Question

On February 1, 2020, Henson Company factored receivables with a carrying amount of $700,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February.

Assume that Henson factors the receivables on a without recourse basis. The loss to be reported is
a. $0.
b. $21,000.
c. $35,000.
d. $56,000.

Answer 1

The loss on sale to be reported in the income statement of Henson Company for February is $56,000.

Step-by-step explanation:

To determine the amount of loss on sale to be reported in the income statement of Henson Company for February, we need to calculate the total loss incurred from the transaction.

Agee Company assesses a finance charge of 3% on the receivables, which amounts to 3% x $700,000 = $21,000. Additionally, Agee Company retains 5% of the receivables, which amounts to 5% x $700,000 = $35,000.

Therefore, the total loss on sale to be reported in the income statement of Henson Company for February is $21,000 + $35,000 = $56,000.