sparky,Inc.factors $800,000of accounts receivable with Goldwater Finance Corporation.Goldwater will collect the receivables on a notification basis.Goldwater assesses a finance charge equal to3%ofthe accountsreceivable 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 donewith recourse, the three conditions were met to qualify as a sale, and the recourse obligation is estimated to be 2% of A/R factored.

State the effect this factoring transaction had on Sparky'sBalance Sheet.

AssetsLiabilitiesStockholder's Equity

1.Required:Determine the effect on Total Assets:

(A)Decrease by $40,000

(B) Increase by $16,000

(C) Decrease by $16,000

(D) Decrease by $24,000

2.Determine the effect on Total Liabilities as a result of this factoring transaction:

(a)Increase $16,000

(B)Decrease $40,000

(C)Increase $24,000

(D)Increase $32,000

3.Determine the effect on Total Equity as a result of this factoring transaction:

(A)Increase $16,000

(B)Decrease $40,000

(C)Increase $32,000

(D)Decrease $24,000