Question

On April 1, Dallow, Inc. factored $160,000 of its accounts receivable without recourse. The factor retained 10% of the accounts receivable as an allowance for sales returns and charged a 5% commission on the gross amount of the factored receivables. What amount of cash did Dallow receive from the factored receivables

Answer 1

Answer:

$136,000

Explanation:

According to the scenario, computation of the given data are as follows,

Amount receivable = $160,000

Allowance for sales return = 10% × $160,000 = $16,000

Commission = 5% × $160,000 = $8,000

So, amount of cash from factored receivables can be calculated by using following formula,

Cash from factored receivables = Amount receivable - Allowance for sales return - Commission

= $160,000 - $16,000 - $8,000

= $136,000