Question

Popper Enterprises factors $900,000 of its accounts receivable to Third Bank with recourse for a finance charge of 5​%. The finance company retains an amount equal to​ 7% of the accounts receivable for possible adjustments. Third Bank will return the hold back to Popper when it collects the receivables. In​ addition, the fair value of the recourse liability is estimated at​ $20,000. What amount of cash would Popper receive as a result of this​ transaction

Answer 1

The answer is $972,000

Step-by-step explanation:

From the question we recall the following,

The account receivable of popper Enterprises factors = $900,000

Recourse for finance charge of = 5%

The accounts receivable for possible adjustments of =7%

The fair value of the recourse liability of = $ 20,000

Then,

From Factor Third Bank = 900000 x 7% = $ 63,000

The Factoring Loss = (900000 x 5%) + 20000 of the recourse liability = $ 65,000

which is,

The Amount of cash that popper would received as a result of this transaction is = Accounts receivables + the value of recourse liability from factoring loss – the factor due

Therefore,

= 900000 + 20000 – 63000 – 65,000 = $972,000

Answer 2

$972000

Step-by-step explanation:

Account receivables factored = $ 900,000

Recourse Liability = $ 20,000

Due from Factor Third Bank = 900000 x 7% = $ 63,000

Loss from Factoring = (900000 x 5%) + 20000 recourse liability = $ 65,000

Amount of cash received as a result of this factoring transaction = Accounts receivables factored + Recourse Liability – Loss on factoring – Due from factor.

= 900000 + 20000 – 63000 – 65,000 = $972,000