Gant Company Factored Its Receivable with Recourse to Rowlin Bank

question 107

Multiple Choice

Gant Company factored its receivable with recourse to Rowlin Bank. Gant received cash as a result of this transaction. Assuming the three conditions for a sale are met, this transaction is best described as a ________.

• A) loan from Rowlin collateralized by Gant's accounts receivable
• B) loan from Rowlin to be repaid by the proceeds from Gant's accounts receivable
• C) sale of Gant's receivables to Rowlin with the risk of uncollectible accounts retained by Gant
• D) sale of Gant's receivables to Rowlin with the risk of uncollectible accounts transferred to Rowlin

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Definitions:

Capital Stock

The total amount of physical and financial assets owned by a company or country, including buildings, machinery, and equity investments.

Net Investment

The amount of investment in new capital (such as equipment, buildings, and inventory) minus depreciation of existing capital.

Depreciation

A reduction in the value of an asset over time, due to wear and tear, age, or obsolescence.

Net Investment

The total spending on new capital assets minus the depreciation on existing assets, indicating the growth in a company’s or economy's capital stock.