Company A transfers $700,000 in accounts receivable to Finance Company with recourse. Finance Company charges a 4% fee receivables factors with recourse. Company A estimates a $3,000 recourse liability. Finance Company will immediately remit 90% of the factored receivables to Company A and retain 10%. The fee is withheld from cash advance to Company A at the start of the arrangement. Company A estimates that the retained portion of the receivables is $58,000 (ignoring the factors fee). What is the amount of loss on sales of receivables reported by Company A?
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.
![Company
A transfers $700,000 in
accounts receivable to Finance Company
with recourse. Finance Company charges
a 4% fee receivables factors with
recourse. Company A estimates a $3,000
recourse liability. Finance Company will
immediately remit 90% of the factored
receivables to Company A and retain
10%. The fee is withheld from cash
advance to Company A at the start of the
arrangement. Company A estimates that
the retained portion of the receivables is
$58,000 (ignoring the factors fee). What
is the amount of loss on sales of
receivables reported by Company A?
A) 43,000
B) 40,000
C) 31,000
D) 28,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F36140b03-f341-4c4d-9bde-da05bb41382f%2F21bd7ca6-f88e-4428-9416-f72a88fef0d2%2Fnrwlyms_processed.jpeg&w=3840&q=75)
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