Chapter 15 Current Liabilities Management

Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 15 Current Liabilities Management

15.1 Spontaneous liabilities

1) Spontaneous unsecured financing has a specific interest cost associated with it that can be at a
fixed or floating rate.
Answer: FALSE
Diff: 1
Topic: Spontaneous Liabilities
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

2) Accounts payable are spontaneous secured sources of short-term financing that arise from the
normal operations of a firm.
Answer: FALSE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

3) Notes payable are either spontaneous secured or spontaneous unsecured financing and result
from the normal operations of a firm.
Answer: FALSE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

4) Accounts payable results from transactions in which merchandise is purchased but no formal
note is signed to show the purchaser's liability to the seller.
Answer: TRUE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking




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,5) 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
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

6) Spontaneous liabilities such as accounts payable and accruals represent a source of financing
that arise from the normal course of business.
Answer: TRUE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

7) 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
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

8) In giving up a cash discount, the amount of the discount that is given up is the interest being
paid by a firm to keep its money by delaying payment for a number of days.
Answer: TRUE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

9) 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
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking




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,10) If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is
reduced.
Answer: TRUE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

11) For firms that are in a financial position to take a cash discount, it is advisable to take the
discount if the terms offered are 2/10 net 30.
Answer: TRUE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

12) Spontaneous liabilities such as accounts payable and notes payable represent a source of
financing that arise from the normal course of business.
Answer: FALSE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

13) Spontaneous liabilities such as accounts payable and accruals represent a use of financing
that arise from the normal course of business.
Answer: FALSE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

14) For firms that are in a financial position to take a cash discount, it is advisable not to take the
discount if the terms offered are 2/10 net 30.
Answer: FALSE
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking




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, 15) As sales increase, a company needs more inventory and more employees resulting in
________.
A) more accounts payable and accruals, and therefore increasing its spontaneous liabilities
B) less accounts payable and accruals, and therefore decreasing its spontaneous liabilities
C) more accounts payable and accruals, and therefore decreasing its spontaneous liabilities
D) less accounts payable and accruals, and therefore increasing its spontaneous liabilities
Answer: A
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

16) The two major spontaneous liabilities that provide sources of short-term financing are
________.
A) a line of credit and notes payable
B) accounts payable and accruals
C) a line of credit and term loans
D) accounts receivable and notes payable
Answer: B
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking

17) Accruals and accounts payable are ________.
A) negotiated and secured sources of long-term financing
B) negotiated and unsecured sources of short-term financing
C) secured sources of short-term financing
D) spontaneous and unsecured sources of short-term financing
Answer: D
Diff: 1
Topic: Accounts Payable Management
Learning Obj.: LG 1
Learning Outcome: F-24
AACSB: Analytical Thinking




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