Question 1

Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.

Accepted Answer

A)   cash
B)   purchase
C)   collection
D)   market
E)   receivablesF) D) and E)
G) All of the above

Question 2

The EOQ model is designed to minimize:

Accepted Answer

A)   production costs.
B)   inventory obsolescence.
C)   the carrying costs of inventory.
D)   the costs of replenishing inventory.
E)   the total costs of holding inventory.F) All of the above
G) A) and B)

Question 3

Which one of the following statements is correct?

Accepted Answer

A)   If the majority of a firm's new customers become repeat customers, then there is a strong argument against extending credit even if the default rate is low.
B)   A customer's past payment history reveals little information in relation to his or her future tendency to pay.
C)   A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase.
D)   The risk of issuing credit is the same for a new customer as it is for an existing customer.
E)   The recommended policy for new customers is to extend an offer of a high credit limit as an enticement to get their business.F) A) and D)
G) A) and E)

Question 4

If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:

Accepted Answer

A)   sales price of the item sold.
B)   variable cost of the item sold.
C)   fixed cost of the item sold.
D)   profit margin on the item sold.
E)   fixed and variable costs of the item sold.F) A) and B)
G) A) and C)

Question 5

You are an accounting intern and today you are compiling a spreadsheet with column headings of: Invoice number; Customer number;  90 days. You will list every unpaid invoice with the amount owed entered into the appropriate column based on the number of days between the sale date and today. Once you have completed that, you will sort the report by customer number and total the amounts listed in each column. What is this report called?

Accepted Answer

A)   Credit report
B)   Aging schedule
C)   Risk assessment report
D)   Turnover delineation
E)   Receivables consolidation reportF) A) and E)
G) None of the above

Question 6

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Accepted Answer

A)   decrease in the cash cycle.
B)   benefit from decreasing the inventory level.
C)   cash flows from increased sales.
D)   increase in bad debts.
E)   gain in net profits.F) A) and B)
G) A) and C)

Question 7

Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.

Accepted Answer

A)   October 12
B)   October 14
C)   October 22
D)   October 27
E)   November 12F) B) and C)
G) None of the above

Question 8

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Accepted Answer

A)   account document.
B)   sales draft.
C)   credit instrument.
D)   commercial paper.
E)   letter of debt.F) C) and D)
G) None of the above

Question 9

Which one of the following statements is correct?

Accepted Answer

A)   Firms may opt to refuse additional credit to a delinquent customer.
B)   Seasonal sales have little, if any, impact on aging schedule percentages.
C)   Normally, firms call their delinquent customers prior to sending them a past due letter.
D)   If a firm wishes to sell a delinquent receivable, it must do so prior to the customer filing for bankruptcy.
E)   Expected decreases in the average collection period are a cause of concern.F) A) and B)
G) B) and E)

Question 10

Which two of the following are the key elements in determining the break-even default rate on a credit policy?

Accepted Answer

A)   Credit price and cash price assuming a zero default rate
B)   Required rate of return and percentage discount for cash customers
C)   Variable cost per unit and required rate of return
D)   Sales price and variable cost per unit for credit customers
E)   Credit price and discount rate for cash customersF) All of the above
G) B) and C)

Question 11

Under its current cash sales only policy, JJ's sells 186 units a month at a price of $330 each. The variable cost per unit is $155 and the monthly interest rate is 1.3 percent. The firm believes it can sell an additional 25 units per month if it offers a net 30 credit policy. What is the present value of the switch using the one-shot approach?

Accepted Answer

A)   $312,806
B)   $291,543
C)   $271,283
D)   $288,946
E)   $311,118F) A) and D)
G) All of the above

Question 12

You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?

Accepted Answer

A)   1/5, net 15
B)   2/5, net 30
C)   2/5, net 20
D)   1/10, net 45
E)   2/10, net 30F) None of the above
G) A) and E)

Exam 20: Credit and Inventory Management

Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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Correct Answer
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You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?

Correct Answer
verified

If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:

Correct Answer
verified

Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.

Correct Answer
verified

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Correct Answer
verified

Which two of the following are the key elements in determining the break-even default rate on a credit policy?

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct Answer
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Correct Answer
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The EOQ model is designed to minimize:

Correct Answer
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Exam 20: Credit and Inventory Management

Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?

Correct AnswerverifiedShow Answer

If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:

Correct AnswerverifiedShow Answer

Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.

Correct AnswerverifiedShow Answer

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Correct AnswerverifiedShow Answer

Which two of the following are the key elements in determining the break-even default rate on a credit policy?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The EOQ model is designed to minimize:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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