When a Portion of Inventories Has Been Pledged as Security

question 69

Multiple Choice

When a portion of inventories has been pledged as security on a loan,

• A) the value of the portion pledged should be subtracted from the debt.
• B) an equal amount of retained earnings should be appropriated.
• C) the fact should be disclosed but the amount of current assets should not be affected.
• D) the cost of the pledged inventories should be transferred from current assets to noncurrent assets.

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Definitions:

Nominal Value

The face value of a financial instrument, such as a bond or stock, as stated by the issuer, without accounting for inflation or market value changes.

Unsheltered Investment Income

Income from investments that is not protected from taxes, meaning it is fully exposed to taxation.

Social Security Taxes

Taxes collected from employees and employers to fund the Social Security program, which provides retirement, disability, and survivorship benefits.

Income Cap

A limit on the amount of income an individual or entity can receive, often used in tax or investment contexts to limit earnings or tax benefits.