Question

1. Hardee Industries sells on terms of 1/10, net 25. Which of the following is true?

                a. The cost of trade credit would decrease if the terms changed to 1/15, net 25

                b. The cost of trade credit would increase if the terms changed to 1/5, net 25

                c. The cost of trade credit would decrease if the terms changed to 2/10, net 25

                d. The cost of trade credit would increase if the terms changed to 3/10, net 25

2. Suppose you noticed that sales were flat but accounts receivables are increasing. Should you be alarmed?

                a. No, accounts receivables increasing could indicate a decrease in your inventory conversion period

                 b. No, accounts receivables increasing is usually a good thing

                c. Yes, accounts receivables increasing could indicate an improvement in your cash conversion cycle

Answer 1

Question - 1

d. The cost of trade credit would increase if the terms changed to 3/10, net 25

Increase in the discount rate from 1% to 3% shall increase the cost of trade credit.

Question - 2

Increase in aacounts receivables with out an increase in sales is surely an alarming situation. Because it indicates non collection of accounts receivables in time (or) receivables becoming overdue.

So Yes should be the answer. But in the option - C we have " Yes" but the reason is not the correct one.

Check if option - D ......... is available

Otherwise, select - C