8. Soothie Inc. factors $850,000 of its accounts receivables with Ripoff Finance

ID: 2537033 • Letter: 8

Question

8. Soothie Inc. factors $850,000 of its accounts receivables with Ripoff Finance on a without recourse basis for a finance charge of 4%. The finance company retains an amount equal to 6.5% of the accounts receivable for possible adjustments. Prepare the journal entry required on Soothie’s books.

9. Given the above information, prepare the journal entry for Ripoff Finance’s books.

10. Given the above information, Soothie factors the same amount of accounts receivables on a with recourse basis and the finance charge is 3.5%. The fair value of the recourse liability is estimated at $25,000. Prepare the journal entry required on Soothie’s books.

Explanation / Answer

Ans Ques No. 8

As stated in the question Soothie Inc factor its receivable with Ripoff Finance on a without recourse basis the journal entry to record in Soothie’s books is as follows:

Particulars

Debit

Credit

Cash

$760,750

Due from Factor(Ripoff Finance) (6.5% of $850,000)

$55250

Loss on Sale of Receivable ( 4% of $850,000)

$34,000

Accounts Receivable

$850,000