Accounting for the Pledging of Accounts Receivable as Collateral for a Loan

question 10

Multiple Choice

Accounting for the pledging of accounts receivable as collateral for a loan requires:

• A)Reporting the receivables net of the borrowed amount.
• B)Removal of the pledged receivables from current assets and including them with noncurrent investments.
• C)Disclosure of the arrangement in notes to the financial statements.
• D)None of these.

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Definitions:

Operating Income

EBIT, which stands for Earnings Before Interest and Taxes, indicates a firm's profit derived specifically from its primary business activities.

Investment Turnover

A measure of a company's efficiency in using its assets to generate sales revenue; calculated as sales divided by the investment in assets.

Return on Investments

A metric for assessing how effectively an investment generates returns in comparison to its expense.

Controllable Revenues

Revenues over which a manager or department has influence or direct control, often used in performance evaluation and budgeting.