Question

Guardiola inc factored $2,300,000 of account receivable with mourinho finance on a with recourse basis. the recourse provision has a fair value of $75,000. moutinho finance assessed a finance charge of 3% of th total account receivable factored and retained an amount equal to 2.5% of the total receivables to cover sales discount. as a result of this transaction, Guardiola's:_______.

a. assets go down by 5319.000.
b. liabilities go up by 557,500.
c. equity goes down by $144.000.
d. assets go up by 569.000.

Answer 1

c. equity goes down by $144.000.

Step-by-step explanation:

The computation of the given transaction is shown below:

Loss on sale of Receivables

= Finance charge + Recourse value

= ($2,300,000 × 0.3) + $75,000

= $69,000 + $75,000

= $144,000

This loss on the sale of receivable results in the decrement of an equiy for $144,000

Hence the correct option is c.

All other options are wrong