03 Name/Time Homework Chapter 7 PROBLEM9 (This is a variation of Problem 8 modif

Question

03 Name/Time Homework Chapter 7 PROBLEM9 (This is a variation of Problem 8 modified to focus on factoring with recourse.J 9 Page Mountain High Ice Cream Company transferred $60,000 ofaccounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5,000). Mountain High anticipates a $3,000 recourse obligation. The bank charges a 2% fee 2% of$60,000 and requires that amount to be paid at the start of the factoring arrangement Required Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.

Explanation / Answer

Explanation-

Cash=(90%-2%)*$60,000=$52,800

Loss= $60,000+$3,000-$52,800-$5,000

=$5,200

No. Particular Debit Credit 1) Cash a/c. Dr. $52,800 Loss on sale of receivable Dr. $5,200 Receivable from factor a/c. Dr $5,000 To Recourse Liability $3,000 To Account Receivable $60,000

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