Chapter 12

Question 1

is an important management responsibility that deals with the procurement and administration of funds with the view of achieving the objectives of business

Answer 1

finance function

Question 2

the determination of fund requirements

Answer 2

1. to finance daily operations
2. to finance the firm’s credit services
3. to finance the purchase of inventory
4. to finance the purchase of major assets

Question 3

money must be made available for the payment for the following

Answer 3

1. wages and salaries
2. rent
3. taxes
4. power and light
5. marketing expenses
6. administrative expenses

Question 4

the sources of funds

Answer 4

1. cash sales
2. collection of accounts receivables
3. loans and credits
4. sale of assets
5. ownership contribution
6. advances from customers

Question 5

loans and credits may be classified as

Answer 5

short-term, medium term, or long-term

Question 6

refers to suppliers extending credit to a buyer for use in manufacturing, processing, or reselling goods for profit

Answer 6

trade creditors

Question 7

the instruments used in trade credit consists of the following

Answer 7

1. open-book credit
2. trade acceptance
3. promissory notes

Question 8

unsecured and permits the costumers to pay for goods delivered to him in a specified number of days

Answer 8

open-book credit

Question 9

a time draft drawn by a seller upon a purchase payable to the seller as payee, and accepted by the purchaser as evidence that the goods shipped are satisfactory and that the price is due and payable

Answer 9

trade acceptance

Question 10

an unconditional promise in writing made by one person to another , signed by the maker engaging to pay on demand or at a fixed or determinable future time, a certain sum of money to, or to the order of, a specified person or to bearer

Answer 10

promissory note

Question 11

are institutions which individuals or firms may tap as source of short-term financing

Answer 11

commercial banks

Question 12

commercial banks grants two types of short-terms loans

Answer 12

1. those which require collateral
2. those which not require collateral

Question 13

are those that help business firms in borrowing funds from the money market

Answer 13

commercial paper house

Question 14

are financial institutions that finance inventory and equipment of almost all types of sizes of business firms

Answer 14

business finance companies

Question 15

are institutions that buy the accounts receivables of firms, assuming complete accounting and collection responsibilities

Answer 15

factors

Question 16

are also possible sources of short-term funds

Answer 16

insurance companies

Question 17

long-term sources of funds are classified as follows

Answer 17

1. long-term debts
2. commong stocks
3. retained earnings

Question 18

long-term debts are sub-classified into

Answer 18

term loans and bonds

Question 19

is a commercial or industrial loan from a commercial bank commonly used for plant and equipment working capital or debt repayment

Answer 19

term loan

Question 20

is a certificate of indebtedness issued by a corporation to a lender

Answer 20

bonds

Question 21

the third source of long-term funds consists of the issuance of

Answer 21

common stocks

Question 22

refer to corporate earnings not paid out as dividends

Answer 22

retained earnings

Question 23

type of bond

Answer 23

1. debentures
2. mortgage bond
3. collateral trust bond
4. guaranteed bond
5. subordinated debentures
6. convertible bonds
7. bonds with warrants
8. income bonds

Question 24

determine the best source of financing, schall and haley recommends that the following factors must be considered

Answer 24

1. flexibility
2. risk
3. income
4. control
5. timing
6. other factors like collateral values, flotations costs, speed, and exposure

Question 25

also called statement of financial position

Answer 25

balance sheet

Question 26

also called statement of operations

Answer 26

income statement

Question 27

refers to the uncertainity concerning lose or injury

Answer 27

risk

Question 28

risks may be classified as either

Answer 28

pure or speculative

Question 29

is one in which “there is only a chance of loss”

Answer 29

pure risk

Question 30

one in which there is a chance of either loss or gain

Answer 30

speculative risk

Question 31

an organized strategy for protecting and conserving assets and people

Answer 31

risk management

Question 32

is a method of handling risk wherein the management assumes the risk

Answer 32

risk retention

Question 33

also called self-insurance is a conscious and deliberate assumption of a recognized risk

Answer 33

planned risk retention

Question 34

exists when management does not recognize that the risk exists and unwisely believes that no loss could occur

Answer 34

unplanned risk retention

Question 35

refers to making commitments on both sides of a transaction so the rish offset each other

Answer 35

hedging