Question 1

________ are the major source of unsecured short-term financing for business firms.
A) Accounts receivable
B) Accruals
C) Notes payable
D) Accounts payable

Accepted Answer

Accounts payable are a major source of unsecured short-term financing for business firms as they represent obligations to pay suppliers for goods or services received on credit.

Question 2

Generally as sales increase a company needs more inventory and more employees resulting in
A) more accounts payable and accruals, and therefore increasing its spontaneous financing.
B) less accounts payable and accruals, and therefore decreasing its spontaneous financing.
C) more accounts payable and accruals, and therefore decreasing its spontaneous financing.
D) less accounts payable and accruals, and therefore increasing its spontaneous financing.

Accepted Answer

As sales increase, a company typically needs more inventory and employees, leading to higher accounts payable and accruals, which increases its spontaneous financing.

Question 3

Spontaneous liabilities such as accounts payable and accruals represent a use of financing that arise from the normal course of business.

Accepted Answer

False

Question 4

Spontaneous liabilities such as accounts payable and accruals represent a source of financing that arise from the normal course of business.

Accepted Answer

Spontaneous liabilities are a type of financing that arise naturally as a result of a company's daily operations, such as accounts payable and accrued expenses.

Question 5

For firms that are in a financial position to take a cash discount, it is generally a more financially sound decision not to take the discount if the terms offered are 2/10 net 30.

Accepted Answer

For firms that are in a financial position to take a cash discount, it is generally more financially sound to take the discount if the terms offered are 2/10 net 30. By taking the discount, the firm can save money on the purchase price and improve its cash flow position. Waiting to pay the full amount after 30 days may result in additional costs like interest charges or late fees.

Question 6

If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is increased.

Accepted Answer

The answer of If a firm anticipates stretching accounts payable,...

Question 7

Notes payable can be either spontaneous secured or spontaneous unsecured financing and result from the normal operations of the firm.

Accepted Answer

Notes payable are typically formal, written agreements for borrowing money and are not considered spontaneous financing, which arises naturally from business operations like accounts payable.

Question 8

A firm should take the cash discount if the firm's cost of borrowing from the bank is greater than the cost of giving up a cash discount.

Accepted Answer

The answer of A firm should take the cash discount...

Question 9

Spontaneous liabilities such as accounts payable and notes payable represent a source of financing that arise from the normal course of business.

Accepted Answer

The answer of Spontaneous liabilities such as accounts payable and...

Question 10

In giving up a cash discount, the amount of the discount that is given up is the interest being paid by the firm to keep its money by delaying payment for a number of days.

Accepted Answer

Giving up a cash discount means delaying payment for a number of days. By doing so, the firm is essentially paying interest to keep its money. Therefore, the amount of the discount that is given up is the interest being paid by the firm.

Question 11

The cost of giving up a cash discount is the implied rate of interest paid in order to delay payment of an account payable for an additional number of days.

Accepted Answer

The cost of giving up a cash discount is the interest rate equivalent to the discount percentage forgone, which is the implied rate of interest paid in order to delay payment of an account payable for an additional number of days.

Question 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

Spontaneous unsecured financing, such as trade credit, typically does not have a specific interest cost associated with it if paid within the discount period; it is an automatic form of financing that occurs through the normal course of business without formal negotiations or agreements.

Question 14

Financing that arises from the normal operations of the firm is said to be
A) expected.
B) accrued.
C) spontaneous.
D) payable.

Accepted Answer

Financing that arises from the normal operations of the firm is called spontaneous financing. This type of financing includes things like trade credit, accruals, and deferred taxes. It is expected and a natural part of doing business, but it is not necessarily accrued or payable.

Question 15

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

Accepted Answer

Accruals are expenses that have been incurred but have not yet been paid. They are recognized as a liability on the balance sheet.

Question 16

Accruals and accounts payable are ________ sources of short-term financing.
A) negotiated, secured
B) negotiated, unsecured
C) spontaneous, secured
D) spontaneous, unsecured

Accepted Answer

Accruals and accounts payable are both examples of spontaneous sources of short-term financing, meaning they arise naturally in the course of business operations. These types of financing are also unsecured, meaning they do not require collateral or a formal agreement to be put in place. Therefore, the best choice is D - spontaneous, unsecured.

Question 17

The two major sources of short-term financing are
A) a line of credit and accounts payable.
B) accounts payable and accruals.
C) a line of credit and accruals.
D) accounts receivable and notes payable.

Accepted Answer

The answer of The two major sources of short-term financing...

Question 18

Accounts payable result from transactions in which merchandise is purchased but no formal note is signed to show the purchaser's liability to the seller.

Accepted Answer

Accounts payable represents a liability for a company, which results from transactions where merchandise is purchased, but no formal note or agreement is signed, indicating the purchaser's liability to the seller.

Question 19

Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, would be
A) 75.26%.
B) 18.56%.
C) 72.99%.
D) 37.12%.

Accepted Answer

The answer of Tangshan Mining was extended credit terms of...

Question 20

In credit terms, EOM (End-of-Month) indicates that the accounts payable must be paid by the end of the month in which the merchandise has been purchased.

Accepted Answer

The answer of In credit terms, EOM (End-of-Month) indicates that...

Quiz 16: Current Liabilities Management

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

Generally as sales increase a company needs more inventory and more employees resulting in