Extending Credit to Customers Will Introduce All of the Following

question 227

Multiple Choice

Extending credit to customers will introduce all of the following additional costs except:

• A)increased wage costs will be incurred to hire people to evaluate whether each customer is creditworthy,track how much each customer owes,and follow up to collect the receivable from each customer.
• B)bad debt costs will result when amounts cannot be collected from customers.
• C)delayed receipt of cash may result in requiring the company to take out short-term loans and incur interest costs.
• D)decreased gross profit from reduced sales.

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Definitions:

Punitive Damages

Financial compensation awarded to an aggrieved party that goes beyond what is necessary to compensate for losses and is intended to punish the wrongdoer.

Fraud

A deliberate deception practiced to secure unfair or unlawful gain, or to deprive a victim of a legal right.

Scienter

A legal term referring to the knowledge of wrongdoing or fraudulent intent in actions that deceive others.

Common Law Fraud

A form of fraud based on case law where a false representation of a material fact is made with intent to deceive and resulting in damage to the victim.