Question : 61. A firm that transfers its receivables in exchange for cash : 1246006

61. A firm that transfers its receivables in exchange for cash can  
A. use its accounts receivable as collateral for a loan from a bank or other financial institution.
B. factor its accounts receivable to a bank or other financial institution in exchange for cash.
C. transfer the accounts receivable to a legally separate entity that issues debt securities to investors.
D. use all of the above.
E. use none of the above.

62. 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

63. A firm may factor its accounts receivable to a bank or other financial institution in exchange for cash.  Which of the following is/are not true? 
A. The lender physically controls the receivables and collects cash from customers.
B. Accounts receivable that the firm has factored do not appear on the balance sheet.
C. The firm has sold the accounts receivable.
D. The firm should disclose the factoring arrangement in its financial reports.
E. None of the above.

64. The firm may transfer the accounts receivable to a legally separate entity that issues debt securities to investors.  Which of the following is/are true? 
A. The firm remits to investors the cash received from customers as those cash receipts occur.
B. The firm may be obligated to make payments to investors in securities if the customers fail to make sufficient cash payments to pay the principal and interest on the debt securities.
C. The transfer is called securitization, a process that transforms an asset (accounts receivable) into securities held by investors.
D. all of the above
E. none of the above

65. Sales returns affect net cash collections when a customer has the right to return a product for a refund, and the firm can reasonably estimate the amount of returns at the time of sale, U.S. GAAP and IFRS  
A. require that the firm use the allowance method to estimate and recognize the effects of returns.
B. the selling firm debits a revenue contra account for expected returns to reduce current period revenues to the estimated amount that will not be returned.
C. require that the firm measures revenues based on the amount of cash it expects to collect from current period sales.
D. preclude revenue recognition when customers have the right to return goods unless the firm can reasonably estimate the amount of returns.
E. all of the above

66. Firms that are temporarily short of cash and unable to borrow from usual sources can convert accounts receivable into cash by selling accounts receivable to a bank or financing company. This is called 
A. assigning accounts receivable.
B. pledging accounts receivable.
C. factoring accounts receivable.
D. transferring accounts receivable.
E. none of the above.

67. Firms that are temporarily short of cash and unable to borrow from usual sources can convert accounts receivable into cash by selling accounts receivable to a bank or financing company. This is called 
A. assigning accounts receivable.
B. pledging accounts receivable.
C. factoring accounts receivable.
D. all of the above.
E. none of the above.

68. Firms that are temporarily short of cash and unable to borrow from usual sources can convert accounts receivable into cash by 
A. assigning accounts receivable and forwarding amounts collected to the lending institution.
B. pledging its accounts receivable to the lending agency as collateral for a loan.
C. factoring the accounts receivable to a bank or financing company to obtain cash.
D. all of the above.
E. none of the above.

69. When firms that are temporarily short of cash and unable to borrow from usual sources convert accounts receivable into cash by pledging the accounts receivable, they disclose this information 
A. on the income statement, only.
B. on the balance sheet, only.
C. on both the income statement and the balance sheet.
D. by a footnote to the financial statements.
E. in managements’ discussion and analysis.

70. Healthy Lawn Maintenance Company

Healthy Lawn Maintenance Company started a lawn services business on January 1, 2013. It sends invoices to its customers for lawn maintenance services at the end of each month, and expects the customer to pay within 30 days. During 2013, Healthy Lawn Maintenance billed its customers a total of $2,000,000 for services rendered during the year. It made journal entries at the end of each month.

(Use the Healthy Lawn information to answer this question.)  The aggregate effect of these entries during 2013 is as follows:  
A. Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
          Accounts Receivable, Gross . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . 2,000,000
B. Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
          Accounts Receivable, Net . . . . . . . . . . .. . . . . . . . .  . . . . . . . . . . . . 2,000,000
C. Accounts Receivable, Net . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . 2,000,000
          Sales Revenue . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
D. Accounts Receivable, Gross . . . . . . . . . . . . . . .  . . . . . . . . . . . . 2,000,000
          Sales Revenue . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 2,000,000
E. Notes Receivable, Gross . . . . . .  . . . . . . . . . . .  . . . . . . . . . . . . 2,000,000
          Sales Revenue . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 2,000,000