1)With an open account the formal instrument of credit is the: banker’s acceptan
ID: 1172747 • Letter: 1
Question
1)With an open account the formal instrument of credit is the:
banker’s acceptance.
invoice.
promissory note.
secured loan document.
purchase order.
e)dating an invoice at a later date than when the goods are shipped.
2)The decision to grant credit should consider all of the following except the:
a)delay in revenues from granting credit.
b)probability of nonpayment.
c)immediate costs of granting credit.
d)cost of short-term borrowing.
e)fixed costs incurred during the credit period.
3)Assume you graph the costs of granting credit against the amount of credit extended. The optimal credit amount is then determined by the point which:
minimizes the total cost curve.
minimizes the carrying costs of granting credit.
minimizes the opportunity costs of granting credit.
maximizes the carrying costs associated with granting credit.
maximizes the opportunity costs associated with granting credit.
4)Seasonal dating of accounts receivable:
requires all purchasers of seasonal goods to have their purchases paid by the end of the prior season.
sets the first date of the relevant season as the final due date for an invoice for seasonal goods.
refers to firms that invoice every quarter for sales made in the past three months.
is used by all firms that grant credit.
sets a relevant seasonal date as the invoice date for an earlier order.
5)Assume Atlantic Fish sells 3,200 pounds of fish per month at a price of $2.90 a pound. The variable cost per pound is $2.22. Currently, the firm has a cash-only sales policy. The firm is considering changing to a net 30 credit policy. The monthly required return is 1.2 percent. What does the new level of sales need to be to break-even on the switch?
3,219.40 pounds
170.44 pounds
119.40 pounds
3,489.67 pounds
3,370.44 pounds
6)To collect on the accounts receivable due to the firm, a firm can do all of the following except:
employ a collection agency.
forcibly remove property from the buyer’s premises.
send a delinquency letter of past due status to the customer.
take legal action against the customer as necessary.
make personal contact by telephone.
Explanation / Answer
I am going to answer the first 4 parts of the question:
1a) Bankers Acceptance
2a) Delay in revenues from granting credit
3b) minimizes the carrying costs of granting credit
4a) requires all purchasers of seasonal goods to have their purchases paid by the end of the prior season.
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