search Case 79 (Static) Locate and extract relevant information and authoritative support for a financial reporting issue; financing with receivables [LO7-8]

You are spending the summer working for a local wholesale furniture company, Samson Furniture, Inc. The company is considering a proposal from a local financial institution, Old Reliant Financial, to factor Samsons receivables. The company controller is unfamiliar with the prevailing GAAP 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 as to allow the factoring to be accounted for as a sale. Old Reliant has offered to factor all of the companys receivables on a without recourse basis. Old Reliant will remit to Samson 90% of the factored amount, collect the receivables from Samsons customers, and retain the remaining 10% until all of the receivables have been collected. When Old Reliant collects all of the receivables, it will remit to Samson the retained amount, less a 4% fee (4% of the total factored amount). Required:

1. Access the relevant authoritative literature on accounting for the transfer of financial assets using the FASB Accounting Standards Codification. You might gain access at the FASB website (www.fasb.org), from your school library, or some other source. This source will specify what conditions must be met for a transfer of receivables to be accounted for as a sale (or in accounting terms, derecognized). 2. Assuming that the conditions for treatment as a sale are met, prepare Samsons journal entry to record the factoring of $400,000 of receivables. Assume that the fair value of the last 10% of Samsons receivables is equal to $25,000. 3-a. An agreement that both entitles and obligates the transferor, Samson, to repurchase or redeem transferred assets from the transferee, Old Reliant, maintains the transferors effective control over those assets and the transfer is accounted for as a secured borrowing, not a sale, if and only if what conditions are met? 3-b. What is the specific Codification citation that Samson would rely on in applying that accounting treatment?

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