In this question, Software Services sells $267.5 million of finance receivabes to an SPE. The question asks how this would REDUCE reported financial leverage.
Wouldn’t this sale reduce receivables but increase cash thus leaving total assets unchanged? The cirriculum explains that leverage is total assets/total equity. No problem there. It then goes on to say assets would be $267.5 million higher and equity unchanged if the receivables it had sold were stil on the balance sheet.
I don’t understand how assets can be sold to an SPE leaving total asserts reduced by that amount. Wouldn’t there be some sort of cash generated by the transaction?