Question

JFK Corp. factors $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2020. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1.5% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
a) Prepare the journal entry on July 1, 2020, for JFK Corp. to record the sale of receivable without recourse
b) Prepare the journal entry on July 1, 2020, for LBJ Finance Corporation to record the purchase of receivables without recourse.

Answer 1

Answer:

Please see below

Explanation:

A. Journal entry for JFK Corp, July 1, 2020 to record the sale of receivable without recourse.

Cash. Dr.

[(100 - 4 - 1.5) × 300,000]. $283,500

Due from factor Dr

(0.4 × 300,000) $12,000

Loss on sale of receivable. Dr

(0.015 × 300,000) $4,500

To Accounts receivable Cr $300,000

B. Journal entry for LBJ finance Corporation on July 1, 2020 to record the purchase of receivables without recourse.

Accounts receivable Dr $300,000

To due from factor Cr $12,000

To Financing revenue Cr $4,500

To cash account Cr $283,500