Question
Topic: Repurchase of Loans Credit Financial often transfers its loans to other financial institutions with recourse in order to maintain a certain level of cash
Topic: Repurchase of Loans Credit Financial often transfers its loans to other financial institutions with recourse in order to maintain a certain level of cash on hand. In the past, these transfers have been recorded as sales. However, Thrifty Cash is unable to collect on one of the loans bought from Credit Financial. Therefore, Credit Financial, under the recourse agreement, has agreed to reacquire the loan, and the purchase price of the loan is now greater than its fair value.
The controller of Credit Financial is somewhat uncertain as to how this repurchase should be recorded. He concludes that it seems logical to record the transaction at the purchase price rather than at the fair value. His argument is that assets should be recorded at cost. To record the transaction as fair value would result in some type of loss, yet no sale of the repurchased loan has taken place! The controller has requested your assistance to research the issue.
Required: Utilize the FASB Codification to determine the proper treatment of the acquired loan where the purchase price is greater than the fair value. What specific Codification references support your conclusion?
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