Sparky, Inc. factors $800,000 of accounts receivable with Goldwater Finance Corporation. Goldwater will collect the receivables on a notification basis. Goldwater assesses a finance charge equal to 3% of the accounts receivable factored and requires their fee be paid at the beginning of the agreement. Goldwater also reserves 4% of the accounts factored to cover probable adjustment for sales discounts, returns and allowances. The factoring was done with recourse, the three conditions were met to qualify as a sale, and the recourse obligation is estimated to be 2% of A/R factored.
Required: State the effect of the factoring transaction on Sparky’s Balance Sheet. Use I for Increase, D for Decrease, and NE for No Effect. If there is an amount, state the dollar amount. Example: If you determine that Assets Increased by $3,000 as a result of this transaction you would enter your answer as I3000. Record the I, D, or NE first, followed by the dollar amount. Do not space between the I, D, of NE and the dollar amount.