Sheffield Inc. transferred $703,000 of its accounts receivable to Independent Trust on Nov 1, 2020, receiving...
Sheffield Inc. transferred $703,000 of its accounts receivable to Independent Trust on Nov 1, 2020, receiving 96% of the receivables balance as proceeds. The agreement specified that the receivables would become the property of Independent Trust, and Independent could manage the receivables or resell them as it wished. In addition, the agreement specified that Sheffield would have no right to repurchase the receivables from Independent, and included a recourse provision with an estimated value of $17,400.
1. Does this transaction meet the requirements to be treated as a sale of receivables?
2. Calculate the loss on disposal of receivables.
3. Prepare a journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
Homework Answers
Answer 1
Yes it will be treated as sale of receivable as it meet all the requirements for this
Answer 2
Loss on disposal of receivable = (Receivable - 96% of receivable) + Recourse liability
= (703000-96% of $703000) + $17400
Loss on disposal of receivable = $45520
.Answer 3
Journal entry for the sale of receivable will be as following
| Date | Account Titles and Explanation | Debit | Credit |
| Cash | 674880 | ||
| Loss from factor | 45520 | ||
| Recourse liability | 17400 | ||
| Accounts Receivable | 703000 | ||
| (Sale of Receivable recorded) |
Add Answer to:
Sheffield Inc. transferred $703,000 of its accounts receivable
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Net Debit Balance
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1%
60–90 days
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3%
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5%
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Presented below is information related to the Accounts
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1. An aging schedule of the accounts receivable as
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Age
Net Debit Balance
% to Be Applied after
Correction Is Made
Under 60 days
$171,900
1%
60–90 days
135,300
3%
91–120 days
39,500
*
5%
Over 120 days
22,800
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uncollectible;
estimated remainder uncollectible is 23%
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