Use the following information for questions 19 and 20. 1, 2015, Henson Company f

Question

Use the following information for questions 19 and 20. 1, 2015, Henson Company factored receivables with a carrying amount of €300,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5%,of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February. A NVH 19. Assume that Henson factors the receivables on a without guarantee (recourse) basis. The loss to be reported is A. o B. 9,0o0. C. 15,000. D. 24,000. o. Assume that Henson factors the receivables on a with guarantee (recourse) basis. The amount of cash received is A. 285,00o. B. 276,000. C. 291,000. D. 300,000.

Explanation / Answer

19.

Amount of receivables = 300,000

Finance charge = 3%

Hence, finance charge = 300,000 x 3%

= 9,000

Hence, the loss to be reported is 9,000 when Henson factors the receivables on a without guarantee basis.

Hence, correct option is (B) 9,000

20.

Agee Company (factor) has retained 5% of the receivables

Hence, amount due from factor = 300,000 x 5%

= 15,000

When Henson factors the receivables on a with guarantee (recourse) basis, the amount of cash received will be calculated as under:

Amount of cash to be received = Amount of receivables - Finance charge - Due from factor

= 300,000 - 9,000 - 15,000

= 276,000

Hence, correct option is (B) 276,000

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