Question

3. Logitech Corporation transferred $200,000 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 $18,000 (not including the 3% fee)

What is the effect of this transaction on the company's assets, liabilities, and income statement before income taxes?

Assets             ____________    __________

Liabilities      ____________    __________

Income before income taxes       ____________    __________

Answer 1

Accounts Receivables factored	$200,000
Remittance received = 90%	$180,000
Receivables remitted after collection= 10%	$20,000
Fee charged= 3% of receivables factored	$6,000
Interest estimated on receivables	$18,000
Effect on assets
Interest accrued	$18,000
Hence, Assets increase by	$18,000
Effect on Liabilities
Commission due	$6,000
Hence, Liabilities increase by	$6,000
Effect on Income
Interest accrued	$18,000
Less: Commission due	($6,000)
Income increases by	$12,000