Workpaper #CLIENT100

Individual Case Assignment - Fall 2020 (Based on Deloitte Development LLC Case 18-2)

Ozark Health Providers (the "company") offers health-care-related services. To reduce administrative obligations and to allow for additional financing options for its patients, the company enters into a health services financing agreement (the "agreement") with Byrde Financial, an unrelated third-party financial institution (the "bank"). Under the agreement, the company's patients have the option of requesting that the company transfer its receivables to the bank. Once such a request is made, the following would occur:

• The company would transfer the patient's receivables to the bank.
• The bank would pay the company the balance of the receivables in cash.
• Because the bank would now hold the receivables from the patient, the patient and bank
• would enter into a low-interest loan agreement to stipulate the repayment terms.
• The agreement between the company and the bank contains the following additional provisions:
• Repurchase obligation: the company is required to repurchase the transferred receivables
• from the bank upon the occurrence of any of the following:
• oThere are accounts for which any payment obligation is 60 or more days past due.oThere are accounts for which the customer disputes liability for any portion of the
• account.
• oThe agreement is terminated.
• The company is also permitted to repurchase transferred receivables upon notifying the
• bank that it desires to do so.
• Termination payment obligation: upon the termination of the agreement, the company is
• required to repurchase all transferred receivables held by the bank, unless otherwise agreed to in writing. Either party may terminate the agreement as long as 30 days' notice is given.
• Although it has not yet happened, company management believes that it will receive a "true sale" opinion from its legal counsel regarding the transferred receivables.
• The agreements do not prohibit the bank from transferring the receivables to another party either as collateral for a borrowing or in an outright sale.

• How should Ozark Health Providers account for the transferred receivables?