Cinder Corp factored, with recourse, $150,000 of accounts receivable with Greedy Financing. The finance charge is 3%, and 5.5% was retained to cover sales discounts, sales returns, and sales allowances. Cinder estimates the recourse obligation at $1,750. What amount should Cinder report as a loss on sale of receivables?
Accounts Receivable Factoring
It is a type of financing with the use of accounts receivable as collateral. It is when a company sells its outstanding accounts receivable to a financing company, also known as a factor that specializes in buying receivables for its immediate cash needs without waiting for the receivables to be due.
Answer and Explanation:
To record the factoring of accounts receivable with recourse:
|Cash 150,000 - (150,000 x 8.5%) - 1,750||135,500|
|Due From Factor (Holdback) (150,000 x 5.5%)||8,250|
|Loss on Receivable Factoring (150,000 x 3%) + 1,750||6,250|
The loss on receivable factoring is attributable to finance charges and recourse obligation of $1,750. Hence, the total loss is amounting to $6,250
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from Accounting 101: Financial AccountingChapter 7 / Lesson 4