Final answer:
The discount on short-term notes payable should not be included in the current liabilities section of a balance sheet. It reflects an adjustment to the value of the note rather than an obligation. The decision to buy loans in the secondary market is influenced by factors such as the borrower's payment history, changes in interest rates, and the borrower's profitability.
Step-by-step explanation:
The item that should not be included in the current liabilities section of the balance sheet is 'c. The discount on short-term notes payable'. Current liabilities include obligations that a company expects to pay within one year. While both trade notes payable and short-term zero-interest-bearing notes payable are obligations the company owes and will settle within a year, the discount on short-term notes payable is not a liability but rather an adjustment to the carrying amount of the note and is reported as an asset under contra-assets or directly reduces the reported amount of the note payable.
Assets listed on a bank's balance sheet may not actually be in the bank because banks operate on a fractional reserve system, meaning they are required to keep only a fraction of their depositors' money in reserve, lending the rest out to earn interest. The money represented as assets on the balance sheet could be in the form of outstanding loans to customers, investments, or other financial instruments.
Buying Loans in the Secondary Market
You would pay less for a loan if the borrower has been late on loan payments due to increased risk of default.
You would potentially pay less if interest rates have risen since the loan was made because the loan's fixed interest rate would be less attractive compared to new loans with higher rates.
You would be willing to pay more for a loan if the borrower is a firm that has just declared high profits as this indicates a higher likelihood of loan repayment.
If interest rates have fallen, you might pay more for a loan made at higher interest rates, since it yields better returns than new loans at current lower rates.
Regarding M1 and M2:
a. Line of credit - Neither M1 nor M2.
b. Traveler's checks - M1
c. Quarters in your pocket - M1
d. Checking account - M1
e. Money market account - M2