On June 30, 2016, Blondie Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $420,000 in accounts receivable to Dogwood Finance Company without recourse for a 4% fee. Option Two calls for Blondie to transfer the $420,000 in receivables to Dogwood with recourse. Dogwood's charges a 3% fee for receivables factored with recourse. Option Two meets the conditions to be considered a sale, but Blondie estimates a $3,200 recourse liability. Under either option, Dogwood will immediately remit 85% of the factored receivables to Blondie, and retain 15%. When Dogwood collects the remaining receivables, it remits the amount, less the fee, to Blondie. Blondie estimates that the fair value of the final 15% of the receivables is $26,000 (ignoring the factoring fee).
On June 30, 2016, Blondie Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $420,000 in accounts receivable to Dogwood Finance Company without recourse for a 4% fee. Option Two calls for Blondie to transfer the $420,000 in receivables to Dogwood with recourse. Dogwood's charges a 3% fee for receivables factored with recourse. Option Two meets the conditions to be considered a sale, but Blondie estimates a $3,200 recourse liability. Under either option, Dogwood will immediately remit 85% of the factored receivables to Blondie, and retain 15%. When Dogwood collects the remaining receivables, it remits the amount, less the fee, to Blondie. Blondie estimates that the fair value of the final 15% of the receivables is $26,000 (ignoring the factoring fee).
