Question

The Trey Co. sells $75,000 of accounts receivable to a factor and receives 90% of the...

The Trey Co. sells $75,000 of accounts receivable to a factor and receives 90% of the value of the factored accounts less a 15% commission based on the gross amount of factored accounts receivable. After the journal entry to record this factoring transaction is made, Trey Co.'s total assets will be

increased by $41,000.

reduced by $67,500.

reduced by $11,250.

reduced by $7,500.

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Answer #1
Commission = gross amount of factored accounts receivable *15%
=$75000-15%
=$11250
Cash Received = (75000*90%) -11250 =56250
Unrealized account receivables = $75000*10% =7500
Asset before the transaction = Account receivables =$90000
Assets after transactions = Cash +Unrealized account receivables
=$56250+7500
=$63750
Reduction in asset = $75000-63750
=$11250
Correct Answer =reduced by $11,250.
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