FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Statement I - Relaxation of Credit Standard increases the Investment in Accounts receivable
Statement II - Restriction of credit standard may decrease the chance of incurring
a. False; True
b. True; False
c. False; False
d. True; True
Which of the following statements is most correct?
a. Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its credit department.
b. If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then its aging schedule would probably show some past due accounts.
c. If a firm that sells on terms of net 30 changes its policy and begins offering all customers terms of 2/10, net 30, and if no change in sales volume occurs, then the firm’s DSO will probably increase.
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- QUESTION 1 Which if the following is not true of the 5Cs in evaluating credit quality Character refers to the integrity and honesty of the borrower and applies to both individuals and companies Capital refers to the savings or wealth of the borrower as an additional source of income to repay the loan Collateral refers to assets that are pledged to lender Capacity refer to external factors including the state of economy that can impact the borrower’s source of income. QUESTION 2 Which of the following is not true? Firm A Firm B Industry Benchmark 2018 2019 2020 2018 2019 2020 2018 2019 2020 ROA 9.14% 9.50% 9.90% 8.11% 8.16% 8.19% 8.11% 8.14% 8.15% ROE 22.45% 22.95% 23.45% 19.65% 19.88% 20.12% 19.95% 20.55% 21.00% TIE 1.75 1.65 1.55 2.75 2.90 3.05 2.25 2.30 2.50 CR 3.25 3.66 3.75 2.55 2.65 2.75 2.40 1.45 2.50 EPS…arrow_forwardThe "mark to market" rule (a) Created an unrealistic picture of the financial health of some banks. (b) Required banks to recognize in their balance sheet decrease in value of assets as their price declined in the market, instead of waiting until the asset was sold. (c) Caused the net worth of some banks to decline significantly and making it impossible for the banks to make loans. (d) All the above. (e) Only (b) and (c) are true.arrow_forwardCredit spreads tend to widen as the credit cycle improves. Select one: True Falsearrow_forward
- 6 Within the context of the 5 Cs of credit, which of the following statements show the weakness of a company's capacity? Select ALL correct answers. Slowing inventory turnover Low debt to equity ratio Recent success in raising equity High funded debt-to-EBITDA ratioarrow_forwardPlease help with the below minicase. Directions: The best way to do this case is to use relevant credit information and calculate some financial ratios: ROA, debt ratio, liquidity ratios, ROE, profit margin, Inventory and Asset turnover. Then look at breakeven point probability, and finally the possibility of a repeat order. What can you say about Miami Spice’s creditworthiness? What is the break-even probability of default? How is it affected by the delay before MS pays its bills? How should George Stamper’s decision be affected by the possibility of repeat orders? MiniCase: George Stamper a credit analyst with Micro-Encapsulators Corp. (MEC) needs to respond to an urgent email request from the southeast sales office. The local sales manager reported that she had an opportunity to clinch an order from Miami Spice (MS) for 50 encapulators at $10,000 each She added that she was particularly keen to secure this order since MS was likely to have a continuing need for 50 encapulators a…arrow_forwardAll of the following may be considered causes of the “dark side” of credit except: Group of answer choices B. Operational issues that affect credit assessments can have a systematic effect on the whole consumer portfolio. D. Historical data tends to be consistent and can lead to accurate forecasts. A. Tendency of consumers to default is a product of changing legal and social systems. C. Sharp changes in the economic environment, such as a deep recession.arrow_forward
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