Question

Kirk Furniture factors $800000 of receivables to Sulu Factors, Inc. Sulu Factors assesses a 4% service charge on the amount of receivables sold. Kirk Furniture factors its receivables regularly with Sulu Factors Factors. What journal entry does Kirk make when factoring these receivables?

Answer 1

Answer:

Explanation:

The journal entry is shown below:

Cash A/c Dr $768,000

Service Charge Expense A/c $32,000

         To Accounts Receivable A/c $800,000

(Being the cash is received and the remaining balance is debited to the cash account )

The computation of the service charge expense is shown below:

= Accounts Receivable  × service charge percentage

= $800,000 × 4%

= $32,000