Fasb Codification Assignment 1 – Receivables Essay

Words: 1525
Pages: 7

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
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Provide the specific paragraph citation.
An agreement that both entitles and obligates the transferor to repurchase or redeem transferred assets from the transferee maintains the transferor’s effective control over those assets, and the transfer shall therefore be accounted for as a secured borrowing, if and only if all of the following conditions are met: a. The assets to be repurchased or redeemed are the same or substantially the same as those transferred. To be substantially the same, the asset that was transferred and the asset that is to be repurchased or redeemed need to have all of the following characteristics: * 1. The same primary obligor (except for debt guaranteed by a sovereign government, central bank, government-sponsored enterprise or agency thereof, in which circumstance the guarantor and the terms of the guarantee must be the same) * 2. Identical form and type so as to provide the same risks and rights * 3. The same maturity (or in the circumstance of mortgage-backed pass-through and pay-through securities, similar remaining weighted-average maturities that result in approximately the same market yield) * 4. Identical contractual interest rates * 5. Similar assets as collateral * 6. The same aggregate unpaid principal amount or principal amounts within accepted good delivery standards for the type of security