Chapter 13 Dividend Policy and Internal Financing

13) Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale.

Cash Sales Credit Sales

January $50,000 $50,000

February $70,000 $110,000

March $55,000 $95,000

April $78,000 $130,000

May $80,000 $105,000

June $75,000 $148,000

What are Matterhorn's total cash receipts for the month of April?

A) $208,000

B) $176,000

C) $168,000

D) $98,000

14) Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale.

Cash Sales Credit Sales

January $50,000 $50,000

February $70,000 $110,000

March $55,000 $95,000

April $78,000 $130,000

May $80,000 $105,000

June $75,000 $148,000

What are Matterhorn's total cash receipts for the month of May?

A) $185,000

B) $199,000

C) $119,000

D) $176,000

15) Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale.

Cash Sales Credit Sales

January $50,000 $50,000

February $70,000 $110,000

March $55,000 $95,000

April $78,000 $130,000

May $80,000 $105,000

June $75,000 $148,000

What are Matterhorn's total cash receipts for the month of June?

A) $120,400

B) $147,000

C) $195,400

D) $213,000

16) ABC Corporation began operations on January 1st of this year with a cash balance of $250,000. ABC had sales of $200,000 for the month of January, all on credit. ABC allows its customers 30 days to pay. ABC's expenses for January equal $150,000, and ABC's ending balance in accounts payable at January 31st is $50,000. In its cash budget for January, ABC's ending cash balance should be equal to

A) $300,000 because of GAAP accrual accounting rules.

B) $150,000.

C) $200,000.

D) $100,000.

17) Plimpton Sales presents income statements for the first three months of this year. Revenues are $1,000,000 in January, $1,200,000 in February, and $1,400,000 in March, while expenses total $800,000 in January, $900,000 February, and $1,000,000 in March. Despite the positive net income, the controller believes Plimpton Sales needs to arrange short-term financing of $300,000 to make payroll the next month. Which of the following statements is MOST correct?

A) The controller must have made a mistake since the company's net income for the three months is $900,000.

B) The company's accounts receivable balance has decreased over the past three months.

C) The company's accounts payable balance has increased over the past three months.

D) The company's accounts receivable balance has increased and the accounts payable balance has decreased over the past three months.

18) Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

A) If net income is positive for 3 or more months in a row, then cash flow must be positive.

B) If net income is positive, then cash flow must be positive.

C) If net income is positive, then cash flow could be positive or negative, but if net income is negative, cash flow must also be negative.

D) Cash flow could be positive whether net income is positive or negative.

19) CraftCo, Inc.' projected sales for the first six months of 2012 are given below:

Jan. $500,000 April $490,000

Feb. $740,000 May $740,000

Mar. $380,000 June $610,000

40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.' total cash receipts for April 2010?

A) $460,000

B) $490,000

C) $524,000

D) $560,000

20) CraftCo, Inc.'s projected sales for the first six months of 2012 are given below:

Jan. $500,000 April $490,000

Feb. $740,000 May $740,000

Mar. $380,000 June $610,000

40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012 Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.'s total cash disbursements for April 2012?

A) $294,000

B) $334,000

C) $374,000

D) $414,000

21) CraftCo, Inc.' projected sales for the first six months of 2012 are given below:

Jan. $500,000 April $490,000

Feb. $740,000 May $740,000

Mar. $380,000 June $610,000

40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.' projected cash balance at the end of March 2012?

A) $301,000

B) $329,000

C) $352,000

D) $361,000

22) CraftCo, Inc.' projected sales for the first six months of 2012 are given below:

Jan. $500,000 April $490,000

Feb. $740,000 May $740,000

Mar. $380,000 June $610,000

40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.' earnings before interest and taxes for April 2012?

A) $156,000

B) $142,000

C) $133,000

D) $ 93,000

23) A firm's cash position would most likely be helped by

A) delaying payment of accounts payable.

B) more liberal credit policies for their customers.

C) purchasing land for investment purposes.

D) holding larger inventories.

24) A firm's cash position would most likely be hurt by

A) decreasing excess inventory.

B) establishing stricter (shorter) credit terms.

C) retiring outstanding debt.

D) increasing the net profit margin.