SEK Group factors 400,000 of accounts receivable with Mays Finance Corporation, without guaranteeing any payment for possible

Question:

SEK Group factors ¥400,000 of accounts receivable with Mays Finance Corporation, without guaranteeing any payment for possible credit losses (without recourse) on July 1, 2019. The receivables records are transferred to Mays Finance, which will receive the collections. Mays Finance assesses a finance charge of 1½% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.

Instructions

a. Prepare the journal entry on July 1, 2019, for SEK Group to record the sale of receivables without recourse.

b. Prepare the journal entry on July 1, 2019, for Mays Finance to record the purchase of receivables without recourse.

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...