posted by Leidy .
A firm has a balance in its account receivable account and decides to sell the receivables to a factos without recourse. the factor imposes a 10% fee and agrees to pay $36,000 for the receivables. In addition, the seller and the factor agree that $3,000 of the sales price will be held back due to posible sales returns and allowances from these accounts.
A) what is the loss recorded by the firm that sells the receivables?
B) what is the journal entry to record the sale of the receivables?
Firm wil make below entries
a. Transfers ownership of receivables to factor.
b. Records any amount retained by transferee as “due from factor.”
This is an amount held back to protect the transferee in case of non-payment by customer
c. Records loss on sale of receivables.
Cash Dr 33,000
Due from Factor Dr 3,000
Loss on sale of Acct Rxable Dr 3,600
Acct Rxable Cr 39,600
( Factor pays 36000 & charges 10% as his fee (10%*36000=3600) & holds back 3000)