Below Is Selected Data for Gertup Corporation as of 12/31/05

question 10

Multiple Choice

Below is selected data for Gertup Corporation as of 12/31/05:
$$\begin{array} { l r } \text { Total assets } & \$ 5,500 \\\text { Current assets } & 2,750 \\\text { Long-term debt } & 450 \\\text { Current ratio } & 2.5 \\\text { Inventory } & 1,500 \\\text { For year ended 12/31/05 } & \\\text { Sales } & \$ 18,500 \\\text { Cost of goods sold } & 14,800\end{array}$$
-Due to competitive pressures, Gertup has had to increase credit terms to customers to maintain sales. This resulted in Gertup's accounts receivable doubling from 12/31/04 to 12/31/05. The average accounts receivable turnover was 30 days. Without the increased credit terms, accounts receivable turnover would have remained at 12/31/04 levels. The impact of the change in credit policy was:

• A)none as sales remained the same.
• B)decreased liquidity and decreased available cash.
• C)increased current ratio and liquidity of the company.
• D)current ratio stayed the same and liquidity remained constant.

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Definitions:

Economic Profits

Earnings that exceed the total costs of production, including both explicit and implicit costs, representing a return above the firm's opportunity costs.

Industry Growth

Industry growth refers to the expansion and increased output of a specific sector of the economy, driven by factors like demand, innovation, and investment.

Normal Profits

The minimum level of profit necessary for a company to remain competitive in the market, also seen as the cost of keeping an entrepreneur in business.

Economic Profits

Profits calculated by subtracting both the explicit and implicit costs from a firm's total revenues; a measure of earnings exceeding the opportunity costs.