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On February 1, 2010, Otto Company factored receivables with a carrying amount of $200,000 to Kassim Company.Kassim Company assesses a finance charge of three percent of the receivables and retains five percent 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 Otto Company for February.
-Assume that Otto factors the receivables on a recourse basis.The recourse obligation has a fair value of $1,000.The loss to be reported is

Question

Use the following information for questions 
On February 1, 2010, Otto Company factored receivables with a carrying amount of $200,000 to Kassim Company.Kassim Company assesses a finance charge of three percent of the receivables and retains five percent 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 Otto Company for February.
-Assume that Otto factors the receivables on a recourse basis.The recourse obligation has a fair value of $1,000.The loss to be reported is

Quizplus · Accepted Answer

The loss on sale is calculated as the finance charge plus the fair value of the recourse obligation: (3% of $200,000) + $1,000 = $6,000 + $1,000 = $7,000.

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