Question

1. Assuming the transaction was a collateralized loan, which one of the following entries will Ritter...

1. Assuming the transaction was a collateralized loan, which one of the following entries will Ritter make to record this transaction?

Multiple Choice

  • DR Cash $94,000 CR Loan Payable—Hisker $94,000

  • DR Cash $94,000 DR Prepaid interest 6,000 CR Accounts receivable $100,000

  • DR Cash $94,000 DR Prepaid interest 6,000 CR Loan Payable—Hisker Enterprises $100,000

  • DR Cash $94,000 DR Interest expense 6,000 CR Loan Payable—Hisker Enterprises $100,000

2.

Which of the following statements is false regarding factoring receivables?

Multiple Choice

  • When a company factors its receivables with recourse, it cannot be required to make a payment to the factor if a customer’s account proves to be uncollectible.

  • When a company accepts credit cards, it is engaging in a form of factoring.

  • When a company sells its accounts receivable to a factor with recourse, a recourse obligation that is recorded would be a credit entry on its books.

  • Factoring can be done either with or without recourse.

Business   Accounting   
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Homework Answers

Answer #1

1) a)

Cash Dr. $94,000

Loan payable-Hisker. Cr. $94,000

explanation:

As cash is increased through the loan and at the same time a liability is created to repay the loan.

2) a) When a company factors its receivables with recourse, it cannot be required to make a payment to the factor if a customer’s account proves to be uncollectible

explanation:

Transfer without recourse: In transfer without recourse, the factor takes on all the risk of uncollectable receivables. The company that transferred receivables has no liability for uncollectable receivables.

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