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 is the factor's net income from this factoring arrangement?

Question

Quizplus · Accepted Answer

The initial funding amount received by Entel Inc. was $80,000 which is $100,000-$20,000 (financing fee and sales adjustments). The share of sales adjustments by both parties is $6,000 each, and as the actual sales adjustments were $14,000, the factor’s share would be $8,000.

Therefore, the factor’s net income from this factoring arrangement would be:
Initial Funding Amount - Financing Fee - Factor's Share of Sales Adjustments
$80,000 - $8,000 - $6,000 = $66,000

Hence, the correct answer is D) $7,000.

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