A Company Regularly Sells Its Receivables to a Factor Who

question 178

Multiple Choice

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables?

• A) The loss section of the income statement will increase each time receivables are sold.
• B) The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold.
• C) Selling expenses will increase each time accounts are sold.
• D) The other expense section of the income statement will increase each time accounts are sold.

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Definitions:

Convertible Preferred Stock

A type of preferred stock that offers the holder the option to convert their shares into a predetermined number of common stock shares, usually after a specific date.

Treasury Stock

Shares that were issued and then reacquired by the issuing company, reducing the amount of outstanding stock.

Earnings Per Share

A financial metric used to measure a company's profitability, calculated as net income divided by the number of outstanding shares of its common stock.

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits.