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Inessa05 [86]
3 years ago
6

Mountain High Ice Cream Company transferred $72,000 of accounts receivable to the Prudential Bank. The transfer was made with re

course. 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 have a fair value of $6,200). Mountain High anticipates a $4,200 recourse obligation. The bank charges a 2% fee (2% of $72,000) 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.
Business
1 answer:
docker41 [41]3 years ago
8 0

Answer:

Journal Entry

Explanation:

Cash Dr,                                      $63,360

Loss on sale receivable Dr,       $6,640

Receivable from factor Dr,         $6,200

         To resource liability                      $4,200

          To Accounts receivable               $72,000

(Being transfer on the books of Mountain High is recorded)

Working Note :-

2% × $72,000 = $1,440

Cash = ($72,000 × 0.90) - ($72,000 × 0.02)

= $64,800 - $1,440

= $63,360

Loss on sale receivable = ($4,200 + $72,000) - ($63,360 + $6,200)

= $76,200 - $69,560

= $6,640

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The income statement and a schedule reconciling cash flows from operating activities to net income are provided below for Macros
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Explanation:

The preparation of the cash flows from operating activities section is shown below:-

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Sales                                                            $330

Add Decrease in Accounts Receivables   $7

Cash collected from customers                 $337                              

Cost of goods sold                                      $130

Add Increase in inventory                           $13

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Paid cash to suppliers                                 $124

Salary expenses                                           $41

Less Increase in payable salaries                $7

Paid cash to employees                               $34

Insurance expenses                                      $21

Less Decrease in prepaid insurance            $5

Paid cash for insurance                                $16

Income tax expenses                                     $65

Less Increase in income tax payable            $11

Paid cash for income tax                               $54

Interest expenses                                           $13

Less Decrease in bond expenses                  $2

Paid cash for interest expense                       $11

Statement of Cash Flow

Cash collected from customers                    $337

Gain on sale of cash equivalents                  $3

less: Paid cash to suppliers                           $124

less: Paid cash to employees                        $34

less: Paid cash to insurance                           $16

less: Paid cash for interest                              $11

less: Paid cash for income tax                        $54

Net cash provided by operating activities     $101

3 0
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