Question 1

There is a saying in banking that when a business is experiencing financial problems, trade creditors are the first to know. Why would this be true?

Accepted Answer

A)   Trade creditors perform credit checks less often than do banks.
B)   Trade creditors get all of their information about credit risks from banks.
C)   Trade creditors can easily repossess the merchandise sold if the borrower refuses to pay.
D)   Trade credit is usually extended only to the most creditworthy of businesses, while banks will make short-term loans to almost any business.
E)   Trade credit is typically of shorter maturity, and offered more frequently, than other types of credit such as bank loans.F) C) and E)
G) A) and D)

Question 2

Which one of the following factors tends to favour longer credit periods?

Accepted Answer

A)   High consumer demand.
B)   Lower priced merchandise.
C)   Increased credit risk.
D)   Merchandise with low collateral value.
E)   Increased competition.F) B) and E)
G) A) and E)

Question 3

The _______ date marks the beginning of the credit period.

Accepted Answer

A)   Cash.
B)   Invoice.
C)   Discount.
D)   Net payment.
E)   Due.F) A) and D)
G) C) and D)

Question 4

Provide a definition for collection policy.

Accepted Answer

Procedures followed ...

Question 5

Your supplier grants you credit terms of 2/10, net 35. What is the effective annual rate of the discount if you purchase $2,900 worth of merchandise?

Accepted Answer

A)   23.5 percent
B)   27.7 percent
C)   28.8 percent
D)   33.5 percent
E)   34.3 percentF) C) and E)
G) C) and D)

Question 6

What is the effective annual rate of credit terms of 2/20, net 45?

Accepted Answer

A)   32.31%
B)   34.31%
C)   36.31%
D)   38.31%
E)   40.31%F) D) and E)
G) C) and E)

Question 7

The costs of setting up a production run or placing an order are called:

Accepted Answer

A)   Carrying costs.
B)   Restocking costs.
C)   JIT costs.
D)   EOQ costs.
E)   Derived demand costs.F) A) and E)
G) B) and C)

Question 8

Which one of the following would tend to increase the credit period?

Accepted Answer

A)   The product sold is perishable.
B)   The product sold is seasonal in nature.
C)   The buyer is considered a credit risk.
D)   The size of the customer's account is small.
E)   The buyer's inventory period is short.F) B) and C)
G) None of the above

Question 9

Default risk should be considered when deciding whether or not you should offer credit to customers.

Accepted Answer

A) True 
 B)False

Question 10

You just purchased $8,700 of goods from your supplier with credit terms of 3/10, net 30. What is the discounted price?

Accepted Answer

A)   $6,090
B)   $6,960
C)   $7,830
D)   $8,439
E)   $8,911F) B) and C)
G) C) and E)

Question 11

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

Accepted Answer

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

Question 12

The terms of sale include all of the following EXCEPT the:

Accepted Answer

A)   Granting or denial of credit.
B)   Cash discount, if applicable.
C)   Type of credit instrument.
D)   Credit period, if applicable.
E)   Customer's credit score.F) A) and E)
G) A) and B)

Question 13

Mike is new in town and has asked to establish credit with your firm. He would like to buy some lawn equipment today at a cost of $4,999. Your variable cost for that equipment is $3,850 and your monthly interest rate is 1.5 percent. You feel that Mike could become a regular customer if you grant him 30 days credit. You also feel that the probability of default is only 5 percent. What would be the net present value of this decision?

Accepted Answer

A)   $66,667
B)   $68,920
C)   $69,002
D)   $69,234
E)   $69,399F) All of the above
G) B) and D)

Question 14

Which of the following statements is correct?

Accepted Answer

A)   The credit period is the length of time for which a discount can be taken.
B)   Trade credit terms are set by the buyer.
C)   Trade credit is classified as a liability for the seller.
D)   A cash discount is generally offered to slow down payment of invoices.
E)   The invoice date is the beginning of the credit period.F) A) and B)
G) B) and D)

Question 15

If a firm has a detailed credit policy it will likely lead to ___________________.

Accepted Answer

A)   Frequent credit sales to customers with an average to high degree of default risk.
B)   A policy where virtually all sales are made for cash.
C)   Only the most creditworthy of consumers receiving credit.
D)   Inconsistencies in the terms of credit sales granted customers.
E)   Organized payment efforts.F) C) and D)
G) B) and E)

Question 16

The total investment in receivables mainly depends on the amount of credit sales and the average collection period.

Accepted Answer

A) True 
 B)False

Question 17

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Accepted Answer

A)   Conditions, control, cessation, capital, and capacity.
B)   Conditions, character, capital, control, and capacity.
C)   Capital, collateral, control, character, and capacity.
D)   Character, capacity, control, cessation, and collateral.
E)   Character, capacity, capital, collateral, and conditions.F) A) and B)
G) A) and C)

Question 18

Average daily sales * average collection period correctly specifies the level of the firm's receivables balance.

Accepted Answer

A) True 
 B)False

Question 19

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is a derived demand.

Accepted Answer

A) True 
 B)False

Question 20

Which one of the following statements is correct concerning inventory costs?

Accepted Answer

A)   Lost sales are costs related to safety reserves.
B)   A loss due to a theft is a shortage cost.
C)   Carrying costs decrease as inventory levels rise.
D)   The goal of inventory management is the minimization of storage costs.
E)   The cost to set up a production run is a carrying cost.F) All of the above
G) A) and C)

Exam 20: Credit and Inventory Management

Average daily sales * average collection period correctly specifies the level of the firm's receivables balance.

Correct Answer
verified

What is the effective annual rate of credit terms of 2/20, net 45?

Correct Answer
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The terms of sale include all of the following EXCEPT the:

Correct Answer
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If a firm has a detailed credit policy it will likely lead to ___________________.

Correct Answer
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Which one of the following would tend to increase the credit period?

Correct Answer
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You just purchased $8,700 of goods from your supplier with credit terms of 3/10, net 30. What is the discounted price?

Correct Answer
verified

Your supplier grants you credit terms of 2/10, net 35. What is the effective annual rate of the discount if you purchase $2,900 worth of merchandise?

Correct Answer
verified

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Correct Answer
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Which one of the following factors tends to favour longer credit periods?

Correct Answer
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If you extend credit to a one-time new customer you risk an amount equal to:

Correct Answer
verified

There is a saying in banking that when a business is experiencing financial problems, trade creditors are the first to know. Why would this be true?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

The costs of setting up a production run or placing an order are called:

Correct Answer
verified

The _______ date marks the beginning of the credit period.

Correct Answer
verified

Which one of the following statements is correct concerning inventory costs?

Correct Answer
verified

Provide a definition for collection policy.

Correct Answer
verified
Procedures followed ...
View Answer

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is a derived demand.

Correct Answer
verified

Correct Answer
verified

The total investment in receivables mainly depends on the amount of credit sales and the average collection period.

Correct Answer
verified

Default risk should be considered when deciding whether or not you should offer credit to customers.

Correct Answer
verified

Exam 20: Credit and Inventory Management

Average daily sales * average collection period correctly specifies the level of the firm's receivables balance.

Correct AnswerverifiedShow Answer

What is the effective annual rate of credit terms of 2/20, net 45?

Correct AnswerverifiedShow Answer

The terms of sale include all of the following EXCEPT the:

Correct AnswerverifiedShow Answer

If a firm has a detailed credit policy it will likely lead to ___________________.

Correct AnswerverifiedShow Answer

Which one of the following would tend to increase the credit period?

Correct AnswerverifiedShow Answer

You just purchased $8,700 of goods from your supplier with credit terms of 3/10, net 30. What is the discounted price?

Correct AnswerverifiedShow Answer

Your supplier grants you credit terms of 2/10, net 35. What is the effective annual rate of the discount if you purchase $2,900 worth of merchandise?

Correct AnswerverifiedShow Answer

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Correct AnswerverifiedShow Answer

Which one of the following factors tends to favour longer credit periods?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

There is a saying in banking that when a business is experiencing financial problems, trade creditors are the first to know. Why would this be true?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The costs of setting up a production run or placing an order are called:

Correct AnswerverifiedShow Answer

The _______ date marks the beginning of the credit period.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning inventory costs?

Correct AnswerverifiedShow Answer

Provide a definition for collection policy.

Correct AnswerverifiedProcedures followed ...View AnswerShow Answer

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is a derived demand.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The total investment in receivables mainly depends on the amount of credit sales and the average collection period.

Correct AnswerverifiedShow Answer

Default risk should be considered when deciding whether or not you should offer credit to customers.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Procedures followed ...
View 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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