Question

Urgent Bally Co. factors $3,000,000 of its accounts receivables without recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Prepare the journal entry for Bally to record this transaction.

Please use excel!!

Answer 1

• Journal entry would be

General Journal	Debit	Credit	Working
Cash	$2,760,000		[Cash received]
Loss on sale of receivables	$120,000		[Balancing amount]
Receivables from factor	$120,000		[retained amount - Fees amount]
Accounts receivables		$3,000,000	[Accounts receivables being factored]
(to record the factoring transaction)

--Working

	Without Recourse:
A	Accounts receivables factored	$3,000,000
B	% Amount remitted	92%
C = A x B	Cash received	$2,760,000
D = A - C	Amount retained	$240,000
F	Fair Value of amount retained	$240,000
G	% Fees charged	4%
H = A x G	Fees amount	$120,000