On May 1, DXY, Inc. factored 800,000 of accounts receivable with a Finance Company on a with
Question:
On May 1, DXY, Inc. factored €800,000 of accounts receivable with a Finance Company on a with recourse (with guarantee) basis. Under the arrangement, DXY was to handle disputes concerning service, and the Finance Company was to make the collections, handle the sales discounts, and absorb the credit losses. The Finance Company 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. The journal entry required on DXY’s books on May 1 is …………..
a.
Cash ............................................................................................... 736,000
Due from Factor ............................................................................. 16,000
Interest Expense............................................................................... 48,000
Recourse Liability................................................................. 800,000
b.
Cash .................................................................. 736,000
Due from Factor .................................................................. 16,000
Loss on Sale of Receivables................................................. 48,000
Accounts Receivable.......................................... 800,000
c.
Cash ........................................................................................... 736,000
Loss on Sale of Receivables........................................................ 64,000
Accounts Receivable....................................................... 800,000
d.
Cash ........................................................................................... 736,000
Interest Expense........................................................................... 64,000
Notes Payable.................................................................. 800,000
e.
Cash ........................................................................................... 736,000
Interest Expense........................................................................... 64,000
Recourse Liability........................................................... 800,000
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon