Geary Co. assigned $800,000 of accounts receivable to Kwik Finance Co. as security for a loan of $670,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Geary collected $220,000 on assigned accounts after deducting $760 of discounts. Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960.The amount of cash Geary received from Kwik at the time of the assignment was

Question

Quizplus · Accepted Answer

To find the amount of cash that Geary received from Kwik at the time of the assignment, we need to calculate the total amount of the loan plus commission.

Loan amount: $670,000 
Commission: 2% of $670,000 = $13,400

Total amount of loan + commission: 
$670,000 + $13,400 = $683,400

However, Geary only assigned $800,000 of accounts receivable as security for the loan, so they should not have received the full amount of the loan plus commission.

We also need to take into account the fact that Geary collected $220,000 on assigned accounts during the first month, after deducting $760 of discounts. This means that their accounts receivable balance decreased by $219,240.

Additionally, Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960. This means that their accounts receivable balance decreased by a total of $8,660 due to returns and write-offs.

So, the maximum amount of cash that Geary could have received from Kwik at the time of the assignment would be:

$800,000 - $219,240 - $8,660 = $571,100

Of course, we don't know the specific terms of the agreement between Geary and Kwik, so it's possible that they received a different amount. However, the closest option is C, $656,600, which is higher than the maximum amount of cash they could have received.

Geary Co Assigned $800,000 of Accounts Receivable to Kwik Finance Co