Correct Answer: A

Explanation: Refinancing a short-term note payable with a two-year note payable would increase the working capital of a firm.

Current Assets - Current Liabilities = Working Capital
Assuming CA = $10 and CL = $6, WC = $4. ($10 - $6 = $4)

If a company refinances $2 worth of short-term notes payable with a two year note payable, working capital would increase. ($10 - $4 = $6).

The purchase of a new plant financed by a 20-year mortgage would not increase the working capital of a firm. WC would stay the same. A cash collection of accounts receivable would not increase the working capital of a firm. WC would stay the same. A payment of a 20-year mortgage payable with cash would not increase the working capital of a firm. WC would decrease.

Today's question: FAR

The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method includes the ratio of:

A) Total costs incurred to date to total estimated costs

B) Total costs incurred to date to total billings to date

C) Costs incurred in year 3 to total estimated costs

D) Costs incurred in year 3 to total billings to date

Correct Answer: A

Explanation: Income recognized in the third year of a five-year construction contract using percentage-of-completion method would be calculated by multiplying the ratio of the total cost incurred to date divided by the estimated total cost times the estimated total gross profit on the contract less the gross profit recognized in years one and two. Note that billings on the contract do not affect the calculation of income recognized.

Today's question: REG

Burn Manufacturing borrowed $500,000 from Howard Finance Co., secured by Burn's present and future inventory, accounts receivable, and the proceeds thereof. The parties signed a financing statement that described the collateral and it was filed in the appropriate state office. Burn subsequently defaulted in the repayment of the loan and Howard attempted to enforce its security interest. Burn contended that Howard's security interest was unenforceable. In addition, Green, who subsequently gave credit to Burn without knowledge of Howard's security interest, is also attempting to defeat Howard's alleged security interest. The security interest in question is valid with respect to _________________

A) both Burn and Green.

B) neither Burn nor Green.

C) burn but not Green.

D) green but not Burn.

Correct Answer: A

Explanation: A creditor with a security interest will have rights against a debtor when attachment has occurred. Three elements are required for attachment: an agreement between the debtor and the creditor, value must be given by the creditor and the debtor must have rights in the collateral. Howard will have rights against Burn (debtor), because there was a written security agreement, value was given by Howard ($500,000) and the debtor had rights in the collateral (inventory and accounts receivable). When two creditors are fighting over the same collateral, usually the first creditor to perfect wins. Since Howard perfected by filing before Green gave credit, Howard's security interest has priority over Green.