Mortonson Corporation factored, with recourse, $300,000 of accounts receivable with Huskie Financing.The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances.Mortonson estimates the recourse obligation at $7,200.What amount should Mortonson report as a loss on sale of receivables?

Question

Quizplus · Accepted Answer

The loss on sale of receivables for a factoring with recourse is calculated as follows:

Proceeds from factoring = amount of receivables x (100% - finance charge - percentage retained)
= $300,000 x (100% - 3% - 5%)
= $300,000 x 92%
= $276,000

Loss on sale of receivables = recourse obligation - (proceeds from factoring - amount of receivables)
= $7,200 - ($276,000 - $300,000)
= $7,200 - $24,000
= $-16,800 (negative amount means no loss)

Therefore, the answer is C) $16,200.

Mortonson Corporation Factored, with Recourse, $300,000 of Accounts Receivable with Huskie