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3 November, 23:09

Flint Incorporated factored $134,700 of accounts receivable with Buffalo Factors Inc. on a without-recourse basis. Buffalo assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Flint Incorporated and Buffalo Factors to record the factoring of the accounts receivable to Buffalo

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  1. 4 November, 00:37
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    Answer with Explanation:

    The Finance charge can be calculated as under:

    Finance Charge = Accounts Receivable * Finance charge rate

    Finance Charge = $134,700 * 2% = $2694

    This would be accounted for as under:

    Dr Finance Charge $2694

    Cr Cash $2694

    The 6% which 8082 (6% * $134,700) would be the possible bad debts which requires a provision:

    Dr Bad Debts $8082

    Cr Accounts receivable $8082

    The reason is that in the non recourse factoring the factor doesn't suffers any losses due to bad debts.
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