Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

When a life insurance policyowner sells her policy to a third party in a viatical settlement, the amount receivable by the policyowner is best classified as which type of receivable?

Accounts Receivable

Trade Receivable

Notes Receivable

Nontrade Receivable

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Understand the concept of a viatical settlement: A viatical settlement occurs when a life insurance policyowner sells their policy to a third party for a lump sum payment, typically when the policyowner is terminally ill. The third party becomes the new beneficiary and assumes responsibility for paying the premiums.

Identify the nature of the receivable: The amount receivable by the policyowner in this transaction is not related to the sale of goods or services, which would classify it as an accounts receivable or trade receivable. It is also not a formal written promise to pay, which would classify it as a notes receivable.

Classify the receivable: Since the receivable arises from a transaction outside the normal course of business operations, it is best classified as a nontrade receivable. Nontrade receivables include amounts due from transactions such as loans to employees, advances, or settlements like this one.

Review the definitions of other receivable types: Accounts receivable and trade receivables are amounts due from customers for goods or services provided on credit. Notes receivable are formal written promises to pay a specific amount at a future date. None of these apply to a viatical settlement.

Conclude the classification: Based on the nature of the transaction and the definitions of receivable types, the amount receivable by the policyowner in a viatical settlement is correctly classified as a nontrade receivable.