Accounting Codification Assignment-
Harper Company operates in an industry with numerous competitors. It is experiencing a shortage of cash and decides to obtain money from a large bank by using some of its receivables as collateral. Harper pledges $100,000 of its receivables, is charged a 12% fee on this amount, and notifies these credit customers to make their payments directly to the bank. Harper transfers the receivables to the bank, and the bank assumes the servicing activities, but Harper is responsible for all bad debts which it reasonably estimates to be 2% of the receivables amount. When the balance of the receivables pledged is reduced to $3,000, Harper is required to "repurchase" the receivables, notify the remaining credit customers to make payments to it, and reassume the servicing activities. The bank has the right to sell the receivables, except to Harper's major competitor. Harper's president has asked you how to account for (and record) this transaction.
Research the related generally accepted accounting principles and prepare a short memo to the accounting file not to exceed two pages that addresses the president's concerns. Cite your references and applicable paragraph numbers.
Your grade will be based on how well you incorporate the information from the codification into your response to each of the above issues.
Below you will find the grade sheet that will be used for all cases.
- Discussed and demonstrated an understanding of the issues in the case.
- Discussed and demonstrated an understanding of the relevant professional literature.
- Demonstrated the relationship of the literature to the relevant issues in the case.
- Provided sound rationale for conclusions.