AICPA Adapted Generating Cash from Receivables
Response to the following problem:
The Guide Company requires additional cash for its business. Guide has decided to use its accounts receivable to raise the additional cash as follows:
1. On June 30, 2010, Guide assigned $200,000 of accounts receivable to the Cell Finance Company. Guide received an advance from Cell of 85% of the assigned accounts receivable, less a commission on the advance of 3%. Prior to December 31, 2010, Guide collected $150,000 on the assigned accounts receivable and remitted $160,000 to Cell, $10,000 of which represented interest on the advance from Cell.
2. On December 1, 2010, Guide sold $300,000 of net accounts receivable to the Factoring Company for $260,000. The receivables were sold outright on a nonrecourse basis.
3. On December 29, 2010, Guide received an advance of $100,000 from the Domestic Bank by pledging $120,000 of Guide's accounts receivable. Guide's first payment to Domestic is due on January 29, 2011.
Required:
Prepare a schedule showing the income statement effect for the year ended December 31, 2010, as a result of the preceding facts. Show supporting computations in good form.