Sun Inc. factors $3,000,000 of its accounts receivables without recourse for a finance charge of 5%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $115,000. What would be recorded as a gain (loss) on the transfer of receivables? Loss of $150,000. Gain of $265,000. Loss of $565,000. Loss of $115,000.

Question

Business

Sonia Wall

22 February, 16:57

Sun Inc. factors $3,000,000 of its accounts receivables without recourse for a finance charge of 5%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $115,000. What would be recorded as a gain (loss) on the transfer of receivables? Loss of $150,000. Gain of $265,000. Loss of $565,000. Loss of $115,000.

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Answers (1)

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Lindsay Cantrell · Answer 1

correct option is Loss of $150,000

Explanation:

given data

Sun account receivable = $3,000,000

Finance charge = 5 %

recourse liability = $115,000

to find out

recorded as a gain (loss) on the transfer of receivables

solution

we find here loss first that is express as

loss = finance charge * account receivable ... 1

loss = 5% * $3,000,000

loss = $150000

so correct option is Loss of $150,000