A Company Regularly Sells Its Receivables to a Factor That

question 23

Multiple Choice

A company regularly sells its receivables to a factor that 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:

Base Year

A specific year against which economic growth or other economic indexes are measured, serving as a point of comparison for future or past data.

Hypothetical Country

A theoretical or imaginary nation used for the sake of argument or analysis in economic models or discussions.

Real GDP

Real Gross Domestic Product measures a country's economic output adjusted for price changes, such as inflation or deflation, to reflect the true value of goods and services produced.

Recession

A phase of short-term economic downturn where business activities and manufacturing diminish, usually signaled by two successive quarters of GDP decrease.