Question

#4 After noting that its receivables turnover ratio had declined, Imperative Company decided for the first time in the company's history to sell $580,000 of receivables to a factoring company. The factor charges a factoring fee of 4 percent of the receivables sold.

1.	How much cash does Imperative receive on the sale?

2.	Calculate the factoring fee.

3.	How is the factoring fee reported by Imperative Company?
	Other expense Allowance for Doubtful Accounts Cost of good solds Bad debts

4.	All else equal, how will this affect Imperative's receivables turnover ratio in the future?
	Increases the receivables turnover Decreases the receivables turnover No effect

Answer 1

Answers:

1.Cash recieved = Sales - Factoring Expense = $5,80,000-4% = $5,56,800

2.Foctoring Expense = Sales*% of Expense = $5,80,000*4% = $23,200

3.Other Expense[Factoring fee reported by Imperative Company as other expenses]

4.No Effect on the inventory turnover ratio as a result of the factoring expenses.Factoring expenses will not affect the gross amount of sales,therefore there will be no effect on the turnover ratio.

Thanks....