(a) Accounting for Receivables: Receivables are defined as the amounts that are due to a firm by its customers and other parties. Receivables include all those assets that arise due to the primary operations of a firm and those representing cash that is to be collected from all external parties who owe money to the firm. Receivables are broadly categorized into trade-receivables and non-trade receivables. Trade receivables refer to those receivables that occur due to the sale of goods and services in the normal course of business. Non-trade receivables refer to the amounts that occur due to third parties from transactions outside the primary course of business. To determine: The benefits of factoring. Explanation: The benefits of factoring are as follows: It helps convert the receivables into cash in a short span of time, almost certainly within 24 hours in almost all cases. It does not lead to long term contracts and there is no lock-in period making it more secure. The cash funded by the factor can be put to use in any form irrespective of the nature of cash receipt unlike a bank loan or a line of credit which has to be used for a specific purpose only. It depends upon the firm who initiates factoring to decide upon the contracts it wants to sell to the factor. It helps in getting cash without incurring any kind of loss. It improves or renders opportunity to pay bills down or write them off. The financial position of a company does not affect factoring, neither are financial reports required for the same. It is a great advantage when new and non bankable business opportunities need to be addressed. It involves a very nominal fee. The abundant stress that a company undergoes in collecting receivables and strategizing policies for the same is completely eliminated. Conclusion: Hence, the benefits of factoring are explained as above. (b) To determine: The range of the percentages of the typical discount rate. Answer: In almost all cases, the range of the percentages of the typical discount rate that is involved in factoring varies from 2 percent to 6 percent. Conclusion: Hence, the range of the percentages of the typical discount rate is from 2 percent to 6 percent. (c) To determine: The percentage of the value of the receivables that can be expected to receive from the factor in the form of cash. Answer: The percentage of the value of the receivables that can be expected to receive from the factor in the form of cash is almost 70 to 80 percent. Explanation: There are two kinds of factoring involved, first the advance factoring in which the factor extends financing to the organization or seller of the accounts in the form of cash advances almost 70 to 80% of the total purchase price of the accounts receivable and the balance being paid after deducting the discount, fee, and other charges when the amount from the receivables is duly collected. In another type of factoring that is maturity factoring, no advance payment is made by the factor, and rather the price is paid on the average maturity date of the accounts when purchased in a batch. The cash is paid within 24 hours in most of the case else it might take few days in processing. Conclusion: Hence, the percentage of the value of the receivables that can be expected to receive from the factor in the form of cash is almost 70 to 80 percent.

EBK ACCOUNTING PRINCIPLES

13th Edition

ISBN: 9781119411017

Author: Weygandt

Publisher: WILEY

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A company identifies two activities: material handling and machine setup. The cost drivers are number of parts (10,000) and number of setups (200), with cost pools of $250,000 and $180,000 respectively. Product A uses 2,500 parts and 50 setups. Calculate the activity-based overhead allocated to Product A.

Can you solve this financial accounting problem using appropriate financial principles?

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