Green Tea Company decides to sell its receivables with recourse. Here are the details of...
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Green Tea Company decides to sell its receivables with recourse. Here are the details of the transaction:
- Green Tea transfers $200,000 in receivables to Factor. The allowance for bad debts on these receivables is $25,000.
- Green Tea charges a factoring fee of $8,000.
- Factor gives Green Tea $160,000 in cash and retains the rest of the receivables ($200,000 $160,000 = $40,000) to cover the factoring fee and provide a cushion against potential sales returns.
- Factor is anticipated to collect $170,000 and will remit the excess over $160,000, less the factoring fee, to Green Tea.
- Green Tea estimates the fair value of the recourse obligation to be $1,500
What is Green Tea's loss on the sale of receivables?
a) $39,500
b) $16,500
c) $14,500
d) None of the above
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