
credit policy against Sherlock. The proposed change is
expected to:
 Shorten the collection period from 50 days to 30
days