DEF Company factored P6,000,000 of accounts receivable to a finance entity at the beginning of current year. Control was surrendered by DEF Company. The factor accepted the accounts receivable subject to recourse for nonpayment. The fair value of the recourse obligation is P100,000. 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. Assuming that all accounts are collected, what is the gain or (loss) on factoring the accounts receivable?
DEF Company factored P6,000,000 of accounts receivable to a finance entity at the beginning of current year. Control was surrendered by DEF Company. The factor accepted the accounts receivable subject to recourse for nonpayment. The fair value of the recourse obligation is P100,000. 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. Assuming that all accounts are collected, what is the gain or (loss) on factoring the accounts receivable?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
DEF Company factored P6,000,000 of
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education