Which of the Following Statements Is CORRECT

question 21

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.

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Definitions:

Outstanding Debt

The total amount of borrowed money a company or individual has yet to repay to creditors.

Continuing Operations

Parts of a business expected to continue operating and contributing to revenue over the long term, as opposed to discontinued operations.

Carrying Amount

The net value of an asset or liability on a company's balance sheet, determined by subtracting its accumulated depreciation or amortization from its original cost.

Convertible

A security, often bonds or preferred shares, that can be converted into a specified number of another form, commonly shares of the issuing company's common stock.