Question

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.

Answer 1

ANSWER

Account Titles	Debit	Credit
Accounts Receivable	$100,000
Sales		$100,000
(To record sale of goods on credit)
Cash [(70,000*90% - 8,400)]	$54,600
Factoring Expense (70,000*12%)	$8,400
Receivable from Factor (70,000*10%)	$7,000
Accounts Receivable		$70,000
(To record factoring of accounts receivable)
Cash (30,000 - 576)	$29,424
Sales Discounts (30,000*96%*2%)	$576
Accounts Receivable (100,000 - 70,000)		$30,000
(To record collection of unfactored accounts receivable)
Cash (7,000 - 132)	$6,868
Sales Discounts [(7,000*94%*2%]	$132
Receivable from Factor (70,000 - 90%*70,000)		$7,000
(To record collection of balance factored receivable)

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