Mountain High Ice Cream Company transferred $78,000 of accounts receivable to th

Question

Mountain High Ice Cream Company transferred $78,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $6,800). Mountain High anticipates a $4,800 recourse obligation. The bank charges a 2% fee (2% of $78,000), and requires that amount to be paid at the start of the factoring arrangement. Required: Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the transfer of accounts receivable. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal

Explanation / Answer

Date Account Title and Explanation Debit Credit Cash ($78000X(90%-2%) $68,640 Receivable from factor $6,800 Loss on sale of receivables (bal. fig.) $7,360 Recourse liability $4,800 Accounts Receivable $78,000 (To record trf of account receivable and cash received from factor)

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