Question

On February 1, 2020, ABC Company factored receivables with a carrying amount of $700,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February.
Assume that Herson factors the receivables on a with recourse basis. The recourse obligation has a fair value of $3,500. The loss to be reported is:_________

Answer 1

Answer:

$42,000

Explanation:

The computation of the loss to be reported is shown below:

As there are finance charge of 3% and retains 5% so the total percentage of loss  is 8%

And, the carrying amount os $700,000

So, the loss i.e. to be reported is

= Carrying amount ×  total percentage of loss

= $700,000 × 8%

= $42,000

hence, the loss is $42,000