The Principal Reason for Converting a Customer's Account Receivable to a Note

question 23

Multiple Choice

The principal reason for converting a customer's account receivable to a note receivable is:

• A)the note receivable earns interest and the account receivable does not.
• B)the receivable is less likely to have to be written off as uncollectible.
• C)working capital is immediately increased.
• D)the customer is more likely to continue purchasing the company's products.

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Definitions:

Debt Levels

The total amount of borrowing, represented as a ratio of debt to equity or a total dollar amount.

Excessive Risk

Engaging in financial activities that have a high chance of resulting in significant loss.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a firm can increase profits by increasing sales.

Degree of Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the level of fixed versus variable costs.