How should collateral proceeds be recorded after disposition?

How should collateral proceeds be recorded after disposition?

• A. As revenue from liquidation in the general income statement.
• B. As recovery toward the debt, with costs first, then any deficiency or surplus accounted for per policy and law.
• C. As a separate asset not related to the loan.
• D. As new collateral for another loan regardless of policy.

Answer: (B)

Collateral proceeds after disposition are treated as recovering what’s owed on the loan, not as revenue. The money from selling the collateral is applied in a specific order: first you cover the costs of liquidation, then you apply the remaining amount to reduce the loan balance. If there’s any deficiency after applying the proceeds (or a surplus if proceeds exceed the debt), it’s handled according to the institution’s policy and applicable law. This is why the correct approach is to record the proceeds as a recovery toward the debt, with costs first, then any deficiency or surplus accounted for per policy and law.

Collateral proceeds after disposition are treated as recovering what’s owed on the loan, not as revenue. The money from selling the collateral is applied in a specific order: first you cover the costs of liquidation, then you apply the remaining amount to reduce the loan balance. If there’s any deficiency after applying the proceeds (or a surplus if proceeds exceed the debt), it’s handled according to the institution’s policy and applicable law. This is why the correct approach is to record the proceeds as a recovery toward the debt, with costs first, then any deficiency or surplus accounted for per policy and law.