Chapter 8

Question 1

Commercial Paper

Answer 1

one company borrows from another

Question 2

Fringe Benefits

Answer 2

additional benefits paid for by the employer (ex: insurance premiums, retirement/savings plans)

Question 3

Sales Tax Formula

Answer 3

= total cash paid - (total cash paid / 1 + sales tax rate)

Question 4

Contingent Liability

Answer 4

existing uncertain situation that might result in a loss (lawsuits, warranties, environmental problems, premium offers)

**Only record if probable and reasonably estimable

Question 5

Contingent Gains

Answer 5

situation that might result in a gain (lawsuit)

**Only record if gain is certain

Question 6

Liquidity

Answer 6

having sufficient cash to pay maturing debts

Question 7

Working Capital

Answer 7

current assets - current liabilities

Question 8

Current Ratio

Answer 8

current assets / current liabilities

Question 9

Acid Test Ratio

Answer 9

= (cash + current investments + A/R) / (current liabilities)

Question 10

Debt Covenant

Answer 10

agreement that requires a certain minimum financial measure be met or the lender can recall the debt