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Homework answers / question archive / Sheffield Corp
Sheffield Corp. factors $7400000 of its accounts receivables with recourse for a finance charge of 5%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sheffield estimates the fair value of the recourse liability at $203000. What would be recorded as a gain (loss) on the transfer of receivables?
Computation of Gain or Loss on transfer of receivables:
Loss = Accounts Receivable*Finance Charge + Recourse Liability
= $7,400,000*5%+$203,000
= $370,000+$203,00
Loss = $573,000
So, Loss on transfer of receivables is $573,000.
