Drug Kiing transfers credit card receivables to InsureAll . The credit card receivables have a fair value of $100 (book value is $99) and were transferred to InsureAll for $150. The transfer includes an option, which expires in 10 days, for InsureAll to put the assets back to DrugKing at $151. The possibility of the fair value of the asset increasing to $151 in 10 days is considered remote and, therefore, the exercise price of the option appears to be sufficiently favorable such that it is probable at inception that it will be exercised. The transfer price of $150 represents the fair values of the credit card receivables ($100) and the put option ($50).
QUESTION 1
IS THIS SALE OR FINANCING? EXPLAIN (CITE ASC SUB PARA 860-10-40-5)
Drug Kiing transfers trade receivables to InsureAll . The trade receivables have a fair value of $100 (book value is $99) and were transferred for $103. The transfer includes an option for InsureAll to put the assets back to DrugKing for up to one year after the transfer date at $102.50. The transfer price of $103 represents the fair values of the trade receivables ($100) and the put option ($3). You may assume that InsureAll is earning interest from customers on the receivables.
QUESTION 2
IS THIS SALE OR FINANCING? EXPLAIN (CITE ASC SUB PARA 860-10-40-5)
