Question

A firm often factors its accounts receivable. The finance company requires an 8% reserve and charges a 1.5% commission on the amount of the receivable. The remaining amount to be advanced is further reduced by an annual interest charge of 16%. What will the firm receive from the finance company at the time a $110,000 account, which is due in 60 days, is turned over to the finance company, rounded to the nearest dollar?



a.$81,950



b.$83,630



c.$96,895



d.$99,550

Answer 1

option a................

Answer 2

The proceeds receivable will be $96,895.

Given: Finance of company $110,000

           8% reserve and charges

           1.5% commission

           16% annual interest rate

To Find: Proceeds from account receivables .

Solution:

Account Receivable is the amount due or not received to the firm for performing its operations that is goods are services provided to the customers but not yet paid.

In this question,

Accounts receivables are                                   110,000

LESS: Reserves and charges                                (8,800)

           (110,000*8/100)                                      

         Commission                                                  (1,650)

           (110,000*1.5/100)

Remaining amount to be advanced                     99,550

LESS: Interest for 60 days                                      (2,655)

           (99,550*16/100*60/360)

Total Proceeds                                                        96,895  

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