On February 1, 2014, Henson Company factored receivables with a carrying amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February.Assume that Henson factors the receivables on a with recourse basis. The recourse obligation has a fair value of $2,500. The loss to be reported is

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Quizplus · Accepted Answer

Henson Company factored receivables with a carrying amount of $500,000, therefore the amount received from Agee Company would be calculated as follows:

Amount retained by Agee Company = 5% * $500,000 = $25,000
Amount financed by Agee Company = $500,000 - $25,000 = $475,000

Agee Company assesses a finance charge of 3% of the receivables, therefore the finance charge would be calculated as follows:

Finance charge = 3% * $500,000 = $15,000

The net amount received by Henson Company would be calculated as follows:

Net amount received = Amount financed - Finance charge - Recourse obligation
= $475,000 - $15,000 - $2,500 
= $457,500

The loss on sale would be calculated as follows:

Loss on sale = Carrying amount of receivables - Net amount received
= $500,000 - $457,500
= $42,500

Therefore, the amount of loss on sale to be reported in the income statement of Henson Company for February would be $42,500.

On February 1, 2014, Henson Company Factored Receivables with a Carrying