On April 1 of the current year, Troubled Company factored receivable with a carr

Question

On April 1 of the current year, Troubled Company factored receivable with a carrying value of $85,000 for $60,000 in cash from Scrooge Lenders. Factor retains the $25,000 to cover a factoring fee of $5,000 and to provide a cushion against potential sales returns or uncollectible accounts. After Factor has collected cash after covering the factoring fee, it will the excess to Troubled Company. The management estimates that the fair value of the last $25,000 of the receivables to be collected is 20,000. The transfer was made without recourse. On April 1, Troubled would:

A. Credit deferred interest expense for $25,000.

B. Credit factored accounts receivable for $85,000.

C. Debit disount on liability for $25,000.

D. Debit loss on sale of receivables for $25,000.

Explanation / Answer

Answer: D. Debit loss on sale of receivables for $25,000.

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