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What amount of loss on factoring should candy company

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Freddy Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Freddy charges a commission to its clients of 15% of all receivables factored. In addition, Freddy withholds 10% of receivables factored as protection against sales returns or other adjustments. Freddy credits the 10% withheld to Client Retainer and makes payment to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables as revenue at the time the receivables are factored. Also, experience had led Freddy to establish an Allowance for Bad Debts of 4% of all receivables purchased.

  • On January 2, 2019, Freddy purchased receivables from Candy Company totaling P1,600,000. Candy had previously established an Allowance for Bad Debts for these receivables of P50,000.

Problem 1: By January 31, Freddy had collected P1,400,000 on these receivables. What amount of loss on factoring should Candy Company recognize on sale of its receivable?

 

Reference no: EM132756763

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