Gipson Furniture factors $400,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 3% service charge on the amount of receivables sold. Gipson Furniture factors its receivables regularly with Kwik Factors.
What journal entry does Gipson make when factoring these receivables?
An analysis and aging of the accounts receivable of Watts Company at December 31 reveal these data:
Accounts receivable $1600,000
Allowance for doubtful accounts per book before adjustment (credit) $100,000
Amounts expected to become uncollectible $130,000
What is the cash realizable value of the accounts receivable at December 31 after adjustment?
Answer to Question No 1:
The purchaser of the accounts receivable assumes the risk of any bad debt. On the date of sale loss on sale of the accounts receivable is recognized equal to the finance charge. The sale proceeds of account receivable are further reduced by the amount retained by purchaser to cover estimated discounts, returns, and allowances.
Journal entry in the ...
The solution discusses what journal entries are made when factoring receivables.