Question

In: Accounting

When a company factors accounts receivable without recourse: A. The seller is said to have pledged...

When a company factors accounts receivable without recourse:

A.

The seller is said to have pledged its receivables.
B.

The factor is unable to recover any uncollected amounts from the seller.
C.

The factor collects amounts due and forwards them to the seller.
D.

Any risk of uncollectible accounts receivable resides with the seller

Solutions

Expert Solution

B) The factor is unable to recover any uncollected amounts from the seller is the correct alternative.

Under non recourse factoring all the risk of non collections remain only in the hand of the factor. For any uncollectible they can't claim from the sellers.

Why the other alternatives are not true :

A) If the seller said to have pledge it's receivables that means he can purchase back it's receivables again from the factors if there is any non payment of collections. It is one of the feature of recourse factoring .

C) If the factor doesn't even collect from receivables still they have to pay to the seller.

D) Risk of uncollectible accounts receivable only remains with factors. In recourse factoring the risk of uncollectible remains with seller. But it is not holds true for non recourse factoring.

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Ayayai Incorporated factored $135,100 of accounts receivable with Pina Factors Inc. on a without-recourse basis. Pina...
Ayayai Incorporated factored $135,100 of accounts receivable with Pina Factors Inc. on a without-recourse basis. Pina assesses a 3% finance charge of the amount of accounts receivable and retains an amount equal to 7% of accounts receivable for possible adjustments. Prepare the journal entry for Ayayai Incorporated and Pina Factors to record the factoring of the accounts receivable to Pina. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account...
Wood Incorporated sells $150,000 of accounts receivable to Engram Factors Inc. On a with-recourse basis. Engram...
Wood Incorporated sells $150,000 of accounts receivable to Engram Factors Inc. On a with-recourse basis. Engram assesses a finance charge of 2% and retains an amount equal to 6% of accounts receivable. Wood estimates a fair value of recourse obligation to be $7500. Prepare the journal entry for (a)Wood Incorporated (b) Engram Do (1) journal entries, (2) adjusting entries, and (3) closing entries
E7-16 (Transfer of Receivables with Recourse) Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle...
E7-16 (Transfer of Receivables with Recourse) Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2014. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments. Instructions (a) What conditions must be met...
Lucy factored $15,000,000 of accounts receivable with Ethel on a with recourse basis on May 1....
Lucy factored $15,000,000 of accounts receivable with Ethel on a with recourse basis on May 1. (Assume the transaction meets the criteria to be classified as a sale.) Ethel assessed a finance charge equal to 1% of the ARs factored. Ethel retained $100,000 to cover potential sales returns. Lucy estimated her recourse liability to be $495,000. During May and June, customers returned merchandise to Lucy on $90,000 of credit sales. All of the returns related to receivables from the $15,000,000...
Lucy factored $15,000,000 of accounts receivable with Ethel on a with recourse basis on May 1....
Lucy factored $15,000,000 of accounts receivable with Ethel on a with recourse basis on May 1. (Assume the transaction meets the criteria to be classified as a sale.) Ethel assessed a finance charge equal to 1% of the ARs factored. Ethel retained $100,000 to cover potential sales returns. Lucy estimated her recourse liability to be $495,000. During May and June, customers returned merchandise to Lucy on $90,000 of credit sales. All of the returns related to receivables from the $15,000,000...
Vaughn Manufacturing factors $5900000 of its accounts receivables with recourse for a finance charge of 5%....
Vaughn Manufacturing factors $5900000 of its accounts receivables with recourse for a finance charge of 5%. The finance company retains an amount equal to 9% of the accounts receivable for possible adjustments. Vaughn estimates the fair value of the recourse liability at $225000. What would be recorded as a gain (loss) on the transfer of receivables? A. Gain of $1051000. B. Loss of $225000. C. Gain of $295000. D. Loss of $520000.
Company Z factors $200,000 of accounts receivable with Company A. The finance charge is 2% of...
Company Z factors $200,000 of accounts receivable with Company A. The finance charge is 2% of accounts receivable. Company A retains an amount equal to 3% of accounts receivable. Record the journal entries for both Company Z and Company A if the sale was on a (1) without recourse basis and again on a (2) with recourse basis. Assume that Company Z estimates a recourse obligation with a fair value of $2,000.
1. Popper Enterprises factors $700,000of its accounts receivables to Third Bank with recourse for a finance...
1. Popper Enterprises factors $700,000of its accounts receivables to Third Bank with recourse for a finance charge of 4?%. The finance company retains an amount equal to? 7% of the accounts receivable for possible adjustments. Third Bank will return the hold back to Popper when it collects the receivables. In? addition, the fair value of the recourse liability is estimated at? $20,000. What amount of cash would Popper receive as a result of this? transaction? A. $623,000 B. $665,000 C....
Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc..Crest Textiles transfers the receivable...
Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc..Crest Textiles transfers the receivable records to Commercial Factors, which will receive the collections. Commercial Factors assesses a finance charge of 2 percent of the amount of accounts receivable and retains an amount equal to 5 percent of the accounts receivable for probable adjustments. Instructions: Presume it is a factoring without recourse. Then prepare any necessary journal entries for Crest Textiles and Commercial Factors, Inc. on the date of...
1. Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On...
1. Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2021, the company transferred $920,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 85% of the factored amount and retains 15%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 2% fee (2% of the total factored amount). Samson estimates the fair value of the last 15% of its receivables to be...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT