Answered

At Westonci.ca, we make it easy for you to get the answers you need from a community of knowledgeable individuals. Get quick and reliable solutions to your questions from a community of seasoned experts on our user-friendly platform. Explore comprehensive solutions to your questions from a wide range of professionals on our user-friendly platform.

Mountain High Ice Cream Company transferred $79,000 of accounts receivable to the Prudential Bank. The transfer was made without recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10%. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $6,900) less a 3% fee (3% of the total factored amount).

Required:
Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.

Sagot :

Answer:

Debit Cash for $68,730; Debit Receivable from factor for $6,900; Debit Loss on sale of receivables for $3,370; and Credit Accounts receivable $79,000.

Explanation:

Factored amount = $79,000

Cash = Factored amount * (100% - Percentage of he factored amount retained - Rate of fee = $79,000 * (100% - 10% - 3%) = $68,730

Receivable from factor = $6,900

Loss on sale of receivables =  Factored amount - Cash - Receivable from factor = $79,000 - $68,730 - $6,900 = $3,370

The journal entry will therefore look as follows:

Details                                        Debit ($)               Credit ($)          

Cash                                            68,730

Receivable from factor                6,900

Loss on sale of receivables         3,370

  Accounts receivable                                              79,000

(To record factoring of accounts receivable.)                              

We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. Your visit means a lot to us. Don't hesitate to return for more reliable answers to any questions you may have. Find reliable answers at Westonci.ca. Visit us again for the latest updates and expert advice.