Fasb Codification Assignment 1 – Receivables
FASB Codification Assignment 1 – Receivables
You are spending your summer working for a local wholesale furniture company, Beds and Beyond, Inc. The company is considering a proposal from a local financial institution, Old Faithful Financial, to factor Bed and Beyond’s receivables. The company controller is unfamiliar with the most recent FASB pronouncement that deals with accounting for the transfer of financial assets and has asked you to do some research. The controller wants to make sure the arrangement with the financial institution is structured in such a way to allow the factoring to be accounted for as a sale. Old Faithful has offered to factor all of the company’s receivables on a “without recourse” basis. Old Faithful will remit to Samson 90% of the factored amount, collect the receivables from Beds and Beyond ‘s customers, and retain the remaining 10% until all the receivables have been collected. When Old Faithful collects all receivables, it will remit to Beds and Beyond the retained amount, less a 4% fee (4% of the total factored amount).
Required: Prepare a report to the company controller that addresses each of the following questions.
1. Describe the alternative methods available for a company to use their receivables to obtain immediate cash.
Some alternative methods available for a company to use their receivables to obtain immediate cash are as follows: I. Sales of receivables: These have increased substantially in the recent years. Its types are as follows: a. Factoring receivables: it is popular among textile, apparel, footwear, furniture, and home furnishing industries. In this, factoring companies purchase receivables from other companies and collect the receivables from the debtors. They make profit by retaining a certain percentage of the total receivable. b. Securitization: The process of aggregating similar instruments, such as credit card receivables, mortgage receivables, or car loan receivables, into
You are spending your summer working for a local wholesale furniture company, Beds and Beyond, Inc. The company is considering a proposal from a local financial institution, Old Faithful Financial, to factor Bed and Beyond’s receivables. The company controller is unfamiliar with the most recent FASB pronouncement that deals with accounting for the transfer of financial assets and has asked you to do some research. The controller wants to make sure the arrangement with the financial institution is structured in such a way to allow the factoring to be accounted for as a sale. Old Faithful has offered to factor all of the company’s receivables on a “without recourse” basis. Old Faithful will remit to Samson 90% of the factored amount, collect the receivables from Beds and Beyond ‘s customers, and retain the remaining 10% until all the receivables have been collected. When Old Faithful collects all receivables, it will remit to Beds and Beyond the retained amount, less a 4% fee (4% of the total factored amount).
Required: Prepare a report to the company controller that addresses each of the following questions.
1. Describe the alternative methods available for a company to use their receivables to obtain immediate cash.
Some alternative methods available for a company to use their receivables to obtain immediate cash are as follows: I. Sales of receivables: These have increased substantially in the recent years. Its types are as follows: a. Factoring receivables: it is popular among textile, apparel, footwear, furniture, and home furnishing industries. In this, factoring companies purchase receivables from other companies and collect the receivables from the debtors. They make profit by retaining a certain percentage of the total receivable. b. Securitization: The process of aggregating similar instruments, such as credit card receivables, mortgage receivables, or car loan receivables, into