Which of the Following Statements Is CORRECT

question 49

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant,the higher a firm's days sales outstanding (DSO),the better its credit department.
• B) If a firm that sells on terms of net 30 changes its policy to 2/10,net 30,and if no change in sales volume occurs,then the firm's DSO will probably increase.
• C) If a firm sells on terms of 2/10,net 30,and its DSO is 30 days,then the firm probably has some past due accounts.
• D) If a firm sells on terms of net 60,and if its sales are highly seasonal,with a sharp peak in December,then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365)would probably be lower in January than in July.
• E) If a firm changed the credit terms offered to its customers from 2/10,net 30 to 2/10,net 60,then its sales should increase,and this should lead to an increase in sales per day,and that should lead to a decrease in the DSO.

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Definitions:

Notes Payable

Financial obligations represented by written promissory notes requiring the borrower to repay the amount borrowed plus interest.

Accounts Payable

Liabilities or money owed by a business to its creditors or suppliers for goods and services received.

Non-interest Bearing

Refers to debt or a financial instrument that does not accrue interest over time, meaning the borrower only repays the principal amount.

Loan Receipt

The documentation acknowledging the receipt of funds borrowed from a lender.