Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables?

Question

Quizplus · Accepted Answer

Assigning accounts receivable as collateral for a loan does not result in a gain or loss on the transfer of receivables because the receivables are not actually sold or transferred out of the company's control. They are merely pledged as security for the loan. The finance fee paid is an expense related to obtaining the loan, not a loss on receivables.

Sun Inc Assigns $3,000,000 of Its Accounts Receivables as Collateral