Question

Cullumber Company factors $318000 of accounts receivable with Vaughn Factors Inc. on a without recourse basis. The receivables records are transferred to Vaughn Factors, which takes over full responsibility for collections. Vaughn assesses a finance charge of 5% and withholds an initial amount equal to 9% of the accounts receivable for returns and allowances.

The loss on disposal of receivables recorded by Cullumber is
A) $44520.
B) $28620.
C) $0.
D) $15900.

Answer 1

Cullumber Company experiences a total loss on disposal of receivables of $44,520 after factoring its accounts receivable without recourse, considering both the finance charge and amount withheld for returns and allowances.

Step-by-step explanation:

The student is asking about a factorization of accounts receivable and the resulting loss on disposal of the receivables by Cullumber Company when factoring without recourse. To calculate the loss on disposal, we need to consider both the finance charge and the amount withheld for returns and allowances. Here's the breakdown:

• Total accounts receivable factored: $318,000
• Finance charge by Vaughn Factors: 5% of $318,000 = $15,900
• Amount withheld for returns and allowances: 9% of $318,000 = $28,620
• Total loss on disposal of receivables = Finance charge + Amount withheld = $15,900 + $28,620 = $44,520

Therefore, the correct answer to how much the loss on disposal of receivables recorded by Cullumber is Option A) $44,520.