Danzig Inc.factors $2,000,000 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.What would be recorded by Danzig as a gain (loss)on the transfer of receivables?
A)gain of $100,000
B)loss of $100,000
C)loss of $200,000
D)loss of $300,000

Question

Quizplus · Accepted Answer

Danzig Inc. would record a loss of $100,000. The finance charge is 5% of $2,000,000, which is $100,000. Since the transaction is without recourse, this finance charge is considered a loss on the sale of receivables. The 10% retention for possible adjustments does not affect the gain or loss calculation.