Exercise 7-20 Factoring of accounts receivable with recourse [LO7-8] Mountain Hi

Question

Exercise 7-20 Factoring of accounts receivable with recourse [LO7-8] Mountain High Ice Cream Company transferred $63,000 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 alowances when the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5.300) Mountain High anticpetes a S3.300 recourse obligation. The bank charges a 3% fee (3% or s63,000, and requres 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 af 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 delbits before Pe 6 of Next

Explanation / Answer

Factoring is selling of accounts receivables to a financial institution for immidiate realisation of cash. Bank charges certain fees for the factoring.

Required journal:

Debit Credit Bank A/C 59110 Due from factor account 5300 Bank charges (0.03*63000) 1890 To Accounts receivables 63000 Recourse Obligation 3300

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