Aye Company factored P600,000 of its accounts receivable to Sweet Company on October 1. Control was surrendered by Aye Company. The factor assessed a fee of 3% and retained a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable of 54 days. (Use 365 days in the computation of interest). Questions: 1. What is the amount of cash initially received by Aye Company from the factoring?Answer 2. If all accounts are collected, what is the cost of factoring the accounts receivable?
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At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Aye Company factored P600,000 of its
Questions:
1. What is the amount of cash initially received by Aye Company from the factoring?Answer
2. If all accounts are collected, what is the cost of factoring the accounts receivable?
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