Question 1

What is the term for the extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them?

Accepted Answer

Trade credit is the term for the extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them. Revolving credit refers to a line of credit that can be used repeatedly up to a certain limit. Supplier's credit is a type of financing where a supplier extends credit to a buyer to finance the purchase of equipment or services. A line of credit is a preset amount of credit that a borrower can draw from as needed.

Question 2

Short-term loans are best described by which of the following?

Accepted Answer

Short-term loans are liabilities because they represent money that the company owes and must repay, typically within a year, and thus are recorded on the balance sheet as such. The other options are incorrect because short-term loans can be either secured or unsecured (not always secured), and their defining feature is a maturity of less than one year (not one year or longer).

Question 3

Grainger Distribution Company sold Long Electronics 10 circuit breakers for $169.00 each. Long Electronics will be allowed 30 days to pay the bill. Grainger will carry the $1690.00 on its books as which of the following?

Accepted Answer

Since Long Electronics has not yet paid for the circuit breakers, Grainger will consider the $1690.00 as an account receivable on its books. This means that Grainger is owed money from Long Electronics and will receive payment at a later date.

Question 4

Which of the following is NOT a technique for reducing the investment in inventory?

Accepted Answer

Just-in-time system, inventory management, and materials requirement planning are all techniques for reducing the investment in inventory. Allocation analysis, however, refers to the process of assigning or allocating costs to different departments or products and does not directly relate to managing inventory levels.

Question 5

Capital budgeting is best described by which of the following?

Accepted Answer

Capital budgeting involves the evaluation and selection of long-term investment proposals, such as the acquisition of new equipment or the expansion of a product line, based on their potential profitability and return on investment. It is focused on selecting the best assets or projects for investment, rather than analyzing production costs or combining all budgets into a master budget.

Question 6

What is an agreement between a bank and a person or business that specifies the maximum amount of short-term borrowing the bank will make available to that person or business?

Accepted Answer

A line of credit is an agreement between a bank and a person or business that specifies the maximum amount of short-term borrowing that the bank will make available to that person or business. It functions like a credit card, allowing the borrower to draw funds as needed, up to the maximum limit agreed upon.

Question 7

Which of the following is the process of selecting the capital expenditures that offer the best returns and meet the goal of maximizing the company's value?

Accepted Answer

Capital budgeting is the process of selecting capital expenditures that are most likely to maximize the company's value. It involves analyzing the potential return on investment and the associated risks of various capital projects, and then selecting those projects that are expected to generate the highest returns. Capital allocation is more focused on distributing funds across different projects or business units, while budget analysis refers to the overall process of creating and managing a budget for the organization. Capital evaluation is not a commonly used term in financial analysis or planning.

Question 8

When Magna Manufacturing sells hand screwdriver sets to Malloy Building Supply Company, Magna bills the tool manufacturer for the screwdriver purchase with terms of payment, which specify when the account is due. What is this type of unsecured?

Accepted Answer

This type of unsecured credit is known as trade credit, which is a common arrangement where a supplier sells goods or services to a buyer on credit, with agreed-upon payment terms. In this case, Magna Manufacturing is extending trade credit to Malloy Building Supply Company by invoicing them for the screwdriver sets and specifying the terms of payment.

Question 9

What are sales for which a company has not yet been paid?

Accepted Answer

The answer of What are sales for which a company...

Question 10

What are the three main types of unsecured short-term loans?

Accepted Answer

Trade credit, bank loans, and commercial paper are the three main types of unsecured short-term loans commonly used by businesses for financing their operations.

Question 11

Which of the following is a type of loan often used to finance buildup of inventory for seasonal (cyclical) businesses just before its strongest sales period?

Accepted Answer

The answer of Which of the following is a type...

Question 12

What are funds invested in long-lived assets, such as land, buildings, machinery, and equipment?

Accepted Answer

Capital expenditures refer to funds that are invested in long-lived assets, such as land, buildings, machinery, and equipment. These assets are used to generate income over a prolonged period, and their purchase is viewed as an investment rather than an expense. Operating expenses, production costs, and manufacturing expenses, on the other hand, are typically associated with ongoing business operations and do not involve the purchase of long-lived assets.

Question 13

Which of the following managers wants to keep the least amount of inventory on hand?

Accepted Answer

Finance managers are responsible for managing the company's financial resources and maximizing profits. Keeping excess inventory on hand ties up capital that could be used for other purposes, therefore they generally prefer to keep the least amount of inventory on hand as possible.

Question 14

The financial manager's goal is to collect money owed to the company as quickly as possible while offering customers credit terms attractive enough to do which of the following?

Accepted Answer

The financial manager aims to offer attractive credit terms to increase sales by encouraging more customers to purchase, while still ensuring timely collection of payments.

Question 15

Which of the following businesses would be most likely to require an unsecured bank loan, such as a line of credit or a revolving credit agreement?

Accepted Answer

A Christmas tree farm would be most likely to require an unsecured bank loan like a line of credit or revolving credit agreement due to the seasonal nature of its business, needing funds to cover operating expenses until sales revenue is received.

Question 16

As the Toronto-based Four Seasons hotel chain remodels an existing hotel in Mumbai to bring it to the five-star hotel's exacting standards, it is building a magnificent revolving restaurant overlooking the Arabian Sea. The restaurant structure is an example of which of the following?

Accepted Answer

The construction of the revolving restaurant is a long-term investment in the hotel's infrastructure that is expected to generate revenue and add value over time. Therefore, it is a capital expenditure.

Question 17

Which of the following would be an example of a capital expenditure for a superstore that specializes in outdoor grills and other items needed for outside dining?

Accepted Answer

A parking lot is a major investment and would be considered a capital expenditure for a superstore. The other options listed are more likely to be considered operating expenses.

Question 18

Which of the following are specific repayment conditions as to how long customers have to pay bills and the amount of cash discount allowed?

Accepted Answer

Credit terms refer to the specific repayment conditions as to how long customers have to pay bills and the amount of cash discount allowed. Revolving accounts refer to a credit account where the customer can borrow up to a certain limit and then repay the balance over time. Credit credentials are the qualifications necessary for obtaining credit, such as a good credit score. Liability procedures refer to the protocols for determining responsibility and accountability in a legal or financial situation.

Question 19

Toronto Pneumatic Tools has changed its credit terms to encourage its buyers to pay their accounts receivable more quickly. Which of the following represents the policy that the financial manager has changed?

Accepted Answer

The financial manager has changed the credit terms to encourage quicker payment of accounts receivable. Credit terms refer to the agreed-upon terms and conditions of payment between the supplier and the buyer. By changing credit terms, a company can incentivize buyers to pay sooner or penalize them for paying late. Therefore, option C represents the policy that the financial manager has changed. The other options, credit ratings, account flexibility, and collection policy rate, do not reflect the policy change in this scenario.

Question 20

Which of the following is NOT one of the three main types of unsecured short-term loans?

Accepted Answer

Accounts payable is not a type of loan; it is a liability representing money owed by a company to its suppliers.

Quiz 18: Finance