Entel Inc. factored $100,000 of its accounts receivable without recourse with a factor and received $80,000. Of the $20,000 difference, $8,000 was the financing fee and the remainder was held back for sales adjustments. The firm and the factor agree to share equally the cost of any sales adjustments exceeding $12,000. Actual sales adjustments amounted to $14,000; the remaining amount of receivables was collected. What amount of sales adjustments will be recorded by Entel?

Question

Quizplus · Accepted Answer

The total amount held back for sales adjustments was $20,000 - $8,000 (financing fee) = $12,000. The agreement between Entel Inc. and the factor was to share equally the cost of any sales adjustments exceeding $12,000. Actual sales adjustments were $14,000, so the amount to be shared equally is $14,000 - $12,000 = $2,000. Thus, Entel Inc. will record $12,000 + ($2,000 / 2) = $13,000 of sales adjustments. Therefore, the best choice is B.

Entel Inc Factored $100,000 of Its Accounts Receivable Without Recourse with with a Factor