Logitech Corporation transferred $195,000 of accounts receivable to a local bank

Question

Logitech Corporation transferred $195,000 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 2% of the total amount factored. Logitech estimates a fair value of its 10% interest in the receivables of $14,000 (not including the 2% fee).

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

Assets decreased by Liabilities would not change Income before income taxes decreased by

Explanation / Answer

Cash Increases by (195000*90%) 175500 Receivable from factor increase by (14000-(195000*2%)) 10100 Accounts receivable decreased by -195000 Net decrease in assets -9400 Assets decreased by 9400 Liabilities would not change 0 Income before income taxes decreased by 9400

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