High Point Hotel (HPH)has $165,000 in Accounts Receivable

question 23

Multiple Choice

High Point Hotel (HPH) has $165,000 in accounts receivable.To finance a major purchase,the company assigns these receivables to Cross Town Bank.Which one of the following statements correctly describes this transaction?

• A)HPH will immediately receive $165,000 and will have no further obligation related to these receivables.
• B)HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables.
• C)Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables.
• D)Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed.
• E)HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account.

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Definitions:

Contract Rate

The agreed-upon price or rate specified in a contract for services or goods, often locked in for the duration of the agreement.

Issue Price

The price at which securities, such as bonds or shares, are originally sold to the public or investors by the issuing entity.

Installment Note Payable

A debt instrument that requires a series of periodic payments to the lender over a specified period of time.

Interest Expense

The expenditure an entity incurs from borrowing funds during a certain period.