Question

Waterway Industries factors $3000000 of its accounts receivables without recourse for a finance charge of 3%. The finance company retains an amount equal to 7% of the accounts receivable for possible adjustments. Waterway estimates the fair value of the recourse liability at $310000. What would be the debit to Cash in the journal entry to record this transaction?

Answer 1

Answer: $2,700,000

Explanation:

The debit to Cash in the journal entry to record this transaction will be calculated as:

= $3,000,000 - [($3,000,000 × 3%) + ($3000000 ×7%)]

= $3,000,000 - ($3,000,000 × 0.03) + ($3000000 × 0.07)

= $3,000,000 - [$90,000 + $210,000]

= $3,000,000 - $300,000

= $2,700,000

Therefore, the debit to cash will be $2,700,000.