Indicate using a (+), (-), or (0) whether each of the following events would probablycause accounts receivable (A/R), sales, and profits to increase, decrease, or be affected inan indeterminate manner: A/RSalesProfitsThe firm restricts its creditstandards.The terms of trade are changedfrom 2/10, net 30, to 3/10, net 30.The terms are changed from2/10, net 30, to 3/10, net 40.The credit manager gets toughwith past-due accounts.

The question is based on the concept of change of financial event on bill receivables , sales and…

A/R Sales Profits The firm restricts its credit standards. The terms of trade are changed from 2/10, net 30, to 3/10, net 30. The terms are changed from 2/10, net 30, to 3/10, net 40. The credit manager gets tough with past-due accounts.

A/R Sales Profits The firm restricts its credit standards. The terms of trade are changed from 2/10, net 30, to 3/10, net 30. The terms are changed from 2/10, net 30, to 3/10, net 40. The credit manager gets tough with past-due accounts.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 5QTD

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Question

Indicate using a (+), (-), or (0) whether each of the following events would probably
cause accounts receivable (A/R), sales, and profits to increase, decrease, or be affected in
an indeterminate manner:

A/R
Sales
Profits
The firm restricts its credit
standards.
The terms of trade are changed
from 2/10, net 30, to 3/10, net 30.
The terms are changed from
2/10, net 30, to 3/10, net 40.
The credit manager gets tough
with past-due accounts.

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Indicate using a (1), (−), or (0) whether each of the following events would probably cause accounts receivable (A/R), sales, and profits to increase, decrease, or be affected in an indeterminate manner: A/R Sales ProfitsThe firm restricts its credit standards. ______________ ______________ ______________The terms of trade are changed from 2/10, net 30, to 3/10, net 30. ______________ ______________ ______________The terms are changed from 2/10, net 30, to 3/10, net 40. ______________ ______________ ______________The credit manager gets tough with past-due accounts. ______________ ______________ ______________
6. Your firm decides to tighten its credit policy so that customers pay in 30 days rather than 45 days. Assuming no other changes, this action will decrease the firm's: A Trade payables period. B Inventory holding period. C Trade receivables collection period. D None of above.
Which of the following refers to the ability of a firm to buy repeatedly from a supplier on trade credit without re-applying for credit? Select one: a. Net terms b. Cash discount c. Open account d. Present value of delayed payment
Suppose a company’s current credit terms are 1/10,net 30, but management is considering changingits terms to 2/10, net 40, relaxing its credit standards, and putting less pressure on slow-payingcustomers. How would you expect these changesto affect (a) sales, (b) the percentage of customerswho take discounts, (c) the percentage of customers who pay late, and (d) the percentage of customers who end up as bad debts?
If a firm's supplier has a credit policy of 1/10/45, what is the nominal cost of trade credit? a. 1% b. 99% c. 10.83% d. 11.05% e. None of the above
A company sells on credit terms of 2/10, n/30 and has days’ sales in accounts receivableof 30.2 days. Its days’ sales outstanding isa. too low.b. too high.c. about right.d. not able to be evaluated from the datagiven.
1-what is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days? 2-what would happen to McDowell s accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?
Commercial (in contrast to consumer) line of credit is an agreement between a customer and a bank that a. is renewed at the end of the contract period in an evergreen facility. b. gives the customer the right to borrow up to a predetermined amount. c. is usually for one year or longer. d. may not obligate the bank to honour the customer’s request for a loan The APR is a. the average annual percentage cost paid on deposits b. the average rate paid on deposits c. the average rate paid for credit d. the average annual percentage cost paid for credit
Statement I - Relaxation of Credit Standard increases the Investment in Accounts receivableStatement II - Restriction of credit standard may decrease the chance of incurring bad debts that ultimately affects the profit positively a. False; True b. True; False c. False; False d. True; True Which of the following statements is most correct? a. Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its credit department. b. If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then its aging schedule would probably show some past due accounts. c. If a firm that sells on terms of net 30 changes its policy and begins offering all customers terms of 2/10, net 30, and if no change in sales volume occurs, then the firm’s DSO will probably increase.
d. What is the percentage cost of trade credit to customers who do not take the discountand pay in 70 days?e. What would happen to McEwan’s accounts receivable if it toughened up on its collectionpolicy with the result that all nondiscount customers paid on the 30th day?
7. What does an increasing collection period for trade receivable suggest about a firm’s credit policy? A. The business is making profits. B. The credit policy is too restrictive. C. The credit policy may be too lenient. D. The business is probably losing qualified customers. E. The collection period has no relationship to a business’s credit policy.
Which of the following best represents a positive product of a lower number of days sales in receivables ratio? A. collection of receivables is quick, and cash can be used for other business expenditures B. collection of receivables is slow, keeping cash secured to receivables C. credit extension is lenient D. the lender only lends to the top 10% of potential creditors