A firm factors $40,000 of accounts receivable without recourse.The factor agrees to provide financing based on these receivables,but imposes a 10% fee.In addition,the transferor and transferee agree that $3,000 of sales returns and allowances can be expected from these accounts.What is the loss or expense to recorded by the transferor?

Question

Quizplus · Accepted Answer

The factor will deduct a 10% fee from the $40,000 of accounts receivable, which is $4,000 ($40,000 x 10%). In addition, $3,000 of sales returns and allowances are expected, which will further reduce the amount received by the transferor. Therefore, the transferor will receive $33,000 ($40,000 - $4,000 - $3,000). This means that the transferor incurs an expense or loss of $7,000 ($40,000 - $33,000). Therefore, the correct answer is B.

A Firm Factors $40,000 of Accounts Receivable Without Recourse