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 […]
When a firm’s credit standards is relaxed ________. A) its sales is expected to decrease with corresponding increase in costs B) its costs is expected to decrease with corresponding decrease in sales C) its costs is expected to increase faster than sales if the standards are not relaxed D) its profit contribution from sales will […]
What is the firm’s additional profit contribution from sales under the proposed relaxation of credit standards? (See Table 14.5) A) $2,250 B) $6,750 C) $9,000 D) $69,000 ANSWER C
________ are established to evaluate a customer’s creditworthiness and to determine the minimum requirements for extending credit to a customer. A) Lines of credit B) Credit limits C) Collection agencies D) Credit standards ANSWER D
The key dimension of credit selection which analyzes the amount of assets an applicant has available for use in securing the credit is ________. A) capital B) collateral C) capacity D) conditions ANSWER B
Which of the following is one of the five C’s of credit? A) coordination B) cost C) character D) control ANSWER C
A credit applicant’s ________ reflects its ability to repay the requested credit. A) character B) capacity C) capital D) collateral ANSWER B
As credit standards are relaxed, sales are expected to increase and the investment in accounts receivable is expected to decrease. Indicate whether the statement is true or false ANSWER FALSE
