Which of the Following Statements Is Correct

question 57

Multiple Choice

Which of the following statements is correct?

• A)The factoring of accounts receivable consists of a series of individual cycles as opposed to a continuous process.
• B)Once a factoring agreement is in force, funds from this source are spontaneous in the sense that an increase in sales will automatically generate additional credit from the factor.
• C)One of the main disadvantages of pledging or factoring is the significant lack of flexibility.
• D)One disadvantage of factoring is that it reduces the need of the selling firm to maintain a credit department.
• E)The cost of pledging and factoring generally is very low and the risk bearing fee is incorporated into the interest rate charged on the unpaid balance of the funds advanced by the factor, which is usually one half of
• One percent above the prime rate.

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Definitions:

Interest Payable

An account representing the amount of interest expense that has been incurred but not yet paid by a company.

Notes Payable

Financial obligations represented by written promissory notes in which the borrower agrees to pay back the amount borrowed, typically with interest, by a specified date.

Unearned Rent Revenue

Income received from tenants for rent that has not yet been earned because the rental period has not occurred.

Current Liability

A financial obligation that is due to be settled within one year or within the normal operating cycle of the business, whichever is longer.