Question

Concord Furniture factors $893000 of receivables to Pharoah, Inc. Pharoah assesses a 3% service charge on the amount of receivables sold. Concord Furniture factors its receivables regularly with Pharoah. What journal entry does Concord make when factoring these receivables

Answer 1

For recording the factory receivable we simply debited cash and service charge expenses and credited accounts receivable.

Step-by-step explanation:

The Journal Entry is shown below:-

Cash Dr, $860,210

Service charge expenses Dr, $26,790

To Accounts receivable $893,000

(Being factory receivable is recorded)

Working note

Service charge expenses = $893,000 × 3%

= $26,790

For recording the factory receivable we simply debited cash and service charge expenses and credited accounts receivable.