Practice prompt · Q:receivables-notes-credit-losses-and-transfers/sale-versus-secured-borrowing-001

Decide whether receivables were sold or pledged

Tests whether the learner reads control rather than the label on the agreement.

Updated Sep 11, 2026 Review due Nov 18, 2026

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A company transfers 400,000 of receivables to a finance company for 370,000 in cash. The agreement is titled a sale. In a contemporaneous agreement, the transferor has both the right and the obligation to repurchase the same receivables before maturity at a fixed price. It continues to collect from the customers and remit.

The classification changes reported leverage. It does not change the cash that the company received. Apply the three sale conditions in ASC 860-10-40-5. The repurchase facts meet the effective-control conditions in ASC 860-10-40-24.

Choose the best answer. a A secured borrowing: the receivables stay on the books and a 370,000 liability is recorded. b A sale: derecognize the receivables and record a 30,000 loss. c A sale, because cash was received and legal title changed hands. d Neither is recorded until the receivables are collected from customers.

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Answer: a

Choice a. The right and obligation to repurchase the same receivables before maturity at a fixed price keep effective control with the transferor, so the transaction is a secured borrowing.