Question 1

According to the conservative current asset financing policy, :

Accepted Answer

A conservative current asset financing policy involves financing all fixed assets, all permanent current assets, and some temporary current assets with long-term capital to minimize risk.

Question 2

Recurring short-term liabilities such as wages and taxes that change spontaneously with operations are known as:

Accepted Answer

Accruals are recurring short-term liabilities that arise from operational activities and are not backed by any formal agreement or contract. Examples include wages, taxes, and interest payable. Unlike trade credits or promissory notes, accruals are not based on an explicit agreement between parties. Lines of credit and commercial paper refer to sources of financing, rather than specific types of liabilities.

Question 3

The following information relates to Musk Corporation. Inventory conversion period 15 days
Closing inventory $28,000
Assuming there are 360 days in a year, what is the company's total cost of goods sold during the year? (Round your answer to two decimal places.)

Accepted Answer

The answer of The following information relates to Musk Corporation....

Question 4

A revolving credit agreement is:

Accepted Answer

A revolving credit agreement is a formal, committed arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period. It is used for recurring short-term liabilities such as wages and taxes that change spontaneously with operations. The credit is often extended with variable interest rates and can be drawn upon and repaid as needed, much like a credit card.

Question 5

The following information relates to LoGo Corporation. Accounts payable $650,000
Credit purchases $21,000,000
Assuming there are 360 days in a year, the payables deferral period for the company is:

Accepted Answer

Payables deferral period = (Accounts Payable / Credit Purchases) x 360
= ($650,000 / $21,000,000) x 360
= 11.08 days (rounded to two decimal places)

Therefore, the correct answer is B) 11.14 days.

Question 6

The following information relates to Dane Corporation. Inventory conversion period 55.8 days
Days sales outstanding 23.9 days
Days payables outstanding 32.5 days
The cash conversion cycle of the company is:

Accepted Answer

The cash conversion cycle is calculated as Inventory Conversion Period + Days Sales Outstanding - Days Payables Outstanding, which is 55.8 + 23.9 - 32.5 = 47.2 days.

Question 7

Which of the following types of short-term credits increases (decreases) automatically, or spontaneously, as a firm's operations expand (contract)?

Accepted Answer

The answer of Which of the following types of short-term...

Question 8

The current asset financing policy that calls for matching the maturities of assets and liabilities is known as the:

Accepted Answer

The moderate approach, also known as the matching approach, involves aligning the maturities of assets and liabilities to minimize risk and ensure liquidity.

Question 9

A document specifying the terms and conditions of a loan, including the amount, interest rate, and repayment schedule is called a(n):

Accepted Answer

A promissory note is a document that specifies the terms and conditions of a loan, including the amount, interest rate, and repayment schedule. It represents a legal promise to repay the borrowed funds according to the agreed terms. The other options are not typically used to document loans. Factoring agreements are used to sell accounts receivable, commercial paper agreements are used to issue short-term debt securities, trade credit notes are used in trade finance, and unsecured notes are not tied to a specific loan agreement.

Question 10

An arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period is called:

Accepted Answer

A line of credit is an agreement between a bank and borrower that allows the borrower to access funds up to a set limit. The borrower can use funds as needed and only pay interest on the amount borrowed.

Question 11

Which of the following sources of short-term credit is also known as accounts payable?

Accepted Answer

Trade credit is also known as accounts payable because it represents the amount owed to suppliers for goods or services already received on credit. Revolving credit, promissory notes, lines of credit, and commercial paper are all forms of short-term credit, but they are not commonly referred to as accounts payable.

Question 12

A spontaneous source of financing that arises from ordinary business transactions is called:

Accepted Answer

Trade credit is the spontaneous financing that arises from ordinary business transactions such as buying goods or services on credit and paying them later. Other options mentioned, such as commercial paper, promissory notes, lines of credit, and revolving credit, are types of formal financing that require separate agreements and contracts beyond normal business transactions.

Question 13

The maturity matching approach calls for matching the maturities of:

Accepted Answer

The maturity matching approach involves aligning the maturities of assets and liabilities to ensure that liabilities are paid off with the cash flows generated by the corresponding assets.

Question 14

The following information relates to Gear Corporation. Inventory conversion period 68.2 days
Receivables collection period 35.8 days
Payables deferral period 24.6 days
The cash conversion cycle of the company is:

Accepted Answer

The answer of The following information relates to Gear Corporation....

Question 15

The following information relates to RAM Corporation. Accounts receivable $160,000
Total credit sales $2,500,000
Assuming there are 360 days in a year, the receivables collection period of the company is:

Accepted Answer

The receivables collection period is calculated as (360 days * Accounts receivable) / Total credit sales.= (360 days * $160,000) / $2,500,000= 23.04 days

Question 16

In a general line of credit:

Accepted Answer

The answer of In a general line of credit:
...

Question 17

For a firm, the receivables turnover is 33.5, the closing inventory is $120,000, and the accounts payable balance is $52,000. Assuming there are 360 days in a year, the receivables collection period is:

Accepted Answer

The answer of For a firm, the receivables turnover is...

Question 18

The three main working capital strategies, namely aggressive, conservative, and moderate, differ primarily in the:

Accepted Answer

The three main working capital strategies differ primarily in the relative amounts of short-term debt used. Aggressive strategy involves using more short-term debt, conservative strategy involves using less short-term debt, and moderate strategy falls somewhere in between. The other factors listed may also vary between the strategies but are not the primary distinguishing factors.

Question 19

All else equal, a firm that purchases raw materials on credit will experience:

Accepted Answer

A firm that purchases raw materials on credit is likely to build a good relationship with the suppliers, which can result in an increase in trade credit with a given increase in purchases. This can be beneficial for the firm in terms of managing cash flow and reducing its working capital needs.

Question 20

Which of the following statements is true of the different types of short-term credits?

Accepted Answer

The answer of Which of the following statements is true...

Quiz 14: Managing Short-Term Financing Liabilities

According to the conservative current asset financing policy, :

Recurring short-term liabilities such as wages and taxes that change spontaneously with operations are known as:

The following information relates to Musk Corporation. Inventory conversion period 15 days Closing inventory $28,000 Assuming there are 360 days in a year, what is the company's total cost of goods sold during the year? (Round your answer to two decimal places.)

A revolving credit agreement is:

The following information relates to LoGo Corporation. Accounts payable $650,000 Credit purchases $21,000,000 Assuming there are 360 days in a year, the payables deferral period for the company is:

The following information relates to Dane Corporation. Inventory conversion period 55.8 days Days sales outstanding 23.9 days Days payables outstanding 32.5 days The cash conversion cycle of the company is:

Which of the following types of short-term credits increases (decreases) automatically, or spontaneously, as a firm's operations expand (contract) ?