Question

BE 7-19 Factoring of accounts receivable Q107-8 Logitech Corporation transferred $100,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 85% of the factored amount to Logitech and retains the remaining 15%. 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 15% interest in the receivables of $11,000 (not including the 3% fee). What is the effect of this transaction on the company's assets, liabilities, and income before income taxes? BE 7-20 Factoring of accounts receivable @ 107-8 BE 7-19. Assuming that the sale criteria are not met, describe how Logitech would account for the Refer to the situation described in transfer.

Answer 1

BE 7-19

Cash Dr: $85000 Current asset

Due from factor Dr: $12000   Current asset

Loss on factoring: Dr $3000 Expense

Accounts receivable Cr : $100000. Current asset

Accounts receivable ( fair value) Dr: $11000. Current asset

Bad debts estimated Dr:. $1000. Expense

Due from factor Dr:. $12000. Current asset

Total assets decrease : $7000

7-20

Cash Dr $97000

Loss on factoring Dr $3000

Accounts receivable Cr $100000