Question

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

Answer 1

The loss recorded on the factoring arrangement is $6,000

Step-by-step explanation:

The loss recorded by Marquess Company on the sale of receivables of $200,000 is the fee of 3% paid since the factor company does not have any recourse to Marquess Company.

A case of recourse who have meant that the factor company can transfer any debt uncollected thereafter to Marquess Company,which does not arise in this case.

Loss on receivables=Amount factored*factoring fee of 3%

=$200,000*3%=$6,000

Answer 2

$6,000

Step-by-step explanation:

Receivables may be factored to ease the liquidity pressures of an entity. Factoring comes at a cost. As such, when receivables are factored, the entries required are

Debit Cash account

Dr Interest expense (factoring charge)

Credit Accounts receivables

As such, the amount of loss on sale of receivables would Marquess record in June is equivalent to the factoring charge

= 3% * $200,000

= $6,000