Accounts Receivables Paper 6

1

Taylored Corp. factored $400,000 of accounts receivable to Rich Corp. on July 1, year 2. Control was surrendered by Taylored. Rich accepted the receivables subject to recourse for nonpayment. Rich assessed a fee of 2% and retains a holdback equal to 5% of the accounts receivable. In addition, Rich charged 15% interest computed on a weighted-average time to maturity of the receivables of forty-one days. The fair value of the recourse obligation is $12,000.
Which of the following statements is correct?






2

Taylored Corp. factored $400,000 of accounts receivable to Rich Corp. on July 1, year 2. Control was surrendered by Taylored. Rich accepted the receivables subject to recourse for nonpayment. Rich assessed a fee of 2% and retains a holdback equal to 5% of the accounts receivable. In addition, Rich charged 15% interest computed on a weighted-average time to maturity of the receivables of forty-one days. The fair value of the recourse obligation is $12,000.
Assuming all receivables are collected, Taylored’s cost of factoring the receivables would be






3

Scarbrough Corp. factored $600,000 of accounts receivable to Duff Corp. on October 1, year 2. Control was surrendered by Scarbrough. Duff accepted the receivables subject to recourse for nonpayment. Duff assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Duff charged 15% interest computed on a weighted-average time to maturity of the receivables of fifty-four days. The fair value of the recourse obligation is $9,000. Scarbrough will receive and record cash of






4

Synthia Corp. factored $750,000 of accounts receivable to Thomas Company on December 3, year 2. Control was surrendered by Synthia. Thomas accepted the receivables subject to recourse for nonpayment. Thomas assessed a fee of 2% and retains a holdback equal to 4% of the accounts receivable. In addition, Thomas charged 12% interest computed on a weightedaverage time to maturity of the receivables of fifty-one days. The fair value of the recourse obligation is $15,000. Assuming all receivables are collected, Synthia’s cost of factoring the receivables would be






5

Bannon Corp. transferred financial assets to Chapman, Inc. The transfer meets the conditions to be accounted for as a sale. As the transferor, Bannon should do each of the following, except






6

All but one of the following are required before a transfer of receivables can be recorded as a sale.






7

Which of the following is not an objective for each entity accounting for transfers of financial assets?






8

Which of the following is false?






9

Fusion Corporation uses the amortization method to account for its servicing assets. Which of the following statements is true?






10

The procedures followed by the firm for ensuring payment of its accounts receivables are called its






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