Multiple Choice
Which type of accounting is most relevant for disability income plans that require the insurer to match premium income with expected benefit payments over time?
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1. Introduction to Accounting
Types of Accounting
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Which of the following is an example of secured credit?
A
Credit card
B
Mortgage
C
Payday loan
D
Medical bill
Verified step by step guidance1
Understand the concept of secured credit: Secured credit is a type of loan or credit that is backed by collateral, meaning the borrower pledges an asset (e.g., a house, car, or other valuable property) to secure the loan. If the borrower fails to repay, the lender can seize the collateral to recover the debt.
Analyze the options provided: Credit card, Mortgage, Payday loan, and Medical bill. Determine which of these involves collateral.
Evaluate each option: A credit card is unsecured credit because it does not require collateral. A payday loan is also unsecured, as it is typically based on the borrower's income and does not involve collateral. A medical bill is not a form of credit but rather an expense incurred for medical services.
Focus on the mortgage: A mortgage is a secured credit because it is backed by the property being purchased. The house or real estate serves as collateral for the loan.
Conclude that the correct answer is 'Mortgage,' as it is the only option that fits the definition of secured credit.
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