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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Factoring Accounts Receivable Faeber Textile Company frequently factors its accounts receivable. During 2019, Faeber made credit sales of $100,000 to customers, under terms of 2/10, n/30. Faeber records its credit sales using gross price. In 2019, Faeber sold $70,000 of these receivables to a factor. The factor remitted 90% of the accounts receivable factored and charged a 12% commission on the gross amount of the factored receivables. The factoring agreement also requires Faeber to be responsible for any cash discounts taken by customers upon payment of the factored receivables. Faeber is charged for these cash discounts upon reimbursement by the factor. During 2019, the factor collected the remaining amount of the factored receivables, minus the 2% discount on 94% of the collected receivables, and returned the balance owed to Faeber. Faeber collected the remaining amount of the unfactored accounts receivable, minus the 2% discount on 96% of the collected receivables.

Required:

Prepare all the journal entries necessary for Faeber to record the preceding information.

To determine

Prepare journal entry to record the given transactions.

Explanation

Account receivable:

The amount of money to be received by a company for the sale of goods and services to the customers is referred to as account receivable.

DateAccount Titles and explanationDebit ($)Credit ($)
 Accounts receivable100,000 
      Sales 100,000
 (To record the sale made )  

Table (1)

  • Accounts receivable is an asset and there is an increase in the value of asset. Hence, debit the accounts receivable by $100,000.
  • Sales (Revenue) are a component of stockholder’s equity and there is an increase in the value of equity. Hence, credit the sales by $100,000.
DateAccount Title and ExplanationDebitCredit
 Cash (2)54,600 
 Factory expense (1)8,400 
 Receivables from factor(3)7,000 
      Accounts receivable 70,000
 ( To record sale of  receivables to the  factor)  

Table (2)

  • Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $54,600.
  • Factory expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the factory expense by $8,400.
  • Receivables from factor are an asset and there is an increase in the value of asset. Hence, debit the receivables from factor by $7,000.
  • Accounts receivable is an asset and there is a decrease in the value of asset. Hence, credit the accounts receivable by $70,000.
DateAccount Title and ExplanationDebit in $Credit in $
 Cash ($7,000$1,316)5,684 
 Sales  revenue (4)1,316 
      Receivables from factor 7,000
 ( To record  collection of  remaining factory receivables by giving discount)  

Table (3)

  • Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $5,684.
  • Sales revenue is component of stockholder’s equity and there is a decrease in the value of revenue. Hence, debit the sales revenue by $1,316.
  • Receivables from factor are an asset and there is an increase in the value of asset. Hence, debit the receivables from factor by $7,000.
DateAccount Titles and explanationDebit ($)Credit ($)
 Cash29,424 
 Sales revenue  (5)576 
      Accounts receivable ($100,000$70,000)  30,000
 (To record the sale made )  

Table (4)

  • Cash is an asset and there is an increase in the value of asset

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