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?

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The calculation for the loss on the transfer of receivables is as follows: Sun Inc. factors $3,000,000 of its accounts receivables. The finance charge is 5% of $3,000,000, which equals $150,000. The finance company retains 10% of the accounts receivable, which is $300,000, for possible adjustments. However, this retained amount is not a direct cost to Sun Inc. but rather an amount withheld from the proceeds. The fair value of the recourse liability is $115,000, but this liability represents an additional obligation of Sun Inc. and does not directly impact the calculation of the gain or loss on the transfer. The loss is calculated solely based on the finance charge, which is $150,000. Therefore, Sun Inc. records a loss of $150,000 on the transfer of receivables.

Sun Inc Factors $3,000,000 of Its Accounts Receivables Without Recourse for for a Finance