Question

Choose the correct statements below regarding the transfer of financial assets such as receivables:

I. In a transfer of receivables without recourse, the transferee obtains the right to compensation from the transferor for customer accounts that prove to be uncollectible.
II. In a transfer which qualifies as a secured borrowing, the transferor will record a liability for the amount borrowed.
III. Under otherwise identical conditions, a transferor will generally pay a higher commission percentage on a receivable sold with recourse versus one sold without recourse.
a. I and III only.
b. II only.
c. I, II and III.
d. III only.

Answer 1

The correct statement regarding the transfer of financial assets such as receivables:

b. II only.

Step-by-step explanation:

The transfer is not regarded as payment for the debt. Therefore, a liability is recorded for the amount borrowed while the financial asset remains in the records of the transferor until the final settlement. Appropriate disclosures are made in the transferor's financial statements about the security on the financial assets.