Reference no: EM132514491

Sparky, Inc. factors $800,000 of accounts receivable with Goldwater Finance Corporation. Goldwater will collect the receivables on a notification basis. Goldwater assesses a finance charge equal to 3% of the accounts receivable factored and requires their fee be paid at the beginning of the agreement. Goldwater also reserves 4% of the accounts factored to cover probable adjustment for sales discounts, returns and allowances. The factoring was done with recourse, the three conditions were met to qualify as a sale, and the recourse obligation is estimated to be 2% of A/R factored.

State the effect this factoring transaction had on Sparky's Balance Sheet.

Assets Liabilities Stockholder's Equity

Question 1. Required: Determine the effect on Total Assets:

(A)Decrease by $40,000

(B) Increase by $16,000

(C) Decrease by $16,000

(D) Decrease by $24,000

Question 2. Determine the effect on Total Liabilities as a result of this factoring transaction:

(a) Increase $16,000

(B) Decrease $40,000

(C) Increase $24,000

(D) Increase $32,000

Question 3. Determine the effect on Total Equity as a result of this factoring transaction:

(A)Increase $16,000

(B)Decrease $40,000

(C)Increase $32,000

(D)Decrease $24,000