Question

Patel Inc. factors $6,000,000 of its accounts receivables with recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Patel estimates the fair value of the recourse liability at $300,000. What would be recorded as a loss on the transfer of receivables

Answer 1

the loss that should be recorded is $480,000

Step-by-step explanation:

The computation of the amount that recorded as a a loss on the receivable transfer is shown below:

= Account receivable × finance charge + estimation of the fair value of the recourse liability

= $6,000,000 × 3% + $300,000

= $180,000 + $300,000

= $480,000

hence, the loss that should be recorded is $480,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered