Vaughn Manufacturing factors $5900000 of its accounts receivables with recourse for a finance charge of 5%....

Vaughn Manufacturing factors $5900000 of its accounts receivables with recourse for a finance charge of 5%. The finance company retains an amount equal to 9% of the accounts receivable for possible adjustments. Vaughn estimates the fair value of the recourse liability at $225000. What would be recorded as a gain (loss) on the transfer of receivables?

A.	Gain of $1051000.

B.	Loss of $225000.

C. Gain of $295000.

D.	Loss of $520000.

Expert Solution

Correct answer----------(D) Loss of $520000

.

Working

Account title and explanation	Debit	Credit
Cash	$ 5,074,000
Due from Factor (5900000 x 9%)	$ 531,000
Loss on disposal of receivables ((5900000*5%)+225000)	$ 520,000
Accounts Receivables		$ 5,900,000
Recourse liability		$ 225,000

ekkarill92 answered 3 years ago

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