Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc..Crest Textiles transfers the receivable...

Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc..Crest Textiles transfers the receivable records to Commercial Factors, which will receive the collections. Commercial Factors assesses a finance charge of 2 percent of the amount of accounts receivable and retains an amount equal to 5 percent of the accounts receivable for probable adjustments.

Instructions:

Presume it is a factoring without recourse. Then prepare any necessary journal entries for Crest Textiles and Commercial Factors, Inc. on the date of factoring.

Presume it is a factoring with recourse and the fair market value of the recourse is $5,000. Then prepare any necessary journal entries for Crest Textiles
1. On the date of factoring
2. On the maturity date of accounts receivable
  1. If the credit buyer of Crest Textiles pays $400,000 to Commercial Factors.
  2. If the credit buyer of Crest Textiles does not pay $400,000 to Commercial Factors and hence Crest Textiles pays $420,000 including $20,000 penalty to Commercial Factors.

Solutions

Expert Solution

Factoring without recourse

In the books of Crest Textiles

Account Titles and Explanation	Debit	Credit
Cash	372000
Loss on sale of receivables (2% x $400000)	8000
Due from factor (5% x $400000)	20000
Accounts receivable		400000
(To record sale of receivables without recourse)

In the books of Commercial Factors

Account Titles and Explanation	Debit	Credit
Accounts receivable	400000
Due to customer		20000
Interest revenue		8000
Cash		372000
(To record purchase of receivables without recourse)

Factoring with recourse

In the books of Crest Textiles

	Account Titles and Explanation	Debit	Credit
a.	Cash	372000
	Due from factor (5% x $400000)	20000
	Loss on sale of receivables	13000
	Accounts receivable		400000
	Recouse liability		5000
	(To record sale of receivables with recourse)
b.i.	Cash	20000
	Due from factor		20000
	(To record collection on maturity)
b.ii.	Accounts receivable	435000
	Recouse liability	5000
	Due from factor		20000
	Cash		420000
	(To record receivable on maturity)

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

. Beyoncé Corporation factors PhP175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with...

. Beyoncé Corporation factors PhP175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2017. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments. Instructions What conditions must be met for a transfer of receivables with...

Wood Incorporated sells $150,000 of accounts receivable to Engram Factors Inc. On a with-recourse basis. Engram...

Wood Incorporated sells $150,000 of accounts receivable to Engram Factors Inc. On a with-recourse basis. Engram assesses a finance charge of 2% and retains an amount equal to 6% of accounts receivable. Wood estimates a fair value of recourse obligation to be $7500. Prepare the journal entry for (a)Wood Incorporated (b) Engram Do (1) journal entries, (2) adjusting entries, and (3) closing entries

The December 31, 2017 balance sheet of Barone Company had Accounts Receivable of $400,000 and a...

The December 31, 2017 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2018, the following transactions occurred: sales on account $1,500,000; sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off $36,000; previously written off accounts of $6,000 were collected. If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 8%...

The Accounts Receivable balance for River Corporation is $400,000 as of January 31, 2020. Before calculating...

The Accounts Receivable balance for River Corporation is $400,000 as of January 31, 2020. Before calculating and recording January 2020 Bad Debt Expense, the Allowance for Doubtful Accounts has a credit balance of $5,000. Credit sales for January 2020 are $4,000,000, and over the past several years, 1% of credit sales have proven uncollectible. An aging of River Corporation’s Accounts Receivable results in a $43,000 estimate for the Allowance for Doubtful Accounts as of January 31, 2020. Part A: PERCENT...

Ayayai Incorporated factored $135,100 of accounts receivable with Pina Factors Inc. on a without-recourse basis. Pina...

Ayayai Incorporated factored $135,100 of accounts receivable with Pina Factors Inc. on a without-recourse basis. Pina assesses a 3% finance charge of the amount of accounts receivable and retains an amount equal to 7% of accounts receivable for possible adjustments. Prepare the journal entry for Ayayai Incorporated and Pina Factors to record the factoring of the accounts receivable to Pina. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account...

High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable...

High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable turnover ratio of 5. Assuming that High and Low have the same sales level, which of the following statements is correct? A. Low Company has (on average) a lower accounts receivable balance than does High. B. Low's average collection period is less than High's. C. High's average collection period is less than Low's. D. High has a higher accounts receivable balance on average than...

Accounts receivable changes without bad debts Tara’s Textiles currently has credit sales of $360 million per...

Accounts receivable changes without bad debts Tara’s Textiles currently has credit sales of $360 million per year and an average collection period of 60 days. Assume that the price of Tara’s products is $60 per unit and that the variable costs are $55 per unit. The firm is considering an accounts receivable change that will result in a 20% increase in sales and a 20% increase in the average col-lection period. No change in bad debts is expected. The firm’s...

Harrelson Inc. currently has $750,000 in accounts receivable

Harrelson Inc. currently has $750,000 in accounts receivable, and its days sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted the company's average sales will fall by 15 percent. What will be the level of accounts receivable following the change? Assume a 365 day year.

Company Z factors $200,000 of accounts receivable with Company A. The finance charge is 2% of...

Company Z factors $200,000 of accounts receivable with Company A. The finance charge is 2% of accounts receivable. Company A retains an amount equal to 3% of accounts receivable. Record the journal entries for both Company Z and Company A if the sale was on a (1) without recourse basis and again on a (2) with recourse basis. Assume that Company Z estimates a recourse obligation with a fair value of $2,000.

accounts payable and accounts receivable

What is the difference between accounts payable and accounts receivable?

Subjects