Question 1

The proportion of the total receivables volume a company never collects is the ____.

Accepted Answer

The bad-debt loss ratio represents the proportion (percentage) of the total receivables volume that a company never collects. This is a measure of a company's credit risk and its ability to manage its accounts receivable. The higher the bad-debt loss ratio, the lower the company's ability to collect payments from its customers and the higher its credit risk.

Question 2

Which of the following is not an inventory-related cost?

Accepted Answer

Product advertising costs are not directly related to inventory management and control. They are classified as marketing expenses. The other options, such as ordering costs, carrying costs, and stockout costs, are all related to inventory management and control.

Question 3

All except which of the following are reliable sources of the creditworthiness of a customer?

Accepted Answer

All of the options listed except for D are reliable sources for determining the creditworthiness of a customer. A credit application alone is not enough to provide a complete picture of a customer's credit history and financial stability. It is important to use multiple sources to make an informed decision about extending credit to a customer.

Question 4

Maximizing shareholder wealth by investing in accounts receivables is considered when ____. 
I. marginal costs are exceeded by marginal returns.
II. the cost of the funds invested are exceeded by expected marginal returns.

Accepted Answer

Both statements I and II are correct. Maximizing shareholder wealth by investing in accounts receivables is considered when the marginal returns exceed the marginal costs and the expected marginal returns exceed the cost of the funds invested. This means that the company is generating profits and cash flows from its investments in accounts receivables, which will ultimately increase shareholder value.

Question 5

What are seasonal datings as applied to credit terms?

Accepted Answer

The answer of What are seasonal datings as applied to...

Question 6

How can a company use its credit period to affect sales and inventory?

Accepted Answer

The answer of How can a company use its credit...

Question 7

In determining the creditworthiness of a customer from financial statements, the statements can indicate all except which of the following?

Accepted Answer

The answer of In determining the creditworthiness of a customer...

Question 8

All except which of the following are examples of credit-related marginal costs?

Accepted Answer

Advertising costs are not directly related to the cost of issuing credit or managing accounts receivable. The other options all involve costs associated with credit management.

Question 9

How does an optimal credit extension policy impact a company's accounts receivables?

Accepted Answer

The answer of How does an optimal credit extension policy...

Question 10

Seasonal datings are offered to specific retailers. These retailers ____.

Accepted Answer

Seasonal datings are typically offered to retailers that need to finance a buildup of inventory in advance of their peak selling period, such as during the holiday season. These retailers may not have the ability to purchase and hold inventory for an extended period of time without incurring significant financing costs, and seasonal dating provides them with an opportunity to defer payment until the time when they expect to generate the bulk of their sales.

Question 11

Which of the following is the most widely known credit-reporting organization?

Accepted Answer

Dun & Bradstreet Credit Services is the most widely known credit-reporting organization and has been in business for over 180 years, providing credit and business information to companies worldwide. Phelps Credit Services and Equitable Credit Services are not well-known credit reporting organizations. Creditreport.com is a website that provides credit reports but is not a major credit-reporting organization.

Question 12

A numerical credit scoring system may rate all except which of the following?

Accepted Answer

A numerical credit scoring system can rate the D&B credit rating, financial characteristics of the applicant, and current ratio of the applicant, but it cannot rate the location of the business as it is not a financial characteristic.

Question 13

Describe how an aging of accounts is a useful monitoring technique for accounts receivable.

Accepted Answer

The answer of Describe how an aging of accounts is...

Question 14

Cash discounts are offered for which of the following reasons? 
I. To speed up collection of accounts receivable.
II. To reduce a company's level of receivables investment and associated costs.

Accepted Answer

Cash discounts are offered for both reasons mentioned in options I and II. Offering discounts for prompt payment encourages customers to pay their invoices quickly, thus speeding up the collection of accounts receivable. Additionally, offering early payment discounts can reduce a company's level of investment in receivables and the costs associated with managing them.

Question 15

____ serves as a buffer between the various phases in the procurement-production-sales cycle of a manufacturing firm.

Accepted Answer

Inventories serve as a buffer by allowing a manufacturer to produce goods in advance of customer orders and to have products available for immediate delivery when an order is received. This helps to avoid delays in the production process and ensures that the company has sufficient quantities of raw materials and finished goods to meet demand. Cash, accounts receivable, and notes payable are all important components of a manufacturing firm's financial operations, but they do not serve as a buffer between the various phases of the procurement-production-sales cycle.

Question 16

All except which of the following are possible solutions to a large bad-debt loss ratio?

Accepted Answer

Loosening credit standards may temporarily reduce bad debt loss ratios, but it can ultimately lead to worse financial outcomes for the company. B, C, and D are all viable solutions to reducing bad debt loss ratios as they focus on improving the creditworthiness of customers and encouraging timely payment.

Question 17

The likelihood that a customer will fail to repay credit extended to it is referred to as ____.

Accepted Answer

Default risk refers to the likelihood that a customer will fail to repay credit extended to it. Maturity risk refers to the possibility that an investment's value might change due to changes in interest rates over a given time frame. Bad-debt loss ratio is the percentage of debt that is unlikely to be collected from customers. Opportunity cost refers to the cost of foregoing the next best alternative when making a decision.

Quiz 21: The Management of Accounts Receivable and Inventories