Popper Enterprises factors $900,000 of its accounts receivable to Third Bank with recourse for a finance charge of 5%. The finance company retains an amount equal to 7% of the accounts receivable for possible adjustments. Third Bank will return the hold back to Popper when it collects the receivables. In addition, the fair value of the recourse liability is estimated at $20,000. What amount of cash would Popper receive as a result of this transaction

The answer is $972,000

Explanation:

From the question we recall the following,

The account receivable of  popper Enterprises factors = $900,000

Recourse for finance charge of = 5%

The accounts receivable for possible adjustments of =7%

The fair value of the recourse liability of  = $ 20,000

Then,

From Factor Third Bank = 900000 x 7% = $ 63,000

The  Factoring  Loss = (900000 x 5%) + 20000 of the recourse liability = $ 65,000

which is,

The Amount of cash that popper would received as a result of this transaction is = Accounts receivables  + the value of recourse liability from  factoring loss  – the factor due

Therefore,

= 900000 + 20000 – 63000 – 65,000 = $972,000

answer; sensory adaptation;