70) Which of the following is true when accounts receivable are factored without

Question

70) Which of the following is true when accounts receivable are factored without recourse? the factor by the owner of the receivables B) The financing cost (interest expense) should be recognized ratably over the collection period of the receivables A) The receivables are used as collateral for a promissory note issued to C) The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables D) The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. 71) Before testing property, plant, and equipment (PPE) and finite-life intangible (FLI) assets, A) the firm will assess PPE as individual assets and FLI assets in asset groups B) the firm wil assess PPE in asset groups and FLI assets as individual assets C) the firm will assess both PPE and FLI assets in asset groups D) the firm will assess both PPE and FLI assets as individual assets or i asset groups 72) At the beginning of 2017, Denero Company issued 10-year bonds with a face value of $4,000,000 due on December 31, 2027. The company will accumulate a fund to retire these bonds at maturity. It will make ten annual deposits to the fund beginning on December 31, 2017. How much must Denero deposit each year to achieve this investment goal, assuming that it will earn 12% interest compounded annually? A) $203,515 B) $226,009 C) $227,937 D) $363,636 73) Which of the following is not a major characteristic of a fixed asset? A) acquired for resale B) tangible in nature C) expected to be used for more than one year D) used in the production and sale of other assets nakwe-Intermediate , Fall 2017 Final Exam 18 1Page

Explanation / Answer

70. Option C: The factor assumes the risk of collectibility and absorb any credit losses in collecting the receivables

When accounts receivable are factored without recourse, the factor (purchasing institution) bears the loss resulting from bad debts. For example, if a receivable whose account has been factored becomes bankrupt and the amount due from him cannot be collected, the factor will have to bear the loss.

71. Option D: the firm will assess both PPE and FLI assets as individual assets or in asset groups

72. By using formula {Compound interest for principal + future value of a series} we get Option A as answer i.e $203,515

73. Option A: Aquired for resale will come under stock not under fixed asset.

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