Which of the following statements is not true when FLK Company discounts a note receivable to the bank?
A)FLK may ultimately have to pay the bank when the note is due.
B)If the maker of the note pays the bank on time,no liability will result to FLK.
C)FLK will receive the maturity value from the bank.
D)A contingent liability arises for FLK.

Question

Quizplus · Accepted Answer

When FLK discounts a note receivable to the bank, FLK will not receive the maturity value from the bank. The bank will deduct the discount and give FLK the present value of the note. The other statements are true. FLK may ultimately have to pay the bank if the maker of the note defaults, but if the maker pays on time, no liability will result to FLK. A contingent liability arises because FLK is still responsible for ensuring that the maker pays the bank.

Which of the Following Statements Is Not True When FLK