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18 March, 11:12

Sun Inc. factors $3,000,000 of its accounts receivables without recourse for a finance charge of 5%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $115,000. What would be recorded as a gain (loss) on the transfer of receivables? Loss of $150,000. Gain of $265,000. Loss of $565,000. Loss of $115,000.

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  1. 18 March, 14:37
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    correct option is Loss of $150,000

    Explanation:

    given data

    Sun account receivable = $3,000,000

    Finance charge = 5 %

    recourse liability = $115,000

    to find out

    recorded as a gain (loss) on the transfer of receivables

    solution

    we find here loss first that is express as

    loss = finance charge * account receivable ... 1

    loss = 5% * $3,000,000

    loss = $150000

    so correct option is Loss of $150,000
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