JFK Corp. factors $449,000 of accounts receivable with LBJ Finance Corporation o
ID: 2452688 • Letter: J
Question
JFK Corp. factors $449,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2014. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1.9% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
Date
Account Titles and Explanation
Debit
Credit
Date
Account Titles and Explanation
Debit
Credit
JFK Corp. factors $449,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2014. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1.9% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
Explanation / Answer
1)
When accounts receivable are factored without recourse, the factor (purchasing institution) bears the loss resulting from bad debts
2)
Date Account Titles and Explanation Debit Credit July 1, 2014 Cash $ 4,22,509.00 Due from Factor (LBJ) $ 17,960.00 Loss on sale of receivable $ 8,531.00 Accounts receivable $ 4,49,000.00Related Questions
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