Question

5. The Mega enterprise transferred $100,000 of accounts receivable to the Dashen Bank. The transfer was made without recourse. Dashen bank assesses a finance charge equal to 1% of accounts receivable transferred. The bank will collect the receivables directly from Mega enterprise's customers. Required: Prepare the journal entry to record the transfer on the books of Mega​

Answer 1

To record the transfer of accounts receivable by Mega Enterprise to Dashen Bank, debit Finance Charge Expense for $1,000, credit Accounts Receivable for $100,000, and debit Cash for $99,000.

Step-by-step explanation:

The Mega enterprise's transaction of transferring $100,000 of accounts receivable to the Dashen Bank without recourse where the bank assesses a finance charge equal to 1% of the accounts receivable is to be recorded as follows:

• Debit: Finance Charge Expense $1,000 (1% of $100,000)
• Credit: Accounts Receivable $100,000
• Debit: Cash $99,000 (Net amount received, $100,000 minus the finance charge)

This journal entry reflects the reduction of accounts receivable due to the transfer to Dashen Bank, the expense incurred as a finance charge, and the cash received by Mega enterprise as a result of this transfer.