IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 861:

  Jackson Distributors sells to retail stores on credit terms of 2/10, net 30. Daily sales average 150 unit's ate price of $300 each. Assuming that all sales are on credit and 60% of customers take the discount and pay on day 10 while the rest of the customers pay on day 30, the amount of Jackson's accounts receivable is

  A. $1,350,000

  B. $990,000

  C. $900,000

  D. $810,000

  Correct Answer: D

  The firm has daily sales of $45,000 consisting of 150 units at $300 each. Eon 30 days, sales total $1 350,000. Fortis percent of these sales, or $540,000, will be uncollected because customers do not take their discounts. The remaining 60%, or $810,000, will be paid within the discount period. However, by the end of 30 days, only 2/3 of the $810,000 will be collected because the sales from days 21 through 30 are still within the discount period. Therefore, an additional $270,000 ($810,000--$540,000) will still be uncollected after the 30th day, but will be subject to a discount. In total, the average receivable balance is $810,000, consisting of $540,000 on which no discount will be taken and $270,000 that will be paid within the discount period.

• Question 862:

  The sales manager at Ryan Company feels confident that, lithe credit policy at Ryan's were changed, sales would increase and, consequently, the company would utilize excess capacity. The two credit proposals being considered are as follows: Currently, payment terms are net 30. The proposed payment terms for Proposal A and Proposal B are net 45 and net 90, respectively. An analysis to compare these two proposals forth change in credit policy would include all of the following factors except the

  

  A. Cost of funds for Ryan.

  B. Current bad debt experience.

  C. Impact on the current customer base of extending terms to only certain customers.

  D. Bank loan covenants on days' sales outstanding.

  Correct Answer: B

  All factors should be considered that differ between the two policies. Enactors that do not differ, such as the current bad debt experience, are not relevant. Ryan must estimate the expected bad debt losses under each new policy.

• Question 863:

  Obligations issued by federal agencies other than the U.S. Treasury Department are

  A. Guaranteed by the U.S. government but not by the agency issuing the security.

  B. Guaranteed neither by the agency issuing the security nor by the U.S. government.

  C. Guaranteed by the agency issuing the security but not by the U.S. government.

  D. Not easily marketed.

  Correct Answer: C

  Obligations issued by the Treasury Department are insured by the full faith and credit of the U.S. government. However, obligations of other federal agencies (agency securities) are guaranteed only by the issuing agency, not the federal government. Exceptions are securities issued by the Government National Mortgage Association (Ginny Mae), which have the full backing of the U.S. government.

• Question 864:

  Cutler Publishing is considering a change in its credit terms from n/20 to 3/10, n/20. The company's budgeted sales for the coming year are $20,000,000, of which 80% are expected to be made on credit. If the new credit terms are adopted, Cutler management estimates that discounts will be taken on 60% of the credit sales; however, uncollectible accounts will be unchanged. The new credit terms will result in expected discounts taken in the coming year of

  A. $288,000

  B. $480,000

  C. $360,000

  D. $600,000

  Correct Answer: A

  If 80% of the $20,000,000 of sales are on credit, $16,000,000 of sales will be subject to the discount. If discounts are taken on 60% of credit sales, the expected discount will be $288,000 [($16,000,000 x 60%) x3%

• Question 865:

  FLE Corporation had income before taxes of $50000. Included in the calculation of this amount was depreciation of $6,000, a charge of $7,000 for the amortization of bond discounts, and $5,000 for interest paid. The estimated pretax cash flow for the period is

  A. $50000

  B. $57,000

  C. $37000

  D. $63000

  Correct Answer: D

  To determine cash flow for the period, all noncash expenses should be added to income. Adding the $6,000 of depreciation and the $7,000 of discount amortization to $50,000 of income produces a pretax cash flow of $63,000. Interest is not added back to income because it requires a cash payment,

• Question 866:

  Randy, Inc. can issue 3-month commercial paper with a face value of $1, 500,000 for $1 ,450,000. Transaction costs will be $1,500. The effective annualized percentage cost of the financing, based on a 360-day year, will be

  A. 345%

  B. 3.56%

  0. 14.22%

  C. 13.79%

  Correct Answer: C

  The total cost to the company will be $51,500 ($50000 discount+ $1,500 of transaction costs), and the net amount available will be $1,448,500. The annualized amount of the costs is $206,000 ($51,500 x 4). Accordingly, the annual interest cost will be 14.22% ($206,000 + $1,448,500).

• Question 867:

  All of the following are examples of imputed costs except

  A. The stated interest paid on a bank loan.

  B. The use of the firm's internal cash funds to purchase assets.

  C. Assets that are considered obsolete that maintain a net book value.

  D. Decelerated depreciation.

  Correct Answer: A

  An imputed cost is one that has to be estimated. Its a cost that exists but is not formally recognized in the accounting system and is the result of a process designed to recognize economic reality. An imputed cost is therefore relevant to the decision-making process. For example, the stated interest on a bank loan is not an imputed cost because it is specifically stated and requires a dollar outlay. But the cost of using retained earnings as a source of capital is unstated and has to be imputed.

• Question 868:

  Corbin, Inc. can issue 3-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs will be $1, 200. The effective annualized percentage cost of the financing, based on a 360-day year, will be

  A. 8.16%.

  B. 8.66%.

  C. 8.00%.

  D. 2.00%.

  Correct Answer: B

  The total cost to the company will be $21 .200 ($20,000 discount + $1 .200 transaction cost), and the net amount available will be $978,800. The annualized amount of the costs is $84,800 (4 x $21,200). Accordingly, the annual interest cost will be and66% 84,800_- $978,800).

• Question 869:

  Which security is most often held as a substitute for cash?

  A. Treasury bills.

  B. Common stock.

  C. Gold.

  D. Aar corporate bonds.

  Correct Answer: A

  A treasury bill is a short-term U.S. government obligation that is sold at a di count from its face value. A treasury bill is highly liquid and nearly risk-free, and it is often held as a substitute for cash.

• Question 870:

  Gars Company, a retail store, is considering forgoing sales discounts to delay using its cash. Supplier credit terms are 2/10, net 30. Assuming a 360-dayyear, what is the annual cost of credit if the cash discount is not taken and Gary pays net 30?

  A. 24.0%

  B. 24.5%

  C. 36.0%

  D. 36.7%

  Correct Answer: D

  On a $1 .000 invoice, the company could save $20 by paying within the discount period. Thus, hand immediate payment of $980 would save the company $20, and the interest rate charged for holding $980 an I additional 20 days (30-- 10) is 2.04% ($20 + $980). Because the number of 20-day periods in a year is 18 (360 + 20), [he annual rate is 36.7% (18 x 2.04%).