Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A firm arranges a discount loan at a 12 percent interest rate, and borrows $100,000 for one year. The stated interest rate is ________ and the effective interest rate is ________.

Accepted Answer

A)  12.00%; 12.00% 
B)  13.64%; 12.00% 
C)  12.00%; 13.64% 
D)  12.00%; 10.71%

Question 3

Although more expensive than a line of credit, a revolving credit agreement can be less risky from the borrower's viewpoint.

Accepted Answer

A) True 
 B)False

Question 4

As sales increase, a company needs more inventory and more employees resulting in ________.

Accepted Answer

A)  more accounts payable and accruals, and therefore increasing its spontaneous liabilities 
B)  less accounts payable and accruals, and therefore decreasing its spontaneous liabilities 
C)  more accounts payable and accruals, and therefore decreasing its spontaneous liabilities 
D)  less accounts payable and accruals, and therefore increasing its spontaneous liabilities

Question 5

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 ________ (assume 360 days in a year).

Accepted Answer

A)  5.26 percent 
B)  10 percent 
C)  17.77 percent 
D)  21.05 percent

Question 6

When a firm stretches accounts payable without hurting its credit rating, the cost of giving up a cash discount is ________.

Accepted Answer

A)  reduced 
B)  increased 
C)  unaffected 
D)  increased or decreased depending on the opening accounts payable balance

Question 7

________ are the major source of unsecured short-term financing for business firms.

Accepted Answer

A)  Accounts receivable 
B)  Term loans 
C)  Notes payable 
D)  Accounts payable

Question 8

Which of the following are the three basic ways of lending unsecured, short-term funds by commercial banks?

Accepted Answer

A)  mortgage-backed securities, T-bonds, and commercial paper 
B)  single-payment note, lines of credit, and revolving credit agreements 
C)  T-bills, municipal bonds, and commercial paper 
D)  commercial paper, real estate bonds, and corporate bonds

Question 9

The interest paid by the issuer of commercial paper is determined by the size of the discount and the length of time to maturity.

Accepted Answer

A) True 
 B)False

Question 10

The interest rate charged on secured short-term loans is always equal to the rate on unsecured short-term loans.

Accepted Answer

A) True 
 B)False

Question 11

Jannet Company, currently pays its employees at the end of a week. The weekly payroll totals $400,000. If it were to extend the pay period so as to pay its employees 1 week later throughout an entire year, the employees would in effect be lending the firm ________ for a year.

Accepted Answer

A)  $400,000 
B)  $20,800,000 
C)  $4,800,000 
D)  $675,000

Exam 16: Current Liabilities Management

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

A firm arranges a discount loan at a 12 percent interest rate, and borrows $100,000 for one year. The stated interest rate is and the effective interest rate is .

Although more expensive than a line of credit, a revolving credit agreement can be less risky from the borrower's viewpoint.

As sales increase, a company needs more inventory and more employees resulting in ________.

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 ________ (assume 360 days in a year) .

When a firm stretches accounts payable without hurting its credit rating, the cost of giving up a cash discount is ________.

________ are the major source of unsecured short-term financing for business firms.

Which of the following are the three basic ways of lending unsecured, short-term funds by commercial banks?

The interest paid by the issuer of commercial paper is determined by the size of the discount and the length of time to maturity.

The interest rate charged on secured short-term loans is always equal to the rate on unsecured short-term loans.

Jannet Company, currently pays its employees at the end of a week. The weekly payroll totals $400,000. If it were to extend the pay period so as to pay its employees 1 week later throughout an entire year, the employees would in effect be lending the firm ________ for a year.