Question

The credit that is created when a supplier sells goods and services on an account with extended payment terms is called . Garcia Assemblers Corporation is a manufacturing company. Garcia’s financial managers use many sources of financing for the company’s annual borrowings, which exceed $100 million. Garcia’s credit rating is excellent. At the moment, the managers are looking to fund a $5 million payroll by issuing a note with a 30-day maturity. What type of financing is this? Trade credit Accrual Commercial paper Bank loans

Answer 1

The correct answers are :

1.Trade credit

2. Commercial paper

Step-by-step explanation:

In a bid to grow business and entice customers ,suppliers sell merchandise their customers with an agreement to receive payment at a later date,this is effectively funding the customers' business since a financial institution would have charged interest on such finance.This is done most times in order to boost revenue and retain customers by offering a trade credit.

Commercial paper is a short term note issued by corporate bodies with good credit rating in order to fund short term expenditure like payment of staff cost.

Its maturity can be 270 days or less.The practice is that it is issued at a discount ,that is the issuer receives a discounted value in return for full face value at maturity.

Answer 2

1. The credit that is created when a supplier sells goods and services on an account with extended payment terms is called Trade credit.

2. The type of financing practiced by Garcia Assemblers Corporation is called Commercial paper.

Step-by-step explanation:

Trade credit is the type of credit wherein a supplier sells goods and services with extended payment term. There is no immediate exchange of money.

Commercial paper is a short-term debt instrument mostly used by large corporations to finance payrolls and other short-term liabilities. It is unsecured as it is mostly issued without collateral. This method of financing is used by firms with good debt ratings. The denominations of the commercial paper is also usually high. Garcia Assemblers Corporation fit the description of a firm with high debt ratings using commercial paper to finance a high payroll.