Marigold Incorporated sold $295,000 of accounts receivable to Gannon Factors Inc. on a with recourse basis. Gannon assesses a 2%
finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entries for Marigold Incorporated and Gannon Factors to record the sale of the accounts receivable to Gannon assuming that the recourse liability has a fair value of $13,500
2 answers:
Answer:
Accounts Receivable = $295,000
Retention % = 6%
Retention Amount = $295,000 x 6% = $17,700 ( Due from Gannon Factors)
Finance Charge % = 2%
Finance Charge = $295,000 x 2% = $5,900
Loss on Sale of Accounts receivables = Finance Charge + Recourse Liability
=$5,900 + $13,500
=$19,400
Cash received = Total Accounts Receivable Transferred – [Retention Amount + Finance Charge]
Cash received =$295,000 - [$17,700 + $5,900]
=$295,000 - $23,600
=$271,400
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Holding cost = $5 unit per year
<u>To find:</u>
Number of units to be ordered each time an order is placed
<u>Solution:</u>
On calculating the number of units,
Therefore, to minimize the total cost, approximately 77 units should be ordered each time an order is placed.