What is the critical issue in interpreting the nature

Reference no: EM132644943

Question - Accounting for the transfer of receivables with recourse remains problematic. At issue is whether such a transaction is, in substance, a sale, in which case a gain/loss is recognized, or a financing transaction, in which case any gain/loss is amortized over the original life of the receivable. (The receivable could be long-term; for example, a sale of an interest-bearing note.) SOP 74-6 concluded that most transfers with recourse are financing transactions based on the argument that a transfer of risk (i.e., no recourse) must exist for a sale to have occurred. In 1983, the FASB reached a different conclusion in SFAS No. 77. A sale is now recognized if (a) the seller surrenders control of future economic benefits embodied in the receivable and (b) the seller ' s obligation under the recourse provisions can be reasonably estimated. If these conditions are not met, the proceeds from a transfer are reported on the balance sheet as a liability.

Required -

a. What is the critical issue in interpreting the nature of this transaction? How does interpretation of the critical issue lead to the two different viewpoints?

b. Explain why SOP 74-6 view represents a revenue - expense orientation, while SFAS No. 77 represents an asset - liability orientation.

Reference no: EM132644943

Questions Cloud

Which represents the net cash flow from : Which represents the net cash flow from/used in investing activities amount in the statement of cash flows of Brilliant CC for the year ended 28 February 2020?

What do you think of ethical concerns the authors discuss : Finally, what do you think of the ethical concerns the authors discuss? Are there any benefits and/or problems you think might be an issue with doing this type.

Which alternatives represents the net cash generated : Which alternatives represents the net cash generated from/used in operations in the statement of cash flows of Brilliant CC for the year ended 28 February 2020?

Describe the legal requirements for reporting covert actions : In 1987, a special review board headed by Senator John Tower recommended to Congress the merger of two intelligence committees. This action resulted in.

What is the critical issue in interpreting the nature : What is the critical issue in interpreting the nature of this transaction? How does interpretation of the critical issue lead to the two different viewpoints

Construct a confidence interval : Construct a 95% confidence interval. The manager of a store wants to estimate the population mean dollar amount spent per purchasing customer.

Make adjusting entry that should be made on December : Give the adjusting entry (or entries) that should be made on 31 December 2019, for each item. If an adjusting entry is not required, explain why

Define different reason for failed response to the wildfires : Intelligence is very important, not only for the purpose of responding to disasters or other types of emergency, but also for predicting or in some cases even.

Some potentially pathogenic bacteria and fungi : Some potentially pathogenic bacteria and fungi, including strains of Enterococcus, Staphylococcus, Candida, and Aspergillus,

User Account

All Pages