A toy manufacturer following the self-liquidating debt. principle will generally finance seasonal inventory build-up prior to the Holiday season with
A) common stock.
B) selling equipment.
C) trade credit.
D) preferred stock.

Question

Quizplus · Accepted Answer

The self-liquidating debt principle states that short-term loans should be taken out to finance inventory build-up that will be sold during a certain season. In this case, it is prior to the Holiday season. Trade credit is a type of short-term borrowing that does not require the business to pay interest but must be paid off within a certain period of time, allowing the business to use the income from selling the seasonal inventory to pay off the debt. Selling equipment or issuing common or preferred stock are not methods typically used to finance seasonal inventory build-up.

A Toy Manufacturer Following the Self-Liquidating Debt