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

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Business

Johnny Andrews

7 June, 21:14

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

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Taryn Heath · Answer 1

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).