Receivable securitization balance, selling, because

soverby

Problem 24, page 72 (FRA),it asks if after selling its receivables to an SPE that qualifies for consolidation, whether AR balance will be the after the sale or not (option C), which is correct because it still carries its A/R even though it sold it. But, option B, says it will have a higher cash balance, which is also true (see example on page 61. Is this an error?

RMontgomery

You have already increased your cash by selling your receivables.

Now when you consolidate it, A/R will be put back in the assets section (hence no change) and liability will increase by the amount of A/R.

For page 61, check to see if you find any difference between Unconsolidated balance sheet and consolidated balance sheet for Cash. Since you have not received any cash after consolidation, cash balance will not change at all.

busterbluth

I see what you are saying, and that's probably what they meant, but if you look at the question it says "If SH sells its receivables to the SPE, its results will show ... (b) higher cash, (c) same A/R. In my opinion, the answer is both.

... it's really comparing if they sell versus if they don't sell! Obviously if they don't sell, their cash remains low, and if they sell they get more cash... but anyway, who am I to argue with CFAI :-(.

tianxin

Dreary Wrote:
-------------------------------------------------------
> I see what you are saying, and that's probably
> what they meant, but if you look at the question
> it says "If SH sells its receivables to the SPE,
> its results will show ... (b) higher cash, (c)
> same A/R. In my opinion, the answer is both.
>
> ... it's really comparing if they sell versus if
> they don't sell! Obviously if they don't sell,
> their cash remains low, and if they sell they get
> more cash... but anyway, who am I to argue with
> CFAI :-(.

I think you are stuck with the first sentence "If SH sells its receivables to the SPE,
> its results will show", go to the next one "its consolidated results will most likely show"

The way I see it is that it is comparing between consolidating and not consolidating. I KNOW that they sold it.