Logitech Corporation transferred $100,000 of accounts receivable to a local bank

Question

Logitech Corporation transferred $100,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 85% of the factored amount to Logitech and retains the remaining 15%. When the bank collects the receivables, it will remit to Logitech the retained amount less a fee equal to 3% of the total amount factored. Logitech estimates a fair value of its 15% interest in the receivables of $11,000 (not including the 3% fee). What is the effect of this transaction on the company’s assets, liabilities, and income before income taxes?

Explanation / Answer

The Following will be theeffect on Assets side of BAlance Sheet

There will be no change in the Liabilities side of Balance Sheet.

Income before Income tax decreases by the amount of $7000(loss on sale of receivables)

The Assets side will decrease by the amount of $ Cash increases by the amount of remitance(85% of 100000) 85000 Receivable from factor increases by remitance of the retained amount less fees-3% = 11000 - 3000 = 8000 8000 Accounts Receivable decreases by the amount of tansfer in bank (100000) Total Decrease in Assets :(100000) - 85000+8000 $7000

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.