Samson Wholesale Beverage Company regularly factors its accounts receivable with

Question

Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2016, the company transferred $830,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 85% of the factored amount and retains 15%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 3% fee (3% of the total factored amount). Samson estimates the fair value of the last 15% of its receivables to be $63,000. Required: Prepare journal entries for Samson Wholesale Beverage for the transfer of accounts receivable on April 30 assuming the sale criteria are met. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the transfer of accounts receivable on April 30. Note: Enter debits before credits. Event General Journal Debit Credit 1 Record entry Clear entry View general journal

Explanation / Answer

SOLUTION

Transfer of Accounts receivable-

Sometimes, the company issuing notes receivables is not in a position to wait for the realization of notes receivable until their maturity. In soch case, they transfer such notes receivable to a financial institution called as factor. Such factor appointed charges commission for its services. The process is called discounting or factoring.

Journal Entry-

S.No. Accounts title and Explanation Debit ($) Credit ($) 1. Cash ($830,000*85%) 705,500 Loss on sale of receivables 86,400 Receivable from factor [$63,000 - (3% * $830,000)] 38,100 Accounts receivable 830,000 (To record the transfer of accounts receivable on April 30)

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