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On February 1, 2007, Norton Company factored receivables with a carrying amount of $300,000 to Koch Company.Koch Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables.Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Norton Company for February.
-Assume that Norton factors the receivables on a with recourse basis.The recourse obligation has a fair value of $1,500.The loss to be reported is

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On February 1, 2007, Norton Company factored receivables with a carrying amount of $300,000 to Koch Company.Koch Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables.Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Norton Company for February.
-Assume that Norton factors the receivables on a with recourse basis.The recourse obligation has a fair value of $1,500.The loss to be reported is

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The finance charge assessed by Koch Company is 3% of the receivables, which amounts to $9,000 (3% x $300,000). Koch Company also retains 5% of the receivables, which comes out to be $15,000 (5% x $300,000). The total consideration received by Norton Company is $276,000 ($300,000 - $9,000 - $15,000), which is less than the carrying amount of the receivables. Thus, Norton Company will have to recognize a loss on sale of receivables, which is calculated as the difference between the carrying amount of the receivables and the consideration received, plus any recourse obligation. The loss on sale is $10,500 ($300,000 - $276,000 + $1,500).

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