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On February 1, 2010, Henson Company factored receivables with a carrying amount of $300,000 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 without guarantee (recourse) basis.The loss to be reported is

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When factoring receivables on a without guarantee (recourse) basis, the seller (Henson Company) remains liable for any bad debts. Therefore, a loss on sale must be recognized if the finance charge and retained amount exceeds the carrying amount of the receivables. In this case, the finance charge is $9,000 (3% of $300,000) and the retained amount is $15,000 (5% of $300,000). The total of these two amounts is $24,000, which is greater than the carrying amount of the receivables. Therefore, a loss on sale of $9,000 must be recognized by Henson Company.

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