Firms Generally Choose to Finance Temporary Assets with Short-Term Debt

question 51

Multiple Choice

Firms generally choose to finance temporary assets with short-term debt because

• A) Matching the maturities of assets and liabilities reduces risk.
• B) Short-term interest rates traditionally have been more stable than long-term interest rates.
• C) A firm that borrows heavily long-term is more apt to be unable to repay the debt than the firm that borrows heavily short-term.
• D) The yield curve traditionally has been downward sloping.
• E) Sales remain constant over the year,and financing requirements also remain constant.

Distinguish between permanent (real) and temporary (nominal) accounts and their treatment in closing processes.

Grasp the concept of pro forma statements and their purpose in financial planning and analysis.

Accurately record and adjust prepaid expenses and unearned revenues in the accounting records.

Understand the process of closing the dividend account and its impact on the retained earnings.

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Definitions:

Reflection

In geology, the process by which seismic waves bounce off layers within Earth's interior, helping to understand sub-surface structures.

Refraction

The bending of a wave, such as light or sound, as it passes from one medium to another medium of different density.

Seismic Wave

Seismic waves are waves of energy that travel through the Earth's layers, resulting from earthquakes, volcanic eruptions, and other geologic processes.

Seismograms

Records produced by seismographs that display the intensity and duration of earthquake waves, used in the study and monitoring of seismic events.