CF Chap 28

Selling goods and services on credit is:

• A) an investment in a customer.
• B) never necessary unless customers cannot pay for the goods.
• C) a decision independent of customers.
• D) permissible only if your bank lends the money.
• E) never a wise decision

When credit is granted by one firm to another firm this gives rise to a(n):

• A) accounts receivable and is called consumer credit.
• B) credit due and is called an installment note.
• C) accounts receivable and is called trade credit.
• D) trade receivable and is called an installment note.
• E) trade receivable and is called a secured loan

The average collection period measures the average:

• A) time necessary to collect a credit sale.
• B) number of customers per day who charge their purchases.
• C) time for a credit customer to return to make a second purchase.
• D) number of times a credit customer charges a purchase during a year.
• E) number of items purchased in each credit transaction

The three components of credit policy are:

• A) collection policy, credit analysis, and interest rate determination.
• B) collection policy, credit analysis, and terms of the sale.
• C) collection policy, interest rate determination, and repayment analysis.
• D) credit analysis, repayment analysis, and terms of the sale.
• E) interest rate determination, repayment analysis, and terms of sale

Credit analysis is best described as the process of:

• A) collecting an accounts receivable.
• B) determining the optimal credit terms.
• C) establishing the length of the credit period.
• D) setting the amount of discount to be granted.
• E) determining the probability that a customer will not pay

Seasonal dating is used to promote sales during the off-season. This process involves:

• A) extending the credit period until after the season ends.
• B) extending both the discount period and the credit period by two months.
• C) accepting orders early but withholding shipment until the peak season.
• D) accepting orders early but dating the invoice when the goods are actually shipped.
• E) dating an invoice at a later date than when the goods are shipped

Credit terms of 1/5, net 15 should be interpreted as granting:

• A) a 1/5 percent discount for payments within 15 days.
• B) a five percent discount for next day payments.
• C) a total credit period of 20 days.
• D) a credit period of 10 days.
• E) a one percent discount for payments received within five days.

The credit period begins on the:

• A) shipping date.
• B) purchase order date.
• C) shipping arrival date.
• D) order process date.
• E) invoice date

On September 1, a firm grants credit with terms of 2/10 net 30. The creditor:

• A) must pay a penalty of 2/10 of one percent when payment is made later than October 1.
• B) must pay a penalty of 10 percent when payment is made later than 2 days after October 1.
• C) receives a discount of 2 percent when payment is made at least 10 days prior to October 1.
• D) receives a discount of 2 percent when payment is made on September 1 and pays a penalty of 10 percent if payment is made after October 1.
• E) receives a discount of 2 percent when payment is made within 10 days.

The length of the credit period offered by a firm is influenced by all of the following except the:

• A) level of consumer demand.
• B) buyer's operating cycle.
• C) standardization of the goods being sold.
• D) FTC guidelines for trade credit.
• E) customer type