Joe Novak Corporation sold accounts receivables to Huskie Financing without recourse. If the sale of receivables had been with recourse, Joe Novak Corporation would have estimated a recourse obligation equal to 8% of receivables, and its net income would have been $8,400 less. If the tax rate for Joe Novak Corporation is 30%, how much receivables were sold?

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Asked Jan 22, 2019
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Joe Novak Corporation sold accounts receivables to Huskie Financing without recourse. If the sale of receivables had been with recourse, Joe Novak Corporation would have estimated a recourse obligation equal to 8% of receivables, and its net income would have been $8,400 less. If the tax rate for Joe Novak Corporation is 30%, how much receivables were sold?

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Expert Answer

Step 1

With the increase n recourse liability, the expenses will be recognized and the net income will get decreases.

Therefore, net income after taxx has been decreased by $ 8400. And it is after tax savings at the rate of 30%.

Therefore, the decrease in net income due to recourse liability is:

Net Income after tax decreased:         8400

Add: Tax (8400 /70*30)                              3600

Net Income before tax decreased:      12000

Step 2

Thus, it has been ascertained that recourse liability is $ 12000. This amount is 8% of r...

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