FASB 5 Flashcards
Define “factoring”.
The transferor (original creditor) transfers the receivables to a factor (transferee, a financial institution) immediately as a normal part of business.
What is the accounting treatment when factoring with recourse, as accounted for as a loan?
The transferor maintains the receivables on its books and records a loan and interest expense over the term of the agreement.
Who bears the costs of bad debts when factoring with recourse?
The seller (transferor) bears the cost of bad debts as well as the cost of sales adjustments.
What is the accounting treatment when factoring with recourse, as accounted for as a sale?
The entries are similar to factoring without recourse except that the transferor must estimate and record a recourse liability.
Who bears the cost of bad debts when factoring without recourse?
The factor (transferee) bears the cost of uncollectible accounts, but the seller (transferor) bears the cost of sales adjustments.
How is the loss on impairment accomplished?
With a debit to bad debt expense and a credit to a contra-receivable account.
List the methods through which interest revenue is recognized after a write-down has occurred.
Interest and cost recovery methods.
What is the accounting treatment for loan impairments?
The receivable should be written down to:
- Present value of future cash flows using original effective interest rate, or
- Market value, if this value can be determined.
When a receivable is impaired, what should it be written down to?
The PV of the future cash flows expected to be collected using original effective interest rate for the loan or market value if more determinable.
When does loan impairment occur?
When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.
What is FOB?
Free-On-Board
What does FOB destination means?
FOB destination means that title to the goods transfers to the buyer when the goods reach the destination.
What does FOB shipping point means?
FOB shipping point means title passes at the shipping point (the selling company’s warehouse), therefor the goods belong to the purchaser as soon as it is loaded on a common carrier.
How is the ownership of goods shipped Free On Board (FOB) destination determined?
The seller owns the goods until they reach destination.
Who is the owner of consigned goods?
The consignor (firm that shipped the inventory to consignee).
