Use the information for Grant Company as presented in E7-21. Grant is planning to factor some accounts receivable at the end of the year. Accounts totaling €10,000 will be transferred to Credit Factors, Inc. without guarantee. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%.

Instructions

(a) Prepare the journal entry to record the sale of the receivables.

(b) Compute Grant’s accounts receivable turnover for the year, assuming the receivables are sold.

Discuss how factoring of receivables affects the turnover ratio.

Data From E7-21

Presented below is information for Grant Company.
1. Beginning-of-the-year Accounts Receivable balance was €15,000.
2. Net sales (all on account) for the year were €100,000. Grant does not offer cash discounts.
3. Collections on accounts receivable during the year were €80,000.