Which of the Following Is NOT a Situation That Might

question 65

Multiple Choice

Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities?

• A) The firm must make a known future payment,such as paying for a new plant that is under construction.
• B) The firm is going from its peak sales season to its slack season,so its receivables and inventories will experience a seasonal decline.
• C) The firm is going from its slack season to its peak sales season,so its receivables and inventories will experience seasonal increases.
• D) The firm has just sold long-term securities and has not yet invested the proceeds in operating assets.
• E) The firm just won a product liability suit one of its customers had brought against it.

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Definitions:

Issuance

The process of distributing something, especially financial instruments like stocks or bonds, to investors.

Semiannually

Taking place twice within a year or every half year.

Effective Interest Method

An accounting technique for calculating interest expense on bonds that amortizes discount or premium over the life of the bonds.

Straight-line Method

A depreciation technique that allocates an equal portion of the value of an asset over its useful life, used to gradually reduce the asset's book value.