Question

Hepburn Company transferred $58,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 60% of the factored amount to Hepburn and retains the remaining 40%. When the bank collects the receivables, it will remit to Hepburn the retained amount less a fee equal to 1% of the total amount factored. Hepburn estimates a fair value of its 15% interest in the receivables of $12,000 (not including the 1% fee). Hepburn will show an amount receivable from factor of: Multiple Choice $23,200. $12,000. $11,420. $22,620.

Answer 1

Answer: $11420

Explanation:

The amount that Hepburn will show as an amount receivable from factor will be the estimated fair value of the interest in receivables minus the factoring fee given in the question. This will be:

= $12,000 - ($58,000 × 1%)

= $12,000 - ($58,000 × 0.01)

= $12,000 - $580

= $11,420