Question

Allister Company transferred $50,000 of accounts receivable to the Western Bank. The transfer was made without...

Allister Company transferred $50,000 of accounts receivable to the Western Bank. The transfer was made without recourse. Western remits 92% of the factored amount to Allister and retains 8%. When the bank collects the receivables, it will remit to Allister the retained amount (which Allister estimates has a fair value of $3,500) less a 3% fee (3% of the total factored amount). What amount of loss on sale of receivables would Allister record?

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Answer #1

Answer -

As per given information,

Allister company transferred of accounts receivable = $50000 (Factor amount)

Western bank remits = 92%

Allister company retains = 8%

Fair value of retained amount = $3500

Fee = 3% of the total factored amount

So,

Cash received on sale of receivables = (Bank remits percentage - Fee percentage) * Factor amount

Cash received on sale of receivables = (92% - 3%) * $50000

Cash received on sale of receivables = $44500

Then,

Loss on sale of receivables = Factor amount - (Cash received on sale of receivables + Fair value of retained amount)

Loss on sale of receivables = $50000 - ($44500 + $3500)

Loss on sale of receivables = $2000

$2000 of loss on sale of receivables would Allister record

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