Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

A borrower with bad credit is likely to be charged:

the same interest rate as borrowers with good credit

no interest on notes receivable

a higher interest rate on notes receivable

a lower interest rate on notes receivable

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Verified step by step guidance

Understand the concept of credit risk: Borrowers with bad credit are considered higher risk because they have a history of not repaying debts on time or defaulting. Lenders compensate for this risk by charging higher interest rates.

Review the relationship between creditworthiness and interest rates: Good credit typically results in lower interest rates because the borrower is less risky, while bad credit leads to higher interest rates due to increased risk for the lender.

Eliminate incorrect options: Analyze each option provided in the problem. For example, 'the same interest rate as borrowers with good credit' is incorrect because credit risk directly impacts interest rates.

Focus on the correct option: 'A higher interest rate on notes receivable' aligns with the principle that lenders charge higher rates to borrowers with bad credit to offset the risk of default.

Conclude the reasoning: The correct answer is based on the financial accounting principle that interest rates are adjusted according to the borrower's creditworthiness, ensuring lenders are compensated for taking on higher risk.