410_Ch_22_Test_Bank

410_Ch_22_Test_Bank - CHAPTER 22 Providing and Obtaining...

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CHAPTER 22 Providing and Obtaining Credit (Difficulty: E = Easy, M = Medium, and T = Tough) True-False Medium: (22.2) Credit period Answer: b Diff: M 1 . The credit period is the amount of time it takes to do a credit search on a potential customer. a. True b. False (22.2) Credit standards Answer: b Diff: M 2 . Credit standards refer to the financial strength and importance of a potential customer to the firm required in order to qualify for credit. a. True b. False (22.3) Collection policy Answer: b Diff: M 3 . The collection process, although sometimes difficult, is a fairly inexpensive component of doing business. a. True b. False (22.3) Collection policy Answer: a Diff: M 4 . The collection process, although sometimes difficult, is also expensive in terms of out-of-pocket expenses. a. True b. False (22.4) Cash discounts Answer: b Diff: M 5 . Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms. a. True b. False Chapter 22: Providing and Obtaining Credit Page 1
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(22.4) Cash discounts Answer: a Diff: M 6 . When deciding whether to offer a discount for cash payment, a firm must balance the profits from additional sales with the lost revenues from the discount. a. True b. False (22.6) Payments pattern approach Answer: a Diff: M 7 . The primary reason to monitor aggregate accounts receivable is to see if customers, on average, are paying more slowly. a. True b. False (22.6) Payments pattern approach Answer: b Diff: M 8 . DSO analysis of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales. a. True b. False (22.6) Payments pattern approach Answer: a Diff: M 9 . If sales are seasonal, the days sales outstanding will fluctuate from month to month, even if the amount of time customers take to pay remains unchanged. a. True b. False (22.6) Payments pattern approach Answer: b Diff: M 10 . The percentage aging schedule of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales. a. True b. False (22.6) Uncollected balances schedule Answer: a Diff: M Page 2 Chapter 22: Providing and Obtaining Credit
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11 . The uncollected balances schedule is constructed at the end of a quarter by dividing the dollar amount of remaining receivables from each month in that quarter by that month’s sales. a. True b. False Multiple Choice: Conceptual Medium: (22.1) Credit policy Answer: b Diff: M 12 . A firm’s credit policy consists of which of the following items? a. Credit period, cash discounts, credit standards, receivables monitoring. b. Credit period, cash discounts, credit standards, collection policy.
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410_Ch_22_Test_Bank - CHAPTER 22 Providing and Obtaining...

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