Question

Swifty Corporation factors $6500000 of its accounts receivables without recourse for a finance charge of 6%. The finance company retains an amount equal to 11% of the accounts receivable for possible adjustments. What would be recorded as a gain (loss) on the transfer of receivables

Answer 1

Loss on sale of receivables = $715,000

Step-by-step explanation:

the journal entry that records this transaction should be:

Dr Cash 5,395,000

Dr Factoring fees 390,000

Dr Loss on sale of receivables 715,000

Cr Accounts receivable 6,500,000

Factoring fees represent the amount of money that the factoring company charges for its services, while the loss on the sale of receivables should offset any uncollectible accounts resulting from this transaction.