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10 May, 23:40

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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  1. 11 May, 01:30
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    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).
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