Exam 16: Current Liabilities Management

Accounts payable are spontaneous secured sources of short-term financing that arise from the normal operations of the firm.

A revolving credit agreement is a form of financing consisting of short-term, unsecured promissory notes issued by firms with a high credit standing.

________ involves the sale of accounts receivable.

By offering credit to customers, the firm may

Financing that arises from the normal operations of the firm is said to be

________ effectively raises the interest cost to the borrower on a line of credit.

Factoring accounts receivable is a relatively inexpensive source of unsecured short-term funds that allows firms to turn accounts receivable immediately into cash.

A trust receipt inventory loan is an arrangement in which the lender receives control of the pledged inventory collateral, which is warehoused by a designated agent.

A firm issued $2 million worth of commercial paper that has a 90-day maturity and sells for $1,900,000. The annual interest rate on the issue of commercial paper is

Which of the following is NOT an advantage of factoring?

Spontaneous unsecured financing has a specific interest cost associated with it that can be at a fixed or floating rate.

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

If the firm decides to take the cash discount that is offered on goods purchased on credit, the firm should

A firm purchased goods with a purchase price of $1,000 and credit terms of 1/10 net 30. The firm paid for these goods on the 5th day after the date of sale. The firm must pay ________ for the goods.

Revolving credit agreements are non-guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.

The cost of giving up a cash discount on a credit purchase is

Commercial banks and other institutions do not normally consider secured loans less risky than unsecured loans, and therefore require higher interest rates on them.

A discount loan is a loan on which interest is paid in advance by deducting it from the loan so that the borrower actually receives less money than is requested.

Factoring accounts receivable is not a form of secured short-term borrowing. It entails the sale of accounts receivable at a discount to obtain needed short-term funds.

The primary source of secured short-term loans to businesses are