A firm constructing a new manufacturing plant and financing it with short-term loans that are scheduled to be converted to bonds when the plant is completed,would want to separate the construction loan from other current liabilities associated with working capital management.

Question

Quizplus · Accepted Answer

It is true that a firm would want to separate the construction loan from other current liabilities associated with working capital management, as the construction loan is a long-term financing source for a specific project, while current liabilities are usually short-term obligations. Separating them would provide a clearer picture of the company's financial position and ensure that the construction loan is used only for the intended purpose. Additionally, converting the short-term loans to bonds after the completion of the plant would help the company manage its debt and interest payments more efficiently.

A Firm Constructing a New Manufacturing Plant and Financing It