FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question

A young entrepreneur founded a packaged beverage company in early 2022. Based on 
information gathered from consumers, the young entrepreneur plans to increase sales of 
packaged drinks in 2023, by producing packaged drinks with new flavors.
Revenue in 2022 is $500,000 and is expected to reach $1,500,000 in 2023. Each bottled beverage 
will sell for $5, and the bottled beverage costs $2 per bottle to produce. Administrative costs 
including the young entrepreneur’s salary, salary of one accountant and three clerks, are 
estimated at $200,000 and marketing costs such as posters, advertisements in local newspapers, 
are estimated at $350,000 in 2023. Then, investment in special equipment and renovation of 
Warehouses accounts for $562,500 and $62,500 in inventory, which was done in 2022. Moreover, 
an additional $150,000 in equipment investment is expected to be needed in early 2023 to 
increase the production volume of their bottled beverage. Currently, the old machine is still 
capable of producing the targeted amount of bottled drinks, it’s just that the machine has to work 
for 24 hours a day. Machinery depreciation costs are expected to be $75,000 and interest 
expenses are expected to be $18,000 in 2023. The tax rate is expected to be 25 percent of taxable 
income.

Question:

Assume that the account receivables for the end of the year is $150,000. Young 
entrepreneurs are considering factoring the receivables to raise cash to help finance your 
venture’s growth. The factor imposes a 6 percent discount and changes an additional 1 
percent for each expected ten-day average collection period thirty days. Estimate the dollar 
amount you would receive from the factor for your receivables if the average collection 
period were sixty days.

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