Which of the following is true of a credit applicant’s character? A) It reflects a credit applicant’s ability to repay his debt obligation. B) It reflects a credit applicant’s past payment history. C) It reflects the level of liquid assets available with a credit applicant. D) It reflects any unique conditions surrounding a credit applicant’s […]
If a firm increases its cash discount period, the firm’s investment in accounts receivable due to non-discount takers now paying earlier is expected to decrease. Indicate whether the statement is true or false ANSWER TRUE
As credit standards are relaxed, sales are expected to ________ and the investment in accounts receivable is expected to ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase ANSWER A
If a firm increases its cash discount period the firm’s investment in accounts receivable, due to discount takers still getting cash discounts but paying later, is expected to increase. Indicate whether the statement is true or false ANSWER TRUE
As credit standards are tightened, sales are expected to ________ and the investment in accounts receivable is expected to ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase ANSWER C
If a firm’s credit period is decreased, the sales volume, the investment in accounts receivable, and the bad debt expenses can be expected to increase. Indicate whether the statement is true or false ANSWER FALSE
Which of the following major variables should be considered when evaluating proposed changes in credit standards? A) level of inventories B) accounts payable C) level of liquid assets D) bad debt expenses ANSWER D
When a firm initiates or increases a cash discount, the net effect on the accounts receivable investment is difficult to determine because the nondiscount takers paying earlier will reduce the accounts receivable investment, while the new customer accounts will increase this investment. Indicate whether the statement is true or false ANSWER TRUE
An applicant’s capacity to repay its requested credit can be found by ________. A) analyzing financial statements B) checking bank account balances C) analyzing tax payment history D) checking the covenants ANSWER A
A firm is analyzing a relaxation of credit standards that is expected to increase sales 10 percent. The firm is currently selling 400 units at an average sale price per unit of $575, and the variable cost per unit is $400 at the current sales volume. The average cost per unit is $425. What is […]
