Which type of receivable is created when a company is named as the beneficiary of a life insurance policy to ensure that a loan will be repaid if the borrower dies?

• A. Insurance Receivable
• B. Accounts Receivable
• C. Notes Receivable
• D. Trade Receivable

Answer: (A)

Verified step by step guidance

1. Understand the concept of receivables: Receivables are amounts owed to a company by others, typically arising from sales, loans, or other transactions. Different types of receivables include accounts receivable, notes receivable, trade receivable, and insurance receivable.
2. Analyze the scenario: The problem describes a situation where a company is named as the beneficiary of a life insurance policy to ensure repayment of a loan if the borrower dies. This indicates a specific arrangement tied to insurance.
3. Define 'Insurance Receivable': Insurance receivable refers to amounts expected to be received from an insurance policy, often in cases where the company is named as a beneficiary. This type of receivable is created in situations involving insurance claims or policies.
4. Compare with other options: Accounts receivable typically arise from credit sales, notes receivable are formal written promises to pay, and trade receivable refers to amounts owed by customers for goods or services. None of these directly relate to life insurance policies.
5. Conclude the correct type: Based on the scenario and definitions, the receivable created in this case is 'Insurance Receivable,' as it directly involves a life insurance policy ensuring repayment of a loan.