Reference no: EM132745688

Problem - Factoring of Accounts Receivable

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

On January 2, 2011, Kabuto purchased receivables from Committed Company totaling P3,000,000. Committed has previously established an allowance for bad debts for these receivables of P100,000. By January 31, Kabuto had collected P2,500,000 on these receivables.

Based on the above and the results of your audit, answer the following questions:

1. What is the amount of loss on factoring the accounts receivable?

2. At January 31, 2011, what amount of receivable would be shown by Committed relating to the factoring transaction?

3. Kabuto should recognize a doubtful accounts expense of?