Lycamah Annotati0 Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored. In addition, Freemont withholds 10% of receivables factored as protection against sales returns or other adjustments. Freemont credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Freemont recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Freemont to establish an Allowance for Bad Debts of 4% of all receivables purchased. On January 4, 2015, Freemont purchased receivables from Detmer Company totaling $1,500,000 . Detmer had previously established an Allowance for Bad Debts for these receivables of $35,000 . By January 31, Freemont had collected $1,200,000 on these receivables. Drovin Instructions: 1. Prepare the entries necessary on Freemont's books to record the preceding information. Freemont makes adjusting entries at the end of every month. 2. Prepare the entries on Detmer's books to record the preceding information. tra nd purch on bool 10,000 2016. Next
Lycamah Annotati0 Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored. In addition, Freemont withholds 10% of receivables factored as protection against sales returns or other adjustments. Freemont credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Freemont recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Freemont to establish an Allowance for Bad Debts of 4% of all receivables purchased. On January 4, 2015, Freemont purchased receivables from Detmer Company totaling $1,500,000 . Detmer had previously established an Allowance for Bad Debts for these receivables of $35,000 . By January 31, Freemont had collected $1,200,000 on these receivables. Drovin Instructions: 1. Prepare the entries necessary on Freemont's books to record the preceding information. Freemont makes adjusting entries at the end of every month. 2. Prepare the entries on Detmer's books to record the preceding information. tra nd purch on bool 10,000 2016. Next
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 30P
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