Which is true when accounts receivable are factored
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Question 10
Which of the following is true when accounts receivable are factored without recourse?
Choose one answer.
a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction.
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 (interest expense) should be recognized ratably over the collection period of the receivables.
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Solution Summary
The response explains why three of the four statements and false, and provides three sentences in explanation of the true statement.
Solution Preview
a. In theory, a company cannot factor receivables without having had a sale, so this false.
b. The idea of factoring is to be paid immediately for receivables, do this is ...
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