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IIA CIA Exam
Certified Internal Auditor Exam (Page 13 )

Updated On: 12-Jan-2026
Page 13 of 342
PDF with 1702 Questions

Short-term, unsecured promissory notes issued by large entities are known as

  1. Agency securities.
  2. Bankers acceptances.
  3. Commercial paper.
  4. Repurchase agreements.

Answer(s): C

Explanation:

Commercial paper is the term for the short-term typically less than 9 months). unsecured, large denomination often over US $100, 000) promissory notes issued by large. creditworthy companies to other companies and institutional investors. In many instances, the maturity date is only a few days after issuance.



The following forms of short-term borrowing are available to an entity_
Floating lien
Factoring
Revolving credit
Chattel mortgages Bankers' acceptances . Lines of credit Commercial paper
The forms of short-term borrowing that are unsecured credit are

  1. Floating lien, revolving credit, chattel mortgage, and commercial paper
  2. Factoring, chattel mortgage, bankers' acceptances, and line of credit
  3. Floating lien, chattel mortgage, bankers' acceptances, and line of credit
  4. Revolving credit, bankers' acceptances, line of credit, and commercial paper

Answer(s): D

Explanation:

An unsecured loan is a loan made by a bank based on credit information about the borrower and the ability of the borrower to repay the obligation. The loan is not secured by collateral, but is made on the signature of the borrower. Unsecured credit is not backed by collateral. Revolving credit. bankers' acceptances, lines of credit, and commercial paper are all unsecured means of borrowing. A chattel mortgage is a loan secured by personal property movable property such as equipment or livestock). A floating lien is also secured by property, such as inventory, the composition of which may be constantly changing. Factoring is a form of financing in which receivables serve as security.



Factoring is the

  1. Selling of accounts receivable by one entity to another.
  2. Selling of inventory by one entity to another.
  3. Conversion of accounts receivable to bad debt on financial statements for accounts that are long overdue.
  4. Adjustment of inventories on financial statements for supplies that have become obsolete.

Answer(s): A

Explanation:

A factor purchases an entity's accounts receivable and assumes the risk of collection. The seller receives money immediately to reinvest in new inventories. The financing cost is usually high: about 2 points or more above prime, plus a fee for collection. Factoring has been traditional in the textile industry for years, and recently companies in many industries have found it an efficient means of operation. An entity that uses a factor can eliminate its credit department, accounts receivable staff, and bad debts. These reductions in costs can more than offset the fee charged by the factor, which can often operate more efficiently than its clients because of the specialized nature of its service.



An example of secured short-term financing is

  1. Commercial paper.
  2. A warehouse receipt
  3. A revolving credit agreement.
  4. Trade credit

Answer(s): B

Explanation:

A document of title is usually issued by a bailee covering goods in the bailee's possession or care UCC 1-201). It represents ownership of the goods and is ordinarily needed to obtain the goods from the bailee. The two major types of documents of title are bills of lading issued by carriers) and warehouse receipts_ A warehouse receipt is issued by a person engaged in the business of storing goods for hire. Security for short-term inventory financing can be arranged if the debtor places its inventory under the control of the lender or its agent e.g., a public warehouse), and the lender holds the warehouse receipts.



The credit instrument known as a banker's acceptance

  1. Calls for immediate payment upon delivery of the shipping documents to the bank's customer and acceptance of Hoods by the bank.
  2. Involves an invoice being signed by the banker upon receipt of goods, after which both the banker and the seller record the transaction on their respective books.
  3. Is a time draft payable on a specified date and guaranteed by the bank.
  4. Is a method of sales financing in which the bank retains title to the goods until the buyer has completed payment

Answer(s): C

Explanation:

A time draft trade acceptance) is a form of commercial draft because it is drawn by a seller on the buyer: that is, it calls for the buyer to pay a specified amount. The draft and the shipping documents related to the goods are then sent to the buyer's bank, which transmits the draft to the buyer. The buyer effects the draft by signing it. A time draft, however, is similar to a promissory note because it is payable at a specific time in the future rather than upon acceptance by the buyer, which is characteristic of a sight draft. If a seller is reluctant to ship goods because of concern about the buyer's ability to pay a time draft, the seller's bank may, for a fee, guarantee payment This banker's acceptance is an assumption of the obligation to pay at the due date.



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