Logitech Corporation transferred $105,000 of accounts receivable to a local bank
ID: 2574239 • Letter: L
Question
Logitech Corporation transferred $105,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 85% of the remit to Logitech nterest in the receivables of S11,500 (not including the 2% fee) factored arount to Logtech and retains the renaining 15% when the bank colects the leceivables, will the retained amount less a fee equal to 2% of the total amount factored. Logitech estintes a fair value of its 15% What is the eflect of this transaction on the company's assets, liabilities, and income betore income taxes?Explanation / Answer
Amount transferred to Bank = $ 105,000
Amount Retained by bank (15% of $ 105,000) = ($ 15,750)
Retained amount on collection (2% of $ 105,000) = ($ 2100)
Fair value of amount retained by bank = $ 11500
Net amount received by Logitech = $ 98650
Assets will reduce by $6350 & to that extent profit reduced
Assumptions:
We assumed that total 15% of the retention money collected as per fair value but as per Prudence concept expected loss to be recognized immediately(so retention money is also reduced from total value of asset transferred)