Question

Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2021, the company transferred $860,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 90% of the factored amount and retains 10%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 3% fee (3% of the total factored amount). Samson estimates the fair value of the last 10% of its receivables to be $66,000. Required: Prepare the journal entry for Samson Wholesale Beverage for the transfer of accounts receivable on April 30, assuming the sale criteria are met. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. No Event Debit Credit General Journal Cash Receivable from factor Loss on sale of receivables Accounts receivable 774,000 -20,000 -66,000 X 860,000

Answer 1

Solution:
	General Journal	Debit	Credit
	Cash	7,74,000
	Receivable from factor	40,200
	Loss on sale of receivables	45,800
	Accounts receivable		8,60,000
Working Notes:
	General Journal	Debit	Credit
	Cash	7,74,000
	Receivable from factor	40,200
	[fair value 66,000 - 3% fee (860,000 x 3%=25,800) = 40,200
	Loss on sale of receivables	45,800
	Balancing Figure
	[860,000 - 774,000 - 40,200 = 45,800]
	Accounts receivable		8,60,000
Notes:	Transfer was made without recourse means any collection loss will not be accountable to seller Samson . Received 1st 90% = 774,000 then balance 10% fair value is $66,000 out of which Milpitas will remit after deducting its 3% fee (860,000 x 3% =25,800) so receivable from factor is (66,000 - 25,800 = 40,200 ).
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