Exam 15: Management of Current Liabilities

A letter written by a company's bank to the company's foreign supplier, stating that the bank willguarantee payment of an invoiced amount if all the underlying agreements are met is called

Inventory is attractive as collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral.

Accruals are liabilities for services received for which payment has yet to be made.

The outright sale of accounts receivable at a discount in order to obtain funds is called pledging accounts receivable.

Pledges of accounts receivable are normally made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received.

Commercial finance companies are lending institutions that make only unsecured loans-both short-term and long-term-to businesses.

The effective interest rate for a discount loan is greater than the loan's stated interest rate.

Generally, lenders recognize that holding collateral can reduce losses if the borrower defaults, but the presence of collateral has no impact on the risk of default.

The prime interest rate charged by leading Canadian banks is based on the

A line of credit is similar to the agreement under which issuers of bank credit cards, such asMastercard and Visa, extend approved credit to cardholders.

If a firm gives up the cash discount on goods purchased on credit, the firm should pay the bill

The difference between the Bank of Canada rate and the prime rate is based on the supply-and-demand relationships for short-term funds.

Self-liquidating loans are intended merely to carry the firm through seasonal peaks in financing needs, mainly buildups of accounts receivable and inventory.

A floating inventory lien is a lender's claim on the borrower's general inventory as collateral for a secured loan.

All of the following goods represent appropriate collateral for a secured loan to a candymanufacturer except

Nonrecourse basis is the basis on which accounts receivable are sold to a factor with the understanding that the factor accepts all credit risks on the purchased accounts.

The percentage advance constitutes the principal of the secured loan and varies not only according to the type and liquidity of collateral but also according to the type of security interest being taken.

Much of commercial paper is issued by

One of the most common designations for the beginning of the credit period is

Operating change restrictions are contractual restrictions that a bank may impose on a firm as part of a line of credit agreement.