Xyz company sells a group of its receivables without recourse to a factor. The f

Question

Xyz company sells a group of its receivables without recourse to a factor. The face value of the sold receivables is $250,000. Xyz company had already recorded an allowance for bad bet against the receivables in the amount of 5%. The factor will charge 21% per annual interstate on the receivables, and the WAVG number of days to maturity of the sold receivables is 32 days. The factor's fee in addition to the interstate is 7%. The factor will hold back 6% of the receivables face value to cover any merchandise returns.

the amount received by xyz company on the date of sale is?

Explanation / Answer

Face value of accounts recievable = $250,000

interest expense = $250,000 *21% * 32/365 = $4603

factors fee          = $250,000 * 7%                 = $17,500

holdback fee     = $250,000 * 6%                 = $15,000

Total                                                               =$27,897

Amount recieved on the date of sale is $250,000 - $27,897 = $222,103

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