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company abc sells loans with a 2 200 fair value and a carrying amount of 2 000 abc c 604414

Items 1 through 3 are based on the following:

Company ABC sells loans with a $2,200 fair value and a carrying amount of $2,000. ABC Company obtains an option to purchase similar loans and assumes a recourse obligation to repurchase loans. ABC Company also agrees to provide a floating rate of interest to the transferee company. The fair values are listed.

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Fair values

Cash proceeds

$2,100

Interest rate swap

140

Call option

80

Recourse obligation

(120)

What is the gain (loss) on the sale?

  1. $ 320
  2. $ 200
  3. $(100)
  4. $ 120

The journal entry to record the transfer for ABC Company includes

  1. A debit to call option.
  2. A credit to interest rate swap.
  3. A debit to loans.
  4. A credit to cash.

Assume for this problem that ABC Company agreed to service the loans without explicitly stating the compensation. The fair value of the service is $50. What are the net proceeds received and the gain (loss) on the sale?

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Net proceeds received

Gain (loss)

a.

$2,200

$ 200

b.

$2,250

$ 250

c.

$2,150

$ 150

d.

$2,200

$(250)

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