Whispering Incorporated factored $164,900 of accounts receivable with Metlock Factors Inc. on a without-recourse basis. Metlock 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 Whispering Incorporated and Metlock Factors to record the factoring of the accounts receivable to Metlock.

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Business

Ariel Clements

17 September, 05:25

Whispering Incorporated factored $164,900 of accounts receivable with Metlock Factors Inc. on a without-recourse basis. Metlock 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 Whispering Incorporated and Metlock Factors to record the factoring of the accounts receivable to Metlock.

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Santos Moody · Answer 1

The journal entries are as follows:

In the books of Whispering:

Cash A/c Dr. $151,708

Due from Metlock Ac Dr. $9,894

Loss on sale of receivable A/c Dr. $3,298

To Accounts receivable $164,900

(To record factoring of accounts receivable on without recourse)

Working notes:

Due from Metlock = $164,900 * 6%

= $9,894

Loss on sale of receivable:

= $164,900 * 2%

= $3,298

In the books of Metlock Factors:

Accounts receivable A/c Dr. $164,900

To Due to Whispering $9,894

To Financing revenue $3,298

To Cash $151,708

(To record the accounts receivable)