Danzig Inc. factors $10,000,000 of its accounts receivables without recourse for a finance charge of 4%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. What would be recorded by Danzig as a gain (loss) on the transfer of receivables?
A) gain of $400,000
B) loss of $400,000
C) loss of $1,000,000
D) loss of $1,400,000

Question

Quizplus · Accepted Answer

Danzig Inc. would record a loss of $400,000, which is the finance charge (4% of $10,000,000). The retention for possible adjustments does not affect the gain or loss calculation.