Journalizing various receivable transactions.
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The trial balance before adjustment for sinatra company shows the following balances
DR - Accounts Rec. 82,000
DR - Allowance for doubtful accounts 1,750
CR - Sales 430,000
1. To obtain additional cash, Sinatra factors without recourse 20,000 of accounts receivable with Stills Finance. The finance charge is 10% of the amt. factored.
2. To obtain a one year loan of 55,000 Sinatra assigns 65,000 of specific receivable accounts to Ruddin Financial. The finance charge is 8% of the loan, the cash is received and the accounts turned over to Ruddin financia.
3. The company wants to maintain the Allowance for Doubtful accounts at 5% of gross accts receivable.
4. The company wishes to increase the allowance account by 1 1/2% of net sales.
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The expert examines journalizing various receivable transactions.
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Solution is provided in a separate excel file attached as follows.
1 Selling the Accounts Receivable to Factor on the terms of 10% finance charge without recourse..
2 Assigning the Accounts Receivable to the lender on the terms of 10% finance charge without recourse..
3 Journal entry for Allowance for Doubtful accounts at 5% of Accounts Receivable:
4 Journal entry for Allowance for Doubtful accounts at 1 1/2 % of Net sales.
Notes: (1) Note: Any Dscount, returns or bad debts in future (Possible adjustments) is credited to the account due from Factor and final settlenmet is made between the parties i.e. seller and purchaser.
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