Multiple Choice
Which of the following types of liens typically has the highest priority in the event of liquidation?
46
views
9. Current Liabilities
Types of Liabilities
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A promissory note used as a debt instrument without any related collateral is called:
A
A secured note
B
A convertible bond
C
An unsecured note
D
A mortgage note
Verified step by step guidance1
Understand the concept of a promissory note: A promissory note is a financial instrument that represents a written promise by one party to pay another party a specified sum of money, either on demand or at a future date.
Learn the difference between secured and unsecured notes: A secured note is backed by collateral, meaning the lender has a claim on specific assets if the borrower defaults. An unsecured note, on the other hand, is not backed by collateral and relies solely on the borrower's creditworthiness.
Review the characteristics of the other options: A convertible bond is a type of debt instrument that can be converted into equity, and a mortgage note is a secured note specifically tied to real estate as collateral.
Identify the correct answer based on the definition: Since the problem specifies that the promissory note is used as a debt instrument without any related collateral, it matches the definition of an unsecured note.
Conclude that the correct answer is 'An unsecured note' and understand why the other options do not fit the description provided in the problem.
Related Videos
Related Practice
Types of Liabilities practice set
Problem sets built by lead tutorsExpert video explanations