Question 1

Which of the following requires a commitment fee?
Line of credit
Factoring
Revolving credit agreement
Trade acceptance
Commercial paper

Accepted Answer

The answer of Which of the following requires a commitment...

Question 2

Which of the following guarantees that funds will be available?
Trade credit
Pledging assets
Trade draft
Line of credit
Revolving credit agreement

Accepted Answer

The answer of Which of the following guarantees that funds...

Question 3

For Levi Strauss' jean-making operation, rolls of denim are considered __________, while cut-but-not-yet-sewn jeans are considered ___________.
work-in-process inventory; raw materials inventory
short-term capital; long-term capital
capital stock; supplies
raw materials inventory; work-in-process inventory
short-term credit; long-term credit

Accepted Answer

The answer of For Levi Strauss' jean-making operation, rolls of...

Question 4

Jack is setting up a global operation. The form of trade credit that is particularly useful for Jack's international transactions would be
revolving credit agreement.
promissory notes.
trade acceptance.
line of credit.
open-book credit.

Accepted Answer

The answer of Jack is setting up a global operation....

Question 5

What is the difference between factoring accounts receivable and using accounts receivable as collateral for a short-term loan?
Factoring is the collateral used when issuing commercial paper.
There is no difference.
Factoring involves selling the accounts receivable instead of using them to obtain a loan.
Factoring accounts receivable is accomplished through a finance company whereas using them as collateral is arranged with a bank.
Factoring involves agreeing to repurchase accounts receivable at a future date instead of using them as collateral to obtain a loan.

Accepted Answer

The answer of What is the difference between factoring accounts...

Question 6

Which term is used to identify the granting of credit by one firm to another?
A line of credit
A commitment fee
Trade credit
A secured loan
An inter-firm understanding of commercial intent

Accepted Answer

The answer of Which term is used to identify the...

Question 7

With respect to inventory, which of the following is correct?
Inventory is not an asset.
All inventory is an asset except work-in-process inventory.
Factoring inventory is generally a bad idea.
Finished goods inventory is twice the value of work-in-process inventory.
Rolls of denim at a Levi's factory are raw materials inventory.

Accepted Answer

The answer of With respect to inventory, which of the...

Question 8

Sallyanne is selling merchandise to a retailer using the terms of a trade draft. As a new employee of Sallyanne's, you find out that a trade draft is
a means of pledging accounts receivable.
an agreement to meet certain terms, which is attached to the shipment and which must be signed before the goods are delivered to the buyer.
a legal agreement promising to pay for the goods, which is signed by the buyer before the seller will ship the goods.
a type of secured loan with trade products serving as collateral.
the seller ships products on faith that payment will be forthcoming.

Accepted Answer

The answer of Sallyanne is selling merchandise to a retailer...

Question 9

Mega has just shipped one of its products to Compucell on faith that they will pay the invoice. This is a(n)
trade acceptance.
revolving credit agreement.
line of credit.
open-book credit.
promissory note.

Accepted Answer

The answer of Mega has just shipped one of its...

Question 10

For a specific firm, which of the following is most likely to carry the lowest interest rate?
Loan secured by fixed assets
Commercial paper
Loan secured by finished goods
Unsecured loan
Loan secured by raw materials

Accepted Answer

The answer of For a specific firm, which of the...

Question 11

Why is it necessary for a business firm to put up collateral when it takes out a loan?
So that the bank can keep a portion as advance payment on the loan
To show the bank that the business is big enough to require the loan
To assure the bank that loan payments will be made as promised
So the financial managers know dates of payment
So that the accounting people can generate accurate financial statements

Accepted Answer

The answer of Why is it necessary for a business...

Question 12

Which term is used to identify a bank's requirement for the borrower to give the bank the right to seize certain assets if payments are not made as promised?
Pledging accounts payable
Open-book credit
Pledging accounts receivable
Collateral
Trade acceptance

Accepted Answer

The answer of Which term is used to identify a...

Question 13

What is a promissory note?
A "gentleman's agreement" to pay for products which were shipped on faith that the payment would be forthcoming
A short-term loan which uses accounts receivable as collateral for a loan
An agreement signed by the buyer stating when and how much money will be paid to the seller in return for immediate credit
The requirement for a firm to maintain a certain amount of funds on deposit with the lending bank
The right given to a bank to seize certain assets if payment is not made when due

Accepted Answer

The answer of What is a promissory note?
A "gentleman's agreement"...

Question 14

The main source of collateral for companies like accounting firms and law firms is
cash flow.
equipment and buildings.
accounts receivable.
accounts payable.
goodwill

Accepted Answer

The answer of The main source of collateral for companies...

Question 15

How may a firm obtain an unsecured short-term bank loan?
Obtain open-book credit
Provide a fixed asset as a guarantee of payment
Pledge accounts receivable
Obtain a line of credit agreement
Obtain an inventory loan

Accepted Answer

The answer of How may a firm obtain an unsecured...

Question 16

Capital expenditures differ from operating expenditures in that
they are much smaller.
they are shorter commitments.
they are part of working capital.
they are not budgeted.
they are not normally sold or converted into cash.

Accepted Answer

The answer of Capital expenditures differ from operating expenditures in...

Question 17

The most common form of trade credit is
the trade acceptance.
the trade draft.
the promissory note.
open-book credit.
none of these.

Accepted Answer

The answer of The most common form of trade credit...

Question 18

Secured, short-term loans are usually secured by
deposits with the bank.
fixed assets.
inventories.
commercial paper.
trade credit.

Accepted Answer

The answer of Secured, short-term loans are usually secured by
deposits...

Question 19

Cut out but not-yet-sewn jeans are part of the ______inventory at a clothing manufacturer.
raw materials
work-in-process
finished goods
just-in-time
last in, first out

Accepted Answer

The answer of Cut out but not-yet-sewn jeans are part...

Question 20

Sallyanne is selling merchandise to Jack's Machine Shop. Sallyanne felt secure in receiving payment because she had Jack sign a promissory note. Sallyanne felt secure because a promissory note is
an agreement signed by the buyer stating when and how much money will be paid to the seller in return for immediate credit.
the requirement for a firm to maintain a certain amount of funds on deposit with the lending bank.
a "gentleman's agreement" to pay for products which were shipped on faith that the payment would be forthcoming.
the right given to a bank to seize certain assets if payment is not made when due.
basically the same thing as a trade acceptance.

Accepted Answer

The answer of Sallyanne is selling merchandise to Jack's Machine...

Quiz 15: Financial Decisions and Risk Management

Which of the following requires a commitment fee? Line of credit Factoring Revolving credit agreement Trade acceptance Commercial paper

Which of the following guarantees that funds will be available? Trade credit Pledging assets Trade draft Line of credit Revolving credit agreement

Jack is setting up a global operation. The form of trade credit that is particularly useful for Jack's international transactions would be revolving credit agreement. promissory notes. trade acceptance. line of credit. open-book credit.

Which term is used to identify the granting of credit by one firm to another? A line of credit A commitment fee Trade credit A secured loan An inter-firm understanding of commercial intent

Mega has just shipped one of its products to Compucell on faith that they will pay the invoice. This is a(n) trade acceptance. revolving credit agreement. line of credit. open-book credit. promissory note.

For a specific firm, which of the following is most likely to carry the lowest interest rate? Loan secured by fixed assets Commercial paper Loan secured by finished goods Unsecured loan Loan secured by raw materials

Which term is used to identify a bank's requirement for the borrower to give the bank the right to seize certain assets if payments are not made as promised? Pledging accounts payable Open-book credit Pledging accounts receivable Collateral Trade acceptance

The main source of collateral for companies like accounting firms and law firms is cash flow. equipment and buildings. accounts receivable. accounts payable. goodwill

How may a firm obtain an unsecured short-term bank loan? Obtain open-book credit Provide a fixed asset as a guarantee of payment Pledge accounts receivable Obtain a line of credit agreement Obtain an inventory loan

Capital expenditures differ from operating expenditures in that they are much smaller. they are shorter commitments. they are part of working capital. they are not budgeted. they are not normally sold or converted into cash.

The most common form of trade credit is the trade acceptance. the trade draft. the promissory note. open-book credit. none of these.

Secured, short-term loans are usually secured by deposits with the bank. fixed assets. inventories. commercial paper. trade credit.

Cut out but not-yet-sewn jeans are part of the ______inventory at a clothing manufacturer. raw materials work-in-process finished goods just-in-time last in, first out