Zhou Enterprises has approximately $10m of accounts receivable. Because of the pandemic, Zhou is in need of
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Question:
Zhou Enterprises has approximately $10m of accounts receivable. Because of the pandemic, Zhou is in need of cash to help keep the business operating.
Required:
- Briefly describe some ways that Zhou could use its accounts receivable to obtain cash faster than it would by waiting to collect all of the receivable amounts from customers.
- Suppose Zhou successfully arranges with Sarmatina Financial Corp to transfer half of their receivables in exchange for approximately $5m in cash. Why might Zhou prefer to structure (for accounting/reporting purposes) the exchange as a sale vs. as a secured borrowing? Be specific about the differential effects on the income statement, balance sheet, and/or some key financial ratios.
- What key aspects of the arrangement would Zhou need to consider in deciding whether to appropriately account for the arrangement as a sale or as a secured borrowing?
Related Book For
Managing Information Technology
ISBN: 978-0131789548
6th edition
Authors: Carol Brown, Daniel W. DeHayes, Jeffrey A. Hoffer, Wainright E. Martin, William C. Perkins
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