A Firm May Use Its Accounts Receivable as Collateral for a Loan

question 118

Multiple Choice

A firm may use its accounts receivable as collateral for a loan from a bank or other financial institution.Which of the following is/are true?

• A)The firm physically maintains control of the accounts receivable, collects cash from customers, and repays the loan.
• B)If the firm fails to repay the loan, the lender can claim the receivables.
• C)If the firm has used its accounts receivable as collateral for a loan, the firm will continue to show those receivables as an asset (and there will also be a loan payable liability).
• D)The firm should disclose the lending arrangement in its financial reports.
• E)all of the above

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Definitions:

Midpoint Formula

A method for calculating the percentage change in a variable by dividing the change by the average of the initial and final values, often used in economics to measure elasticity.

Labor Supply

The total hours that workers are willing and able to work at a given wage rate, in a given time period.

Elastic

In economics, elastic refers to how the quantity demanded or supplied of a good responds to changes in its price; high elasticity indicates sensitivity to price changes.

Cross-price Elasticity

Cross-price Elasticity measures the responsiveness of the demand for one good to a change in the price of another good.