I. TRUE OR FALSE STATEMENTS Black is true and Red is false.

1. Holding all other variables constant, as accounts receivable increases, the cash conversion cycle
decreases.

2. Accounts receivable variables under control of the financial manager include level of credit sales,
terms of credit sales, and quality of credit customers.

3. If upon examination of a firm’s existing credit policy it is discovered that bad debt losses have
increased for certain credit groups, it does not follow that extension of credit to those groups should be
withheld.

4. An aging of accounts receivable measures the amount of receivables that have been outstanding for
given lengths of time.

5. An increase in sales resulting from an increased cash discount for prompt payment would be expected
to cause an increase in the average collection period.

6. When a company analyzes credit applicants and increases the quality of the accounts rejected, the
company is attempting to maximize sales.

7. Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its
credit department.

8. 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.

9. 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.

10. If a firm sells on terms of net/60 and 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.