Scarbrough Corp. factored $600,000 of accounts receivable to Duff Corp. on October 1, year 2. Control was surrendered by Scarbrough. Duff accepted the receivables subject to recourse for nonpayment. Duff assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Duff charged 15% interest computed on a weighted-average time to maturity of the receivables of fifty-four days. The fair value of the recourse obligation is $9,000. Scarbrough will receive and record cash of

$538,685

Explanation:

Calculation to determine what Scarbrough will receive and record cash of

Receivables$600,000

Less: Amount of the hold back($30,000)

($600,000 x 5%)

Less: Withheld as fee income($18,000)

($600,000 x 3%)

Less: Withheld as interest expense($13,315)

($600,000 × 15% × 54/365)

Cash $538,685

($600,000-$30,000-$18,000-$13,315)

Therefore Scarbrough will receive and record cash of $538,685

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