Indicate the effect that the following will have on the operating

Chapter 26, Questions 3, 5, 8, 11

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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.  Receivables average goes up.

  b.  Credit repayment times for customers are increased.

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  c.  Inventory turnover goes from 3 times to 6 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.



The Litzenberger Company has projected the following quarterly sales amounts for the coming year:

Q1                   Q2                   Q3                   Q4

Sales               $740                $810                $780                $940


  a. Accounts receivable at the beginning of the year are $310. Litzenberger has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:

Q1       Q2       Q3       Q4

Beginning receivables


Cash collections

Ending receivables


  b.  Rework (a) assuming a collection period of 60 days.

  c.  Rework (a) assuming a collection period of 30 days.


The Thakor Corporation’s purchases from suppliers in a quarter are equal to 75 percent of the next quarter’s forecast sales. The payables period is 60 days. Wages, taxes, and other expenses are 20 percent of sales, and interest and dividends are $73 per quarter. No capital expenditures are planned.   Here are the projected quarterly sales:

Q1                   Q2                   Q3                   Q4

Sales                           $1,320             $1,490             $1,380             $1,190


 Sales for the first quarter of the following year are projected at $1,450. Calculate the company’s cash outlays by completing the following:

                                                            Q1       Q2       Q3       Q4

Payment of accounts

Wages, taxes, and other expenses

Long-term financing expenses

 (interest and dividends)














Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount:


      Balance Sheet

2011                            2012


Cash                                                                                       $  48,180                                 $   45,815

Accounts receivable                                                               100,155                                      105,413

Inventories                                                                               83,600                                       89,716

Property, plant, and equipment                                                          225,992                       249,086

 Less:  Accumulated depreciation                                          (77,194)                      (85,579)

Total assets                                                                             $380,733                     $404,451

Liabilities and Equity

Accounts payable                                                                   $  72,522                     $  50,396

Accrued expenses                                                                   10,980                         9,840

Long-term debt                                                                                   49,500                         45,000

Common stock                                                                                   25,000                         30,000

Accumulated retained earnings                                                           222,731                      269,215

Total liabilities and equity                                                     $380,733                     $404,451



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