Which of the Following Statements Best Describes Allowances

question 221

Multiple Choice

Which of the following statements best describes allowances?

• A)Allowances are used in conjunction with quantity and cash discounts.
• B)Allowances are the same as transfer prices.
• C)Allowances are offered only to marketing channel members in order to increase sales.
• D)Allowances result in reduction of the list price quoted on a product.

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Definitions:

Proportion

A part of a whole expressed as a fraction or percentage, often used to compare quantities in terms of size or magnitude.

Quick Ratio

A liquidity measure that indicates a company's ability to cover its short-term liabilities with its most liquid assets.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.

Liquidity

A firm’s cash and marketable securities position, refers to its ability to meet maturing obligations. A liquid asset is any asset that can be quickly sold and converted to cash at its “fair” value. Active markets provide liquidity.