RECEIVABLE FINANCING

Question 1

Which of the following is a method to generate cash from accounts receivable?
a. Assignment only c. Both A and B
b. Factoring only d. Neither A nor B

Question 2

The equity of the assignor in assigned accounts is equal to
a. Assigned accounts receivable
b. Bank loan balance
c. Assigned accounts receivable minus the bank loan balance
d. Bank loan balance minus the assigned accounts receivable

Question 3

It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other special adjustments
a. Equity in assigned accounts c. Commission
b. Service charge d. Factor’s holdback

Question 4

Which of the following is true when accounts receivables are factored without recourse?
a. The transaction may be accounted for either as secured borrowing or sale
b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables
c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables
d. The financing cost should be recognized ratably over the collection period of the receivables

Question 5

If financial assets are exchanged for cash and other consideration but the transfer does not meet the criteria for a sale, the transferor and the transferee should account for transaction as
I. Secured borrowing
II. Pledge of collateral
a. I only c. Both I and II
b. II only d. Neither I nor II

Question 6

If receivables are hypothecated (pledged) against borrowings, the amount of receivables involved should be
a. Disclosed in the notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowings

Question 7

Notes receivable discounted with recourse should be
a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability

Question 8

After being held for 60 days, a 120-day 8% interest-bearing note receivable was discounted at a bank at 12%. The amount received from the bank is equal to
a. Face value less discount rate at 8% c. Maturity value less discount at 8%
b. Face value less discount rate at 12% d. Maturity value less discount at 12%

Question 9

If a note receivable is discounted without recourse
a. The contingent liability may be disclosed in either a contra account to note receivable or in a note to the financial statements
b. Liability for note receivable discounted should be credited
c. Note receivable should be credited
d. The transaction should be accounted for as a borrowing as opposed to a sale