1.

When the accounts receivable of an entity are sold outright to another entity which normally
buys accounts receivable, the accounts receivable have been
A. Pledged
B. Assigned
C. Factored
D. Collateralized
Answer: C

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.455

2. It is a financing arrangement whereby one party formally transfers its rights to accounts
receivable to another party in consideration for a loan.
A. Pledge
B. Assignment
C. Factoring
D. Discounting
Answer: B

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.454

3. It is a financing arrangement that is usually done on a “without recourse, notification basis”

A. Pledge
B. Assignment
C. Factoring
D. Discounting
Answer: C

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.454

4. It is a predetermined amount withheld by a factor as a protection against customer returns,

allowances and other special adjustments.
A. Equity in assigned accounts
B. Service charge
C. Factor’s holdback
D. Loss on factoring
Answer: C

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.454

5. A term which is not associated with the practice of realizing cash from trade receivables prior
to maturity date is
A. Hypothecation
B. Factoring
C. Defalcation
D. Discounting
Answer: C

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.455

6. Why would an entity sell accounts receivable to another entity?

A. To improve the quality of its credit granting process
B. To limit its legal liability
C. To accelerate access to amounts collected
D. To comply with customer agreements
Answer: C

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.454

7. Which of the following is a method to generate cash from accounts receivable?

A. Assignment
B. Factoring
C. Assignment and factoring
D. Assignment, factoring and discounting
Answer: C

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.455

8. If the receivables are hypothecated against borrowings, the amount of receivables involved
should be
A. Disclosed in the notes
B. Excluded from the total receivables with disclosure
C. Excluded from the total receivables with no disclosure
D. Excluded from the total receivables and a gain or loss is recognized between the face
value and the amount of borrowings
Answer: A

Reference: Financial Accounting Volume One First part, 2016, C. Valix, p.455

9. Which of the following is used to account for probable sales discounts, sales returns and
sales allowances?
A. Due from factor
B. Recourse liability
C. Both due from factor and recourse liability
D. Neither due from factor nor recourse liability
Answer: A

Financial Accounting Volume One First part, 2016, C. Valix, p.456

10. Which of the following is not an objective in accounting for transfer of financial asset?
A. To derecognize asset when control is gained
B. To derecognize liability when extinguished
C. To recognize liability when incurred
D. To derecognize asset when control is given up

Answer: A

Financial Accounting Volume One First part, 2016, C. Valix, p.456