Davis Construction Company has not been doing very well lately. The controller is looking over the invoices for bills that need paid this week, and realizes the company is approximately $7,000 short. The only account with excess cash is mandated to be only for cases of workers' compensation. Can the controller pull the money from that account? No, that is a short-term investment account, and the money cannot be converted into cash that quickly. O Yes, it is a cash equivalent account, which can be used to supply the money for the bills as long as the money is replaced within the month. O No, that is restricted cash and the money cannot be taken out to cover other expenses. O Yes, it is restricted cash, but as long as the money is replaced within a month of being taken out, it will balance out fine.

Davis Construction Company has not been doing very well lately. The controller is looking over the invoices for bills that need paid this week, and realizes the company is approximately $7,000 short. The only account with excess cash is mandated to be only for cases of workers' compensation. Can the controller pull the money from that account? No, that is a short-term investment account, and the money cannot be converted into cash that quickly. O Yes, it is a cash equivalent account, which can be used to supply the money for the bills as long as the money is replaced within the month. O No, that is restricted cash and the money cannot be taken out to cover other expenses. O Yes, it is restricted cash, but as long as the money is replaced within a month of being taken out, it will balance out fine.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

Davis Construction Company has not been doing very well lately. The controller is looking over the invoices for bills that need to be
paid this week, and realizes the company is approximately $7,000 short. The only account with excess cash is mandated to be used
only for cases of workers' compensation. Can the controller pull the money from that account?
O No, that is a short-term investment account, and the money cannot be converted into cash that quickly.
O Yes, it is a cash equivalent account, which can be used to supply the money for the bills as long as the money is replaced
within the month.
O No, that is restricted cash and the money cannot be taken out to cover other expenses.
O Yes, it is restricted cash, but as long as the money is replaced within a month of being taken out, it will balance out fine.

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