Sage Hill plans to factor accounts receivable totaling $60,000 at the end of the year. Sage Hill will transfer the accounts to Herzog Factors, Inc. with recourse. Herzog Factors will retain 3% of the balances for probable adjustments and assesses a finance charge of 5%. The fair value of the recourse obligation is $2,500. Prepare the journal entry to record the sale of the receivables.

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Business

Kimberly

5 May, 13:02

Sage Hill plans to factor accounts receivable totaling $60,000 at the end of the year. Sage Hill will transfer the accounts to Herzog Factors, Inc. with recourse. Herzog Factors will retain 3% of the balances for probable adjustments and assesses a finance charge of 5%. The fair value of the recourse obligation is $2,500. Prepare the journal entry to record the sale of the receivables.

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Talon · Answer 1

Dr Cash 55,200

Dr Loss from sale of receivables [ (60,000*5%) + 2500] 5,500

Dr Receivable from factor (60,000*3%) 1,800

Cr Recourse liability 2,500

Cr Accounts Receivable 60,000