Your small business has been very successful and has amassed a large amount of accounts receivable from reputable firms, but you find yourself short of ready cash to replace inventory. How could a factor help you?
What will be an ideal response?
A factor, a firm that specializes in buying other firms' accounts receivables, may buy the accounts receivables for an amount less than the face value. This short-term financing method provides money to a firm that is willing to sell its accounts receivable and is in need of funds to purchase inventory or to pay for other short-term financial needs. Factoring also provides the factor with the chance to earn a profit. In this case, profit is based on the risk the factor assumes. For a factor, risk is the probability that the accounts receivable will be repaid when they mature. Generally, the amount of profit the factor receives is the difference between the amount collected at maturity and the amount the factor paid for the accounts receivable.
You might also like to view...
Exhibit 8-3 The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: Date Cost
Market December 31, 2016 $70,000 $70,000 December 31, 2017 56,000 46,000 December 31, 2018 64,000 58,000 ? ? Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2017, to apply the lower of cost or market rule to the valuation of inventory? A) Inventory 46,000Income Summary 46,000 B) Loss Due to Market Valuation 10,000Allowance to Reduce Inventoryto Market 10,000 C) Cost of Goods Sold 10,000Inventory 10,000 D) Cost of Goods Sold 10,000Allowance to Reduce Inventoryto Market 10,000
On November 5, 2014, a Longhaul Rental truck was in an accident with an auto driven by Alana Rodriguez. Longhaul Rental received notice on January 12, 2015, of a lawsuit for $700,000 damages for personal injuries suffered by Rodriguez. Longhaul Rental's counsel believes it is probable that Rodriguez will be awarded an estimated amount in the range between $300,000 and $550,000, and that $400,000
is a better estimate of potential liability than any other amount. Longhaul's accounting year ends on December 31 . and the 2014 financial statements were issued on March 2, 2015 . What amount of loss should Longhaul accrue at December 31 . 2014? a. $0 b. $300,000 c. $400,000 d. $550,000
Describe how IBM, once a major manufacturer of computers and related products, changed its business model in response to new customer needs and how B2B marketing played a role.
What will be an ideal response?
Hindelang Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 12.50% Year 0 1 2 3 4 Cash flows -$850 $300 $320 $340 $360
A. 15.00% B. 12.83% C. 16.67% D. 13.33% E. 20.66%