Levi Corporation factored P600,000 of accounts receivable to Lantaca Finance Co. Control was surrendered by Levi. Lantaca accepted the receivables subject to recourse for nonpayment. Lantaca assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Lantaca charged 15% interest computed on a weighted average time to maturity of the receivables of 54 days. The fair value of the recourse obligation is P9,000. 22. The loss on factoring to be recognized by Levi Corporation is
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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