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tester [92]
3 years ago
15

Mountain High Ice Cream Company transferred $68,000 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 has a fair value of $5,800). Mountain High anticipates a $3,800 recourse obligation. The bank charges a 2% fee (2% of $68,000), 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:
horrorfan [7]3 years ago
4 0

Answer:

Entries are given below

Explanation:

Calculations

Cash = ($68,000 x 90%) - ($68,000 x 2%)

Cash = $61,200 - $1,360

Cash = $59,840

Loss on sale = ($68,000 + $3,800) - ($59,840 +$5,800)

Loss on sale =  $71,800 - $65,640

Loss on sale = $6,160

Entries

                                                   DEBIT      CREDIT

Cash                                           $59,840

Loss on sale                              $6,160

Receivable from factor            $5,800

Recourse liability                                        $3,800

Receivables                                                  $68,000

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