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Prepare a journal entry required on Battery's books on May 1

On May 1, Battery, Inc. factored $800,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Battery was to handle disputes concerning service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts. 1. Prepare the journal entry required on Battery's books on May 1 2. Prepare the journal entry required on Quick Finance's books on May 1 3. Assume Battery factors the $800,000 of accounts receivable with Quick Finance on a with recourse basis instead. The recourse provision has a fair value of $14,000. Prepare a journal entry required on Battery's books on May 1

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ANSWERS

Without recourse
Battery, Inc.
DR: Cash {800,000 - [800,000*(6%+2%)]} 736,000
DR: Due from factor (800,000*2%) 16,000
DR: Loss from sale of ...

Solution Summary

The expert prepares a journal entry required on Battery's book on May 1.

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