Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 7 - Cash and Receivables - Review and Practice - Questions - Page 362: 20

Answer

Recourse is a guarantee from Moon hardware that if any of the sold receivables are uncollectible, Moon will pay the factor for the amount of the uncollectible account. This recourse obligation represents continuing involvement by Moon after the sale.

Work Step by Step

Under the financial components model, the estimated fair value of the recourse obligation will be reported as a liability on Moon’s balance sheet.
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