When Receivables Are Factored Without Recourse, the Transferor Generally

question 106

Multiple Choice

When receivables are factored without recourse, the transferor generally:

• A) Recognizes the cost of the transfer over the term of the related loan.
• B) Recognizes an immediate loss or expense and removes the receivables from the books.
• C) Records bad debt expense on the factored receivables.
• D) Makes no further entry for sales adjustments.

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Definitions:

Dilution

The reduction in the ownership percentage or value of a shareholding due to the issuance of more shares by the company.

Ex Rights

The status of a stock that is sold without the benefit of any rights that may have been issued to shareholders to purchase additional shares, often at a discount.

Debt Offerings

Debt offerings involve a company issuing debt instruments, like bonds, to raise capital, obligating the company to repay the principal with interest.

Equity Offerings

The process by which companies issue shares of stock to the public or specific investors to raise capital.