Question

Saber Boat Industries, Inc. sells (factors) $840,000 of Accounts Receivables with the Blue Water Finance Company...

Saber Boat Industries, Inc. sells (factors) $840,000 of Accounts
Receivables with the Blue Water Finance Company on a “with
recourse” basis. Blue Water acquires the receivables on January
31, 2018 assessing a finance charge of 5%, and also reserving 8%
for covering probable adjustments. In addition, a recourse
liability amounting to a fair value of $15,000 is accrued.
a. Based on the contractual arrangement above, prepare the
journal entry at January 31st for Distribution Industries, Inc.
Debit Credit
________________________________________________________________
________________________________________________________________
________________________________________________________________
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________________________________________________________________
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________________________________________________________________
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________________________________________________________________
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b. Village Marine provided you with the following financial
information before adjustments as of December 31, 2017:
Debit Credit
Cash 103,764
Accounts Receivable 407,680
Allowance For Doubtful Accounts 3,355
Sales Revenue 2,645,090
Sales Returns and Allowances 16,847
Prepare the year end adjusting entry assuming that the allowance
for doubtful accounts is to provide for doubtful accounts based
on 2.5% of gross accounts receivable.
Debit Credit
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Homework Answers

Answer #1

Solution :-

a ) :-

Date Particulars Debit Credit
January
31, 2018
Cash

= $840,000 + $15,000 - 67,200 - 42,000

= $745,800

Provision for doubtful debts

= $840,000 * 8%

= $67,200

Finance charge

= $840,000 * 5%

= $42,000

Recourse liability $15,000
Accounts receivable $840,000
( To record factoring of account receivable )

b ) :-

Date Particulars Debit Credit
December 31, 2017 Allowance for doubtful debtors $3,355
To account receivable $3,355
Sales return & allownces $16,847
To account receivable $16,847
Provision for doubtful accounts

= $407,680 * 2.5%

= $10,192

To account receivable $10,192
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