Question

Sun Inc. factors $6,000,000 of its accounts receivables without recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. If it were a transaction with recourse, Sun would have estimated the fair value of the recourse liability at $300,000. What would be recorded as a gain (loss) on the transfer of receivables

Answer 1

Loss $180,000

Step-by-step explanation:

Accounts Receivable $6,000,000

Factor fees 3%*6,000,000 $180,000

Loss of $180,000 will be recorded for transfer of receivable without recourse to the factor.