Question

Mountain High Ice Cream Company transferred $63,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5,300). Mountain High anticipates a $3,300 recourse obligation. The bank charges a 3% fee (3% of $63,000), and requires that amount to be paid at the start of the factoring arrangement. 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 transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Journal entries for Mountain high Ice cream is given below

Step-by-step explanation:

Journal entries:

Debit Credit

Cash 54810(w1)

Loss on receivables 6190

Factoring amount 5300(fair value)

Recourse liability 3300

Receivables 63000

Workings 1

63000 x 90%-3% = 54810