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

Explanation / Answer

$ $ Cash A/c Dr 68640 Factoring Expense A/c ($78000*0.02)+4800+1000(7800-6800) Dr 7360 Due from Factor A/c Dr 6800                To Account Receivable A/c 78000                To Recourse Liability A/c 4800 (Total Factoring Exp inclused Bank Charges, Recouse Liability and Loss due to change in Retention amount from factor) Cash A/c Dr 2000 Recouse Liability A/c Dr 4800                 To Due from Factor A/c 6800

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