Presented below is information for Jones Company. Jones is planning to factor so

Question

Presented below is information for Jones Company.

Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling $11,800 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse obligation is $1,090.

1. Beginning-of-the-year Accounts Receivable balance was $16,500. 2. Net sales (all on account) for the year were $108,700. Jones does not offer cash discounts. 3. Collections on accounts receivable during the year were $89,200.

Explanation / Answer

Answer : Journal enteries in the book of Jones Company

Account Debit Credit

Cash 10738

Due From Factor 590

Loss on sale of Receivable 1562

( (11800*4%)+1090)

Account Receivable 11800

Recourse Liability 1090

Journal Entries in the book of Credit Factor Inc

Account receivable 11800

Due from Factor 590

Finacing Charges 472

Cash 10738   

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