Question 1

The terms of sale typically specify each of the following EXCEPT:

Accepted Answer

A)   Type of credit instrument.
B)   Credit period.
C)   Cash discount period.
D)   Cash discount.
E)   Probability of payment.F) A) and B)
G) C) and D)

Question 2

At the optimal order quantity size, the:

Accepted Answer

A)   Total cost of holding inventory is fully offset by the restocking costs.
B)   Carrying costs are equal to zero.
C)   Restocking costs are equal to zero.
D)   Total costs equal the carrying costs.
E)   Carrying costs equal the restocking costs.F) A) and B)
G) A) and C)

Question 3

A conditional sales contract is payable immediately upon receipt.

Accepted Answer

A) True 
 B)False

Question 4

The ________ establishes the credit period, the cash discount amount, and the discount period.

Accepted Answer

A)   Terms of sale.
B)   Collection policy.
C)   Credit analysis report.
D)   Invoice.
E)   Credit report.F) B) and D)
G) B) and C)

Question 5

The invoice date is:

Accepted Answer

A)   The latter of the shipping date, the billing date, or the date of customer receipt of the goods.
B)   The beginning of the credit period.
C)   Deﬁned as the last date of the discount period.
D)   The date the goods or services are received by the buyer.
E)   Deﬁned as 10 days after the start of the discount period.F) All of the above
G) B) and E)

Question 6

Themost fashionable pair of roller skates sells for $45.99 a pair. Your store consistently sells 8,500 pairs of these roller skates year after year. The ﬁxed costs to order more of this item is $70 and the
Carrying costs are $2.80 per pair. What is the economic order quantity?

Accepted Answer

A)   184 units
B)   309 units
C)   461 units
D)   525 units
E)   652 unitsF) C) and D)
G) A) and B)

Question 7

A ﬁrm will likely be turned down for credit due to concerns about its ___________ if there are signs that the ﬁrm's industry is in general decline.

Accepted Answer

A)   Capacity.
B)   Character.
C)   Capital.
D)   Collateral.
E)   economic conditionsF) A) and E)
G) C) and D)

Question 8

The period of time which extends from the day a credit sale is made until the bank credits a ﬁrm's account with the payment for that sale is known as the _____ period.

Accepted Answer

A)   Float.
B)   Cash collection.
C)   Sales.
D)   Accounts receivable.
E)   Trade credit.F) C) and E)
G) B) and D)

Question 9

Which one of the ﬁve Cs of credit refers to the ﬁnancial reserves of a customer?

Accepted Answer

A)   Capacity.
B)   Character.
C)   Conditions.
D)   Capital.
E)   collateralF) A) and B)
G) D) and E)

Question 10

You currently sell a product with a variable cost per unit of $43 and a unit selling price of $69. At the present time you only sell on a cash basis and have monthly sales of 680 units. The monthly
Interest rate is .75 percent. You are considering switching to a net 30 credit policy. What is the
Switch break-even point?

Accepted Answer

A)   694 units
B)   698 units
C)   701 units
D)   704 units
E)   706 unitsF) D) and E)
G) B) and C)

Question 11

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 D)

Question 12

Your current sales consist of 40 units per month at a price of $125 a unit. You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy. If you decide to
Switch your credit policy you also plan to increase the sales price to $139 a unit. The monthly
Interest rate is 1.5 percent. What is the break-even default rate of the proposed switch?

Accepted Answer

A)   8.25 percent
B)   8.42 percent
C)   8.67 percent
D)   8.72 percent
E)   9.06 percentF) A) and B)
G) All of the above

Question 13

Which one of the following statements is correct?

Accepted Answer

A)   An aging schedule helps identify which customers are the most delinquent.
B)   The percentage of total receivables that fall within a certain time period on an aging schedule will remain constant over time even if the ﬁrm has seasonal sales.
C)   Normally ﬁrms call their delinquent customers prior to sending them a past due letter.
D)   A constant average collection period over a period of time is cause for concern.
E)   It is common practice when a customer ﬁles bankruptcy to sell that customer's receivable at face value.F) A) and B)
G) C) and E)

Question 14

Peg's Toys manufactures 89,500 toys a year. As a normal procedure, the company orders raw materials in increments such that each order produces 500 toys. The ﬁxed cost per order is $35.
The toys wholesale at a price of $7.35 and have a variable cost of $3.98. What is the total
Restocking cost?

Accepted Answer

A)   $2,025
B)   $3,500
C)   $3,625
D)   $5,050
E)   $6,265F) A) and D)
G) A) and C)

Question 15

Which one of the following statements is correct if you purchase an item with credit terms of 2/5, net 15?

Accepted Answer

A)   If you pay within two days, you will receive a 5 percent discount.
B)   If you pay within 2 to 5 days, you will receive a 15 percent discount.
C)   If you do not pay within 5 days, you will be charged interest at a 15 percent annual rate.
D)   If you pay within 5 days, you will receive a 2 percent discount.
E)   You must pay the discounted amount within 15 days.F) A) and B)
G) A) and C)

Question 16

Which of the following statements is false regarding trade credit?

Accepted Answer

A)   Trade credit is created when a ﬁrm uses cash to make purchases from another ﬁrm.
B)   Trade credit is not usually an interest-bearing asset for the ﬁrm granting the credit.
C)   Trade credit possesses a degree of default risk.
D)   Collection of trade receivables can be sped up by offering discounts.
E)   Trade credit is an important source of external ﬁnancing for Canada ﬁrms.F) A) and B)
G) A) and C)

Question 17

Leslie's makes a sale to Kate today with credit terms of 1/5, net 15. This means that:

Accepted Answer

A)   Leslie's is offering a 5 day discount period and an additional 15 day credit period.
B)   Kate will be delinquent 6 days from now if she indicated that she was going to pay within the discount period.
C)   Kate can take a 1 percent discount if she pays within 5 days or she must pay the entire amount 20 days from today.
D)   Kate will pay a 1 percent fee for every 5 days that pass after the 15 day credit period.
E)   Leslie's is willing to reduce the price by 1 percent in order to collect 10 days sooner.F) C) and D)
G) B) and E)

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

One company's raw materials may be another's ﬁnished goods.

Accepted Answer

A) True 
 B)False

Question 20

Credit sales/Accounts receivable turnover correctly speciﬁes the level of the ﬁrm's receivables
balance.

Accepted Answer

A) True 
 B)False

Exam 20: Credit and Inventory Management

The ________ establishes the credit period, the cash discount amount, and the discount period.

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

A ﬁrm will likely be turned down for credit due to concerns about its ___________ if there are signs that the ﬁrm's industry is in general decline.

Correct Answer
verified

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

Leslie's makes a sale to Kate today with credit terms of 1/5, net 15. This means that:

Correct Answer
verified

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

Correct Answer
verified

A conditional sales contract is payable immediately upon receipt.

Correct Answer
verified

At the optimal order quantity size, the:

Correct Answer
verified

The period of time which extends from the day a credit sale is made until the bank credits a ﬁrm's account with the payment for that sale is known as the _____ period.

Correct Answer
verified

Credit sales/Accounts receivable turnover correctly speciﬁes the level of the ﬁrm's receivables balance.

Correct Answer
verified

Correct Answer
verified

Which one of the ﬁve Cs of credit refers to the ﬁnancial reserves of a customer?

Correct Answer
verified

Which one of the following statements is correct if you purchase an item with credit terms of 2/5, net 15?

Correct Answer
verified

Themost fashionable pair of roller skates sells for $45.99 a pair. Your store consistently sells 8,500 pairs of these roller skates year after year. The ﬁxed costs to order more of this item is $70 and the Carrying costs are $2.80 per pair. What is the economic order quantity?

Correct Answer
verified

Peg's Toys manufactures 89,500 toys a year. As a normal procedure, the company orders raw materials in increments such that each order produces 500 toys. The ﬁxed cost per order is $35. The toys wholesale at a price of $7.35 and have a variable cost of $3.98. What is the total Restocking cost?

Correct Answer
verified

One company's raw materials may be another's ﬁnished goods.

Correct Answer
verified

The terms of sale typically specify each of the following EXCEPT:

Correct Answer
verified

The invoice date is:

Correct Answer
verified

Which of the following statements is false regarding trade credit?

Correct Answer
verified

Correct Answer
verified

Exam 20: Credit and Inventory Management

The ________ establishes the credit period, the cash discount amount, and the discount period.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A ﬁrm will likely be turned down for credit due to concerns about its ___________ if there are signs that the ﬁrm's industry is in general decline.

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

Leslie's makes a sale to Kate today with credit terms of 1/5, net 15. This means that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A conditional sales contract is payable immediately upon receipt.

Correct AnswerverifiedShow Answer

At the optimal order quantity size, the:

Correct AnswerverifiedShow Answer

The period of time which extends from the day a credit sale is made until the bank credits a ﬁrm's account with the payment for that sale is known as the _____ period.

Correct AnswerverifiedShow Answer

Credit sales/Accounts receivable turnover correctly speciﬁes the level of the ﬁrm's receivables balance.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the ﬁve Cs of credit refers to the ﬁnancial reserves of a customer?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct if you purchase an item with credit terms of 2/5, net 15?

Correct AnswerverifiedShow Answer

Themost fashionable pair of roller skates sells for $45.99 a pair. Your store consistently sells 8,500 pairs of these roller skates year after year. The ﬁxed costs to order more of this item is $70 and the Carrying costs are $2.80 per pair. What is the economic order quantity?

Correct AnswerverifiedShow Answer

Peg's Toys manufactures 89,500 toys a year. As a normal procedure, the company orders raw materials in increments such that each order produces 500 toys. The ﬁxed cost per order is $35. The toys wholesale at a price of $7.35 and have a variable cost of $3.98. What is the total Restocking cost?

Correct AnswerverifiedShow Answer

One company's raw materials may be another's ﬁnished goods.

Correct AnswerverifiedShow Answer

The terms of sale typically specify each of the following EXCEPT:

Correct AnswerverifiedShow Answer

The invoice date is:

Correct AnswerverifiedShow Answer

Which of the following statements is false regarding trade credit?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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