Factoring Accounts Receivable: On May 1, Dexter, Inc. factored $800,000 of accou
ID: 2358919 • Letter: F
Question
Factoring Accounts Receivable: On May 1, Dexter, Inc. factored $800,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Dexter was to handle disputes concerning service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts. Instructions (a) Prepare the journal entry required on Dexter's books on May 1. (b) Prepare the journal entry required on Quick FinanceExplanation / Answer
a) Cash................................................................................................. 736,000
Due from Factor (2% × $800,000)................................................... 16,000
Loss on Sale of Receivables (6% × $800,000)................................ 48,000
Accounts Receivable....................................................... 800,000
(b) Accounts Receivable....................................................................... 800,000
Due to Dexter........................................................................ 16,000
Financing Revenue................................................................ 48,000
Cash ...................................................................................... 736,000
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(c) Cash................................................................................................. 736,000
Due from Factor ............................................................................. 16,000
Loss on Sale of Receivables............................................................ 62,000
Accounts Receivable............................................................. 800,000
Recourse Liability.................................................................. 14,000
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