On December 31,2014,Barbie Bank securitized $3,000,000 of notes receivable using a securitization entity it had established.The cash received from the securitization entity was exactly $3,000,000,so it recognized no gain or loss on the transaction.Barbie Bank has the following account balances at December 31,2014 before the securitization was recorded:
$\begin{array}{lr}\text { Assets }\
\text { Notes receivable } & \$ 5,000,000 \
\text { All other assets } & 15,000,000 \
\text { Total assets }&\$20,000,000\\text { Liabilities and equity } & \
\text { Liabilities } & \$ 14,000,000 \
\text { Equity } & 6,000,000\\text { Total liabilities and equity }&\$20,000,000\\text { Net income for the year ended December } 31,2014&\$1,600,000
\end{array}$
Required:
a.Compute Barbie Bank's return-on-assets ratio and debt-to-equity ratio after completing this transaction assuming that the transaction was viewed as a sale under authoritative literature.
b.Compute Barbie Bank's return-on-assets ratio and debt-to-equity ratio after completing this transaction assuming that the transaction was viewed as a collateralized borrowing under authoritative literature.
The following table contains the data needed to compute the required ratios.

Question

On December 31,2014,Barbie Bank securitized $3,000,000 of notes receivable using a securitization entity it had established.The cash received from the securitization entity was exactly $3,000,000,so it recognized no gain or loss on the transaction.Barbie Bank has the following account balances at December 31,2014 before the securitization was recorded:
$\begin{array}{lr}\text { Assets }\
\text { Notes receivable } & \$ 5,000,000 \
\text { All other assets } & 15,000,000 \
\text { Total assets }&\$20,000,000\\text { Liabilities and equity } & \
\text { Liabilities } & \$ 14,000,000 \
\text { Equity } & 6,000,000\\text { Total liabilities and equity }&\$20,000,000\\text { Net income for the year ended December } 31,2014&\$1,600,000
\end{array}$ 
Required:
a.Compute Barbie Bank's return-on-assets ratio and debt-to-equity ratio after completing this transaction assuming that the transaction was viewed as a sale under authoritative literature.
b.Compute Barbie Bank's return-on-assets ratio and debt-to-equity ratio after completing this transaction assuming that the transaction was viewed as a collateralized borrowing under authoritative literature.
The following table contains the data needed to compute the required ratios.

Quizplus · Accepted Answer

The Answer of On December 31,2014,Barbie Bank securitized $3,000,000 of notes receivable using a securitization entity it had established.The cash received from the securitization entity was exactly $3,000,000,so it recognized no gain or loss on the transaction.Barbie Bank has the following account balances at December 31,2014 before the securitization was recorded:
$\begin{array}{lr}\text { Assets }\
\text { Notes receivable } & \$ 5,000,000 \
\text { All other assets } & 15,000,000 \
\text { Total assets }&\$20,000,000\\text { Liabilities and equity } & \
\text { Liabilities } & \$ 14,000,000 \
\text { Equity } & 6,000,000\\text { Total liabilities and equity }&\$20,000,000\\text { Net income for the year ended December } 31,2014&\$1,600,000
\end{array}$ 
Required:
a.Compute Barbie Bank's return-on-assets ratio and debt-to-equity ratio after completing this transaction assuming that the transaction was viewed as a sale under authoritative literature.
b.Compute Barbie Bank's return-on-assets ratio and debt-to-equity ratio after completing this transaction assuming that the transaction was viewed as a collateralized borrowing under authoritative literature.
The following table contains the data needed to compute the required ratios.

On December 31,2014,Barbie Bank Securitized $3,000,000 of Notes Receivable Using