Question

Bramble Corp. factors $7200000 of its accounts receivables with recourse for a finance charge of 5%. The finance company retains an amount equal to 9% of the accounts receivable for possible adjustments. Bramble estimates the fair value of the recourse liability at $249000. What would be recorded as a gain (loss) on the transfer of receivables

Answer 1

See below

Step-by-step explanation:

Given the above information, first we'll compute net proceeds

Cash received $7,200,000 × 86%

$6,192,000

Add:

Due from factors $7,200,000 × 9%

$648,000

Less;

Recourse obligation

($5,000)

Net proceeds

$6,835,000