Miles to Go is a travel agency specializing in tours to Africa and Australia. Miles to Go has $3,200,000 in accounts receivable. During 2014, miles to Go enters into a factoring arrangement with Fox Factors to factor 75% of their receivables. The agreement with Fox calls for a services charge of 2% of the amount of receivables sold. The effects on the statement of financial position for Miles to Go of factoring its receivables includes a(n)

Question

Quizplus · Accepted Answer

Miles to Go factors 75% of $3,200,000, which is $2,400,000. The service charge is 2% of $2,400,000, which is $48,000. Therefore, the increase in cash is $2,400,000 - $48,000 = $2,352,000.

Miles to Go Is a Travel Agency Specializing in Tours