Question

Sheffield Corp. factors $2600000 of its accounts receivables without recourse for a finance charge of 3%. The finance company retains an amount equal to 9% of the accounts receivable for possible adjustments. Sheffield estimates the fair value of the recourse liability at $330000. What would be the debit to Cash in the journal entry to record this transaction

Answer 1

$2,288,000

Step-by-step explanation:

Finance charge = $2,600,000 × 3% = $78,000

Amount retained by the finance company = $2,600,000 × 9% = $234,000

Cash received by Sheffield Corp. = $2,600,000 - $78,000 - $234,000 = $2,288,000

Therefore, the amount that would be debited to Cash in the journal entry to record this transaction is $2,288,000.