Name/Time: A303 Homework Chapter7 Mountain High Ice Cream Company transferred $6

Question

Name/Time: A303 Homework Chapter7 Mountain High Ice Cream Company transferred $60,000 of accounts receivable to the Prudential Bank. The transfer was made with wreco rse Prudential remits 90% of the factored amount to Mountain High and retains 10%. when the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of SS,000) less a 2% fee (2% of the total factored amount). Required: the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met. Spiceland Rhe

Explanation / Answer

Solution: Event General Journal Debit Credit 1. Cash 54,000 Loss on sale of receivables 2,200 Receivable from factor 3,800 Accounts receivable 60,000 Working Notes: Without recourse means bank will not recover from Mountain high ice cream , if any bad debt happen . Cash 54,000 [60,000 x 90%] Loss on sale of receivables 2,200 [$60,000 - $3,800 - $54,000 = 2,200] (Balancing figure) Receivable from factor 3,800 [$5,000 fair value - (2% x 60,000)] Accounts receivable $60,000 [given ] Please feel free to ask if anything about above solution in comment section of the question.

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