Credit Scoring Policy Jia’s Jewelry uses the credit scoring technique to evaluate retail applications. The financial and credit characteristics considered and weights indicating their relative importance in the credit decision are shown above. The firm’s credit standards are to accept all applicants with credit scores of 85 or more, to extend limited credit to applicants […]
Maggie’s Gold Coins, Inc is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection period will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is […]
If the level of bad debt attributable to credit policy is relatively constant, increasing collection expenditures can be expected to reduce bad debts. Indicate whether the statement is true or false ANSWER TRUE
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
