Question

Trell Corporation transferred $50,000 of accounts receivable to a local bank. The transfer was made


without recourse. The local bank remits 80% of the factored amount to Trell and retains the remaining


20%. When the bank collects the receivables, it will remit to Trell the retained amount less a fee equal


to 3% of the total amount factored. Trell estimates a fair value of its 20% interest in the receivables of


$8,000 (not including the 3% fee). Trell will show an amount receivable from factor of:


a. $10,000.

b. $8,500.

c. $8,000.

d. $6,500.

Answer 1

Answer: d. $6,500.

Explanation:

The question makes it seem quite complicated but it's not. In calculating the amount Trell will receive from the factor we do the following,

We take the fair value of Trell's 20% interest of $8,000 and subtract the factoring fee from it.

The factoring fee is,

= 50,000 * 3%

= $1,500

Subtracting it we have,

= 8,000 - 1,500

= $6,500.

Trell will show an amount receivable from factor of $6,500 so option D is correct.