Question

​(Percent of sales forecasting​) Which of the following accounts would most likely vary directly with the level of a​ firm's sales? Discuss each briefly. Yes No Yes No Cash ​____ ​____ Notes payable ​____ ​____ Marketable securities ​____ ​____ Plant and equipment ​____ ​____ Accounts payable ​____ ​____ Inventories ​____ ​____ Is cash likely to vary directly with the level of a​ firm's sales?  ​(Select the best choice​ below.) A. ​Yes, cash receipts vary directly with sales and have a relation to the​ firm's customers payment habits or the​ firm's policy regarding payments on its accounts payable. B. ​No, cash receipts follow sales with a lag related to the payment habits of the​ firm's customers and the​ firm's policy regarding payments on its accounts payable. Are marketable securities likely to vary directly with the level of a​ firm's sales?  ​(Select the best choice​ below.) A. ​No, marketable securities are not related to sales. B. ​Yes, the value of marketable securities varies directly with sales. Is accounts payable likely to vary directly with the level of a​ firm's sales?  ​(Select the best choice​ below.) A. ​No, accounts payable will not vary directly with sales. B. ​Yes, accounts payable will vary directly with sales. Is notes payable likely to vary directly with the level of a​ firm's sales?  ​(Select the best choice​ below.) A. ​No, notes payable will only follow sales if the firms uses a line of credit to finance its working capital needs. B. ​Yes, notes payable is likely to vary directly with sales. Is plant and equipment likely to vary directly with the level of a​ firm's sales?  ​(Select the best choice​ below.) A. ​Yes, plant and equipment is likely to vary directly with the level of sales. B. ​No, plant and equipment is not likely to vary directly with the level of sales. Are inventories likely to vary directly with the level of a​ firm's sales?  ​(Select the best choice​ below.) A. ​No, inventories are not likely to vary directly with the level of sales. B. ​Yes, inventories are likely to vary directly with the level of sales.

Answer 1

Cash-Yes

Notes payable- No

marketable securities- No

Plant and equipment- No

Accounts payable- Yes

Inventory- Yes

1: A. ​Yes, cash receipts vary directly with sales and have a relation to the​ firm's customers payment habits or the​ firm's policy regarding payments on its accounts payable.

The cash levels will change depending upon the amount of sales since customers would pay certain amount of cash for the purchases that they have made.

2: No, marketable securities are not related to sales.

These are short-term investments and hence not related to the sales.

3: B. ​Yes, accounts payable will vary directly with sales

Generally a substantial amount of sales are made on credit and hence accounts payable levels will vary depending upon sales

4: A. ​No, notes payable will only follow sales if the firms uses a line of credit to finance its working capital needs.

Sales made on credit are made through accounts payable and not notes payable in the ordinary course of business.

5: B.​No, plant and equipment is not likely to vary directly with the level of sales.

Assuming that the plant and equipment has the capacity to sustain higher levels of sales, they will not vary directly with the level of sales since it is fixed investment.

6: B. ​Yes, inventories are likely to vary directly with the level of sales.

The level of inventory will change with the level of sales due to goods being sent out of premises to the customers.