Reference no: EM131118920
Ford Motor Credit Company discloses the following information with respect to finance receivables (amounts in millions).
Required
a. Applying the criteria for the sale of receivables from FASB Statement No. 140, justify Ford Motor Credit's treatment of the securitization of finance receivables on December 31, Year 3 and Year 4, as a sale instead of a collateralized loan.
b. Assume that the receivables disclosed as securitized on December 31, Year 3, had been initially securitized on that day. Give the journal entry that Ford Motor Credit would have made to securitize these receivables, assuming that it securitized the receivables at no gain or loss.
c. Assume that Ford Motor Credit decided to consolidate its receivables securitization structure in Year 4 and to start accounting for it as secured borrowings. Give the journal entry that the company would make on December 31, Year 4, to account for this change, assuming that it recognized no gain or loss on this event.
d. Most firms prefer to report the securitization of receivables as a sale. The alternative is to view the arrangement as a collateralized loan with the receivables remaining on the firm's balance sheet. Speculate on why firms prefer to report the securitization of receivables as asale.
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