Cabanes Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Cabanes charges a commission to its clients of 15% of all receivables factored. In addition, Cabanes withholds 10% of receivables factored for protection against sales returns or adjustments. Cabanes credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Cabanes recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Cabanes to establish allowance for bad debts of 4% of all receivables purchased. On January 2, 2021, Cabanes purchased receivables from Cabana Company totaling P3,000,000. Cabana has previously established an allowance for bad debts for these receivables of P100,000. By January 31, Cabanes had collected P2,500,000 on these receivables. 40. What amount of receivable would be shown by Cabana Company relating to the factoring transaction on January 31, 2021?
Cabanes Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Cabanes charges a commission to its clients of 15% of all receivables factored. In addition, Cabanes withholds 10% of receivables factored for protection against sales returns or adjustments. Cabanes credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Cabanes recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Cabanes to establish allowance for bad debts of 4% of all receivables purchased. On January 2, 2021, Cabanes purchased receivables from Cabana Company totaling P3,000,000. Cabana has previously established an allowance for bad debts for these receivables of P100,000. By January 31, Cabanes had collected P2,500,000 on these receivables. 40. What amount of receivable would be shown by Cabana Company relating to the factoring transaction on January 31, 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bad Debts
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.
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Cabanes Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Cabanes charges a commission to its clients of 15% of all receivables factored. In addition, Cabanes withholds 10% of receivables factored for protection against sales returns or adjustments. Cabanes credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Cabanes recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Cabanes to establish allowance for bad debts of 4% of all receivables purchased. On January 2, 2021, Cabanes purchased receivables from Cabana Company totaling P3,000,000. Cabana has previously established an allowance for bad debts for these receivables of P100,000. By January 31, Cabanes had collected P2,500,000 on these receivables.
40. What amount of receivable would be shown by Cabana Company relating to the factoring transaction on January 31, 2021?
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