On May 1, Coronado, Inc. factored $1,472,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Coronado 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.
a. Prepare the Journal entry entry required on Dexter's book of May 1.
Date Account Titles and Explanation Debit Credit
May 1 Cash
Due from Factor
Loss on Sale of Receivables
Accounts Receivables
b. Prepare the Journal entry entry required on Quick Finances books of May 1.
Date Account Titles and Explanation Debit Credit
May 1 Cash
Due from Factor
Sales Revenue
Cash
c. Assume Dexter factors the $680,000 of accounts with Quick Finance on a with recourse basis instead. The recourse provision has a fair value of $21,000. Prepare the journal entry required on Dexter's books on May 1.
Date Account Titles and Explanation Debit Credit
May 1 Cash
Due to customer
Accounts Receivables
Recourse Liability
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On May 1, Coronado, Inc. factored $1,472,000 of accounts receivable with Quick Finance on a without...
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