A Customer Has Ordered Goods with a Value of $800

question 20

Multiple Choice

A customer has ordered goods with a value of $800. The production cost is $600. Under what conditions should you extend credit if there is no possibility of repeat orders?

• A) If the probability of payment exceeds 0.67
• B) If the probability of payment exceeds 0.80
• C) If the probability of payment exceeds 0.75
• D) If the probability of payment exceeds 0.90

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Definitions:

Retained Earnings

Profits that a company keeps at the end of a fiscal period, after dividends are paid, for reinvestment or debt payment.

Additional Paid-in Capital

The amount of money that shareholders have paid in excess of the par value of the shares; this can occur when shares are initially sold or during subsequent capital injections.

Preferred Stock

A class of ownership in a corporation that typically provides dividend payments before dividends are issued to common stockholders, often with no voting rights.

Common Stock

A type of security that signifies ownership within a corporation, known as corporate equity ownership.