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:

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.

Creditors' Protection

Legal and financial mechanisms in place to ensure that creditors can reclaim some value from a borrower in case of default, insolvency, or bankruptcy.

Present Value

The immediate value of a prospective sum of money or stream of cash flows, using a specific interest rate for calculation.

Equivalent

A term expressing a state of equality or equivalency in value, function, or meaning.