Mountain High Ice Cream Company transferred $60,000 of accounts receivable to the Prudential Bank. The transfer was made without recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10%. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5,000) less a 2% fee (2% of the total factored amount).

Required:

Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Question

Business

Kaitlynn Jacobs

8 December, 11:10

Mountain High Ice Cream Company transferred $60,000 of accounts receivable to the Prudential Bank. The transfer was made without recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10%. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5,000) less a 2% fee (2% of the total factored amount).

Required:

Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

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Answers (1)

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Buchanan · Answer 1

Journal entry

Explanation:

Cash $54,000 ($60,000 - $60,000 * 10%)

Loss on sale of receivables $2,200

Receivable from factor $3.800 {$5,000 - ($60,000 * 0.20) }

To Accounts receivable $60,000

(Being the transfer is recorded)

Since the 90% is remitted and 10 percentage is retained so 10% is considered and the receivable amount should be considered after 2% fee which is shown above