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Free CMA Exam Braindumps (page: 130)

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The one item listed below that would warrant the least amount of consideration in credit and collection policy decisions is the

  1. Quality of accounts accepted.
  2. Quantity discount given.
  3. Cash discount given.
  4. Level of collection expenditures.

Answer(s): B

Explanation:

A quantity discount is an attempt to increase sales by reducing the unit price on bulk purchases. It concerns only the price term of an agreement, not the credit term, and thus is unrelated to credit and collection policy.



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If the average age of inventory is 90 days, the average age of accounts payable is 60 days, and the average age of accounts receivable is 65 days, the number of days in the cash flow cycle is

  1. 2l5 days
  2. 150 days.
  3. 95 days.
  4. 85 days

Answer(s): C

Explanation:

The cash flow cycle begins when the firm pays for merchandise it has purchased and ends when it receives cash from the sale of the merchandise. Inventory is held for an average of 90 days prior to sale, but the average age of accounts payable is 60 days. Therefore, the average time between outlay and sale is 30 days. Receivables are collected an average of 65 days after sale. Thus, the length of the cash flow cycle is 95 days (30 +
65)



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Clay Corporation follows an aggressive financing policy in its working capital management while Los Corporation follows a conservative financing policy. Which one of the following statements is correct?

  1. Clay has a low ratio of short-term debt to total debt while Lott has a high ratio of short-term debt to total debt.
  2. Clay has a low current ratio while Lott has a high current ratio
  3. Clay has less liquidity risk while Lott has more liquidity risk.
  4. Clay's interest charges are lower than Lott's interest charges.

Answer(s): B

Explanation:

A conservative working capital management financing policy uses permanent capital to finance permanent asset requirements and also some or all of the firm's seasonal demands. Thus, Lott's current ratio (current assets/current liabilities) will be high since its current liabilities will be relatively low. An aggressive policy entails financing some fixed assets and all the current assets with short-term capital. This policy results in a lower current ratio.



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Short-term securities issued by the Federal Housing Administration are known as

  1. Agency securities
  2. Bankers' acceptances.
  3. Commercial paper
  4. Repurchase agreements.

Answer(s): A

Explanation:

A short-term secunt1t issued by a corporation or agency created by the U.S. government, such as the Federal Housing Administration, is an agency security (agency issue). Among the largest issuers of agency securities (excluding the Treasury) are the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the other entities that provide credit to farmers and home buyers. Other issuers of home mortgage- backed securities include the Government National Mortgage Association (Ginnie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).






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