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On May 1, 2020, Gulf Trading Co
On May 1, 2020, Gulf Trading Co. factors $960,000 of its accounts receivable with Red Sea Factor Inc. on a non-guarantee (without recourse) basis. Red Sea Factor Inc. assesses a finance charge of 296 of the amount of accounts receivable and retains an amount equal to 796 of the accounts receivable (for probable adjustments). Required: Prepare the journal entry to record the transfer of accounts receivables on non-guarantee basis by: 1. Gulf Trading Co. 2. Red Sea Factor Inc. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). ? ? ? S Paragraph Arial 14px E * i P O WORDS POWERED BY TINY
Expert Solution
Answer
Journal entry in Gulf trading co.
| Date | General journal | Debit | Credit |
| Cash | $874,944 | ||
| Due from factor | $65,856 | ||
| Loss from Factoring/Finance cost | $19,200 | ||
| Accounts receivable | $960,000 | ||
| (To record amount received from factoring) |
Finance charge =960,000*2%
=$19,200
Amount retained by factorer=(Accounts receivable-Finance charge)*7%
=(960,000-19,200)*7%
Amount retained by factorer=$65,856
Cash received=$960,000-19,200-65,856
Cash received=$874,944
Journal entry in Red sea Factor inc.
| Date | General journal | Debit | Credit |
| Accounts receivable | $960,000 | ||
| Factoring liability | $65,856 | ||
| Cash | $874,944 | ||
| Factoring income | $19,200 | ||
| (To record factoring done) |
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