Question

On May 1, Dexter, Inc. factored $1,600,000 of accounts receivable with Quick Finance on a without...

On May 1, Dexter, Inc. factored $1,600,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Dexter was to handle disputes concerning service and returns of purchases. Quick Finance was to make the collections, and absorb any credit losses for bad debts. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.

(d) Prepare the entry on Dexter’s books if a customer returned $3,500 of purchases. Next, also prepare the entry on Quick Finance’s books when notified by Dexter of the $3,500 customer return. Note: the customer’s $3,500 account was included in the total accounts factored with Quick Finance and was still outstanding (unpaid) at the time of the return

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Answer #1

Net Receivables after adjusting return $1600000 -$3500=$1596500

Calculation of Finance charge and Discount Allowed :-

Finance Charge = $1596500 × 6% =$95790

Discount Allowed =$1596500 × 2% =$31930.

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