Question

Logitech Corporation transferred $105,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 90% of the factored amount to Logitech and retains the remaining 10%. 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 10% interest in the receivables of $8,000 (not including the 3% fee

Answer 1

Answer:

Asset will decrease by 5,650

Increase in cash by 94,500

Explanation:

Asset reduction = Cash x %of factored amount

= 105,000 x 0.90 = 94,500 cash increment

Receivables

(8,000 - 3% fee of total amount factored)

3% of total amount = 105,000 x 0.003 = 3,150

therefore, Receivables = 8,000 - 3,150

                                    = 4,850

Therefore Net decrease = Cash - Cash Increment - Receivables

                                       = 105,000 -  94,500 - 4,850

                                      = 5,650

Therefore, decrease in asset is by 5,650

Income before income taxes decreases by $5,7650 which is loss on receivables sales ).