Principles of Managerial Finance, 12e (Gitman)
Chapter 15 Current Liabilities Management
Learning Goal 1: Review accounts payable, the key components of credit terms, and the
procedures for analyzing those terms.
1) Accounts payable are spontaneous secured sources of short-term financing that arise from
the normal operations of the firm.
Answer: FALSE
Topic: Accounts Payable
Question Status: Previous Edition
2) Notes payable can be either spontaneous secured or spontaneous unsecured financing and
result from the normal operations of the firm.
Answer: FALSE
Topic: Notes Payable
Question Status: Previous Edition
3) Accounts payable result from transactions in which merchandise is purchased but no formal
note is signed to show the purchaser's liability to the seller.
Answer: TRUE
Topic: Accounts Payable
Question Status: Previous Edition
4) In credit terms, EOM (End-of-Month) indicates that the accounts payable must be paid by
the end of the month in which the merchandise has been purchased.
Answer: FALSE
Topic: Analyzing Credit Terms
Question Status: Previous Edition
5) Spontaneous liabilities such as accounts payable and accruals represent a source of financing
that arise from the normal course of business.
Answer: TRUE
Topic: Spontaneous Liabilities
Question Status: Previous Edition
6) Spontaneous liabilities such as accounts payable and notes payable represent a source of
financing that arise from the normal course of business.
Answer: FALSE
Topic: Spontaneous Liabilities
Question Status: Previous Edition
7) Spontaneous liabilities such as accounts payable and accruals represent a use of financing
that arise from the normal course of business.
Answer: FALSE
Topic: Spontaneous Liabilities
Question Status: Previous Edition
1
, 8) For firms that are in a financial position to take a cash discount, it is generally a more
financially sound decision not to take the discount if the terms offered are 2/10 net 30.
Answer: FALSE
Topic: Cost of Giving Up a Cash Discount (Equation 15.1)
Question Status: Previous Edition
9) The two major sources of short-term financing are
A) a line of credit and accounts payable.
B) accounts payable and accruals.
C) a line of credit and accruals.
D) accounts receivable and notes payable.
Answer: B
Topic: Accounts Payable and Accrued Liabilities
Question Status: Previous Edition
10) Accruals and accounts payable are ________ sources of short-term financing.
A) negotiated, secured
B) negotiated, unsecured
C) spontaneous, secured
D) spontaneous, unsecured
Answer: D
Topic: Accounts Payable and Accrued Liabilities
Question Status: Previous Edition
11) ________ are the major source of unsecured short-term financing for business firms.
A) Accounts receivable
B) Accruals
C) Notes payable
D) Accounts payable
Answer: D
Topic: Accounts Payable
Question Status: Previous Edition
12) Financing that arises from the normal operations of the firm is said to be
A) expected.
B) accrued.
C) spontaneous.
D) payable.
Answer: C
Topic: Spontaneous Liabilities
Question Status: Previous Edition
2
, 13) Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the
cash discount, assuming payment would be made on the last day of the credit period, would
be
A) 75.26%.
B) 18.56%.
C) 72.99%.
D) 37.12%.
Answer: A
Topic: Cost of Giving Up a Cash Discount (Equation 15.1)
Question Status: Revised
14) Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the
cash discount, assuming payment would be made on the last day of the credit period, is
75.26 percent. If the firm were able to stretch its accounts payable to 60 days without
damaging its credit rating, the cost of giving up the cash discount would only be
A) 18.81%.
B) 18.25%.
C) 21.90%.
D) 25.09%.
Answer: D
Topic: Cost of Giving Up a Cash Discount (Equation 15.1)
Question Status: Revised
15) Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the
cash discount, assuming payment would be made on the last day of the credit period, would
be ________. If the firm were able to stretch its accounts payable to 60 days without
damaging its credit rating, the cost of giving up the cash discount would only be ________.
A) 72.99%; 18.81%
B) 72.99%; 18.25%
C) 75.25%; 21.90%
D) 75.26%; 25.09%
Answer: D
Topic: Cost of Giving Up a Cash Discount (Equation 15.1)
Question Status: Revised
Learning Goal 2: Understand the effects of stretching accounts payable on their cost,
and the use of accruals.
1) Accruals are liabilities for services received for which payment has yet to be made.
Answer: TRUE
Topic: Accrued Liabilities
Question Status: Previous Edition
2) The cost of giving up a cash discount is the implied rate of interest paid in order to delay
payment of an account payable for an additional number of days.
Answer: TRUE
Topic: Cost of Giving up a Cash Discount
Question Status: Previous Edition
3
, 3) In giving up a cash discount, the amount of the discount that is given up is the interest being
paid by the firm to keep its money by delaying payment for a number of days.
Answer: TRUE
Topic: Cost of Giving up a Cash Discount
Question Status: Previous Edition
4) If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is
increased.
Answer: FALSE
Topic: Cost of Giving up a Cash Discount
Question Status: Previous Edition
5) A firm should take the cash discount if the firm's cost of borrowing from the bank is greater
than the cost of giving up a cash discount.
Answer: FALSE
Topic: Cost of Giving up a Cash Discount
Question Status: Previous Edition
6) If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is
reduced.
Answer: TRUE
Topic: Cost of Giving up a Cash Discount
Question Status: Previous Edition
7) For firms that are in a financial position to take a cash discount, it is generally a more
financially sound decision to take the discount if the terms offered are 2/10 net 30.
Answer: TRUE
Topic: Cost of Giving Up a Cash Discount (Equation 15.1)
Question Status: Previous Edition
8) If possible, it would be a more financially sound decision to pay employees once every two
weeks rather than once a month.
Answer: FALSE
Topic: Accrued Liabilities Management
Question Status: Previous Edition
9) ________ are liabilities for services received for which payment has yet to be made. The most
common accounts are taxes and wages.
A) Notes payable
B) Accruals
C) Accounts payable
D) Accounts receivable
Answer: B
Topic: Accrued Liabilities
Question Status: Previous Edition
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ivann. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R100,00. You're not tied to anything after your purchase.
