Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc.. Crest Textiles transfers...
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Accounting
Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc..
Crest Textiles transfers the receivable records to Commercial Factors, which will receive the
collections. Commercial Factors assesses a finance charge of 2 percent of the amount of accounts receivable and retains an amount equal to 5 percent of the accounts receivable for probable adjustments.
Instructions:
Presume it is a factoring without recourse. Then prepare any necessary journal entries for Crest Textiles and Commercial Factors, Inc. on the date of factoring.
Presume it is a factoring with recourse and the fair market value of the recourse is $5,000. Then prepare any necessary journal entries for Crest Textiles
On the date of factoring
On the maturity date of accounts receivable
If the credit buyer of Crest Textiles pays $400,000 to Commercial Factors.
If the credit buyer of Crest Textiles does not pay $400,000 to Commercial Factors and hence Crest Textiles pays $420,000 including $20,000 penalty to Commercial Factors.
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