Business

Question

CarsRUs factors $800,000 of accounts receivable with recourse. The factor (buyer of receivables) charges a 3% finance fee and holds back an amount equal to 14% of the accounts receivable for sales adjustments and returns. CarsRUs estimates its recourse liability to be $26,000. What is the amount of the loss on sale of receivables that CarsRUs would recognize at the sale of its receivables

1 Answer

  • Answer:

    $50,000

    Explanation:

    Calculation to determine the amount of the loss on sale of receivables that CarsRUs would recognize at the sale of its receivables

    Using this formula

    Loss on sale of receivables=[(Recourse Accounts receivable*Finance fee charges)+Estimated recourse liability]

    Let plug in the formula

    Loss on sale of receivables=(3%*$800,000)+$26,000

    Loss on sale of receivables=$24,000+$26,000

    Loss on sale of receivables=$50,000

    Therefore the amount of the loss on sale of receivables that CarsRUs would recognize at the sale of its receivables will be $50,000

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