Bigco, Inc. transferred long-term receivables with a carrying value of $500,000 and a fair value of $450,000 to Banco for $425,000 cash. Of the $450,000 fair value, $45,000 is attributable to collection of future fees and penalties, which Bigco will retain. The surrender of control requirements have been met, therefore the transfer qualifies as a sale. What amount of loss should Bigco recognize at the time of the transfer?

Question

Business

Makayla Todd

16 May, 09:45

Bigco, Inc. transferred long-term receivables with a carrying value of $500,000 and a fair value of $450,000 to Banco for $425,000 cash. Of the $450,000 fair value, $45,000 is attributable to collection of future fees and penalties, which Bigco will retain. The surrender of control requirements have been met, therefore the transfer qualifies as a sale. What amount of loss should Bigco recognize at the time of the transfer?

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Answers (1)

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Randall Lin · Answer 1

Answer is $25,000 loss.

Refer below.

Explanation:

Therefore, the carrying value of the transferred is:

0.90 x 500,000 = $450,000.

The loss is:

450,000 - 425,000 = $25,000 loss.