Which of the Following Statements About Various Short-Term Credit Alternatives

question 21

Multiple Choice

Which of the following statements about various short-term credit alternatives is correct?

• A)The firm has complete control over the terms and the levels of the accruals it uses, which makes this type of credit an attractive source of additional funding.
• B)Commercial paper is a type of secured promissory note issued by large, financially strong firms.
• C)Banks generally charge a commitment fee on the used balances of credit lines to compensate for guaranteeing the availability of revolving credit.
• D)The funds used by a firm to maintain a compensating balance with the bank cannot be used by the firm to pay its bills or to invest in capital budgeting projects.
• E)The credit created when one firm buys goods or services on credit from another firm is known as accounts receivable.

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Definitions:

Available-for-Sale Securities

Financial instruments that are not classified as held-for-trading or held-to-maturity, marked to market for financial reporting purposes.

Unrealized Increase/Decrease

Refers to the increase or decrease in the value of an asset or investment that has not been sold.

Fair Value

An impartial estimate of the market value of an asset or liability, based on current market prices.

Available-for-Sale

A classification for financial assets that are not to be held to maturity or for trading purposes, allowing for changes in value to be recorded in other comprehensive income.