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Free CMA Exam Braindumps (page: 189)

Page 189 of 336
PDF with 1336 Questions
View Related Case Study

During the year, Mason Compass current assets increased by $120, current liabilities decreased by $50, and net working capital

  1. Increased by $70.
  2. Did not change.
  3. Decreased by $170.
  4. Increased by $170.

Answer(s): D

Explanation:

Net working capital is the excess of current assets over current liabilities. An increase in current assets oar decrease in current liabilities increases working capital. Thus, networking capital increased by $170 ($120 + $50).



View Related Case Study

MEC Corporation has 100,000 shares of stock outstanding. Below is part of Mac's Statement of Financial Position for the last fiscal year.


What is the maximum amount MEC can pay in cash dividends per share and maintain a minimum current ratio of 2 to 1? Assume that all accounts other than cash remain unchanged.

  1. $2.0
  2. $2.50
  3. $3.35
  4. $3.80

Answer(s): B

Explanation:

Before the dividend, total current assets equal $2050, 000 ($455,000 cash + $900,000 receivables + $650,000 inventory + $45,000 prepaid assets). Current liabilities total $900000 ($285,000 accrued liabilities + $550,000 accounts payable + $65,000 current portion of long-term debt). The payment of the cash dividend will not change current liabilities, so a current ratio of 2 to 1 requires that current assets be maintained at a minimum of $1,800,000 (2 x $900,000). Thus, cash can decrease by $250,000 ($2,050,000 -- $1,800,000). The maximum per-share rate is $2.50 ($250,000 + 100,000 shares).



View Related Case Study

Speech Co.'s budgeted sales and budgeted cost of sales for the coming year are $212,000,000 and $132,500,000, respectively. Short-term interest rates are expected to average 5%. If Speech could increase inventory turnover from its current 8.0 times permeate 10.0 times per year, its expected cost savings in the current year would be

  1. $165,625
  2. $0
  3. $3,312,500
  4. $828,125

Answer(s): A

Explanation:

If cost of sales is $132,500,000, and the inventory turnover rate is 8.0 times per year, the average inventory is $16,562,500 ($132,500,000 ÷ 8). If the turnover increases to 10.0 times annually, the average inventory will decline to $13,250,000 ($132,500,000 ÷ 10), a decrease of $3,312,500. At a 5% rate, reducing working capital by $3,312,500 will save the company $165,625 ($3,312,500 x .05).



View Related Case Study

A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction in the investment in accounts receivable, and a reduction in the number of doubtful accounts. Based upon this information, we know that

  1. Net profit has increased.
  2. The average collection period has decreased.
  3. Gross profit has declined.
  4. The size of the discount offered has decreased.

Answer(s): B

Explanation:

An increase in discounts taken accompanied by declines in receivables balances and doubtful accounts all indicate that collections on the increased sales have been accelerated. Accordingly, the average collection period must have declined. The average collection period is a ratio calculated by dividing the number of days in a year (365) by the receivable turnover. Thus, the higher the turnover, the shorter the average collection period. The turnover increases when either sales (the numerator) increase, or receivables (the denominator) decrease. Accomplishing both higher sales and lower receivables increases the turnover and results in a shorter collection period.



Page 189 of 336



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