Answers to End-of-Chapter Questions

1484 Words Dec 5th, 2010 6 Pages
ANSWERS TO END-OF-CHAPTER QUESTIONS

14-2 The two principal reasons for holding cash are for transac¬tions and compensating balances. The target cash balance is not equal to the sum of the holdings for each reason because the same money can often partially satisfy both motives.

14-4 The four elements in a firm’s credit policy are (1) credit standards,
(2) credit period, (3) discount policy, and (4) collection policy. The firm is not required to accept the credit policies employed by its competition, but the optimal credit policy cannot be determined without considering com¬petitors’ credit policies. A firm’s credit policy has an important influence on its volume of sales, and thus on its profitability.

14-10 People or firms
…show more content…
Collections and Payments:

May June July August September October November December January
Sales $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $ 90,000 $180,000

Collections: 1st month 18,000 18,000 36,000 54,000 72,000 36,000 36,000 9,000 2nd month 0 135,000 135,000 270,000 405,000 540,000 270,000 270,000 3rd month 0 0 27,000 27,000 54,000 81,000 108,000 54,000
Total collections $198,000 $351,000 $531,000 $657,000 $414,000 $333,000

Purchases 90,000 90,000 126,000 882,000 306,000 234,000 162,000 90,000

Payments
(1-mo. lag) 90,000 90,000 126,000 882,000 306,000 234,000 162,000

II. Gain or Loss for Month:

July August September October November December
Receipts:
Collections $198,000 $351,000 $531,000 $657,000 $414,000 $333,000

Payments: Labor and raw materials 90,000 126,000 882,000 306,000 234,000 162,000 Administrative salaries 27,000 27,000 27,000 27,000 27,000 27,000 Lease payment 9,000 9,000 9,000 9,000 9,000 9,000 Misc. expenses 2,700 2,700 2,700 2,700 2,700 2,700 Income
Open Document