Jaxx Canoes is considering relaxing its credit standards to encourage more sales. As a result, the company expects sales to increase 15% from 300 canoes per year to 345 canoes per year. The selling price is $850 per canoe and the variable costs are $650 per canoe

The company expects its average collection period will increase from 30 days to 40 days. It estimates that its bad debts will double from its the current level of 1% of sales.

Jaxx Canoes has a required return on investments of similar risk of 15%.

15. Which of the following statements is correct relative to the decision by Jaxx Canoes to relax its credit standards?

A. Jaxx Canoes should accept the proposal if the additional profits created by the proposal exceed the cost of the marginal investment in accounts receivable and the cost of marginal bad debts.

B. Jaxx Canoes should reject the proposal if the additional profits created by the proposal exceed the cost of the marginal investment in accounts receivable and the cost of marginal bad debts.

C. Jaxx Canoes should always reject the proposal due to the cost of marginal bad debts that reduces profits.

D. Jaxx Canoes should accept the proposal if the additional profits created by the proposal plus the cost of the marginal investment in accounts receivable exceed the cost of marginal bad debts.

20. Flood Inc. splits job functions in the revenue cycle among three accounting clerks. One clerk receives and processes all customer payments. A second clerk is responsible for depositing all cash receipts. A third clerk records all cash receipts in the accounts receivable records.

Which of the following statements is true?

A. Flood Inc. has reduced the risk that an employee could steal cash receipts and conceal the theft in the accounting records

B. Flood Inc. has reduced the risk that customer accounts will become bad debt losses by properly segregating duties in its accounting department

C. Flood Inc. is wasting resources by unnecessarily segregating related job functions

D. Flood Inc. accounting department is likely inefficient because it is using too many clerks to perform basic recordkeeping tasks