08 Jun Question 3. Changes in the Operating Cycle
Question
3. Changes in the Operating Cycle. Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the letter N for no change.
a. Average receivables go up.
b. Credit payment times for customers are increased.
c. Inventory turnover goes from 3 times to 7 times.
d. Payables turnover goes from 6 times to 11 times.
e. Receivables turnover goes from 7 times to 9 times.
f. Payments to suppliers are accelerated.
LO 1 4. Changes in Cycles. Indicate the impact of the following on the cash and operating cycles, respectively. Use the letter Ito indicate an increase, the letter D for a decrease, and the letter N for no change.
a. The terms of cash discounts offered to customers are made less favorable.
b. The cash discounts offered by suppliers are increased; thus, payments are made earlier.
c. An increased number of customers begin to pay in cash instead of with credit.
d. Fewer raw materials than usual are purchased.
e. A greater percentage of raw material purchases are paid for with credit.
f. More finished goods are produced for inventory instead of for order.
LO 3 5. Calculating Cash Collections. The Bass Company has projected the following quarterly sales amounts for the coming year:
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a. Accounts receivable at the beginning of the year are $295. Bass has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:
b. Rework (a) assuming a collection period of 60 days.
c. Rework (a) assuming a collection period of 30 days.
LO 1 6. Calculating Cycles. Consider the following financial statement information for the Amaryliss Corporation:
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