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Illustration: Crest Textiles, Inc. (COMPANY) factors $500,000 of A/R with Commercial Factors, Inc., (FACTOR) without recourse (so purchaser assumes
collection risk.) Commercial Factors assesses a finance charge of 3% of A/R and retains an amount equal to 5% of A/R (for potential future “adjustments”.) Crest Textiles and Commercial Factors make the following journal entries for the A/R transferred without recourse. Illustration 7-17 Chapter
7-60 LO 8 Explain accounting issues related to disposition
of accounts and notes receivable.
of Sales of Receivables (FACTORING)
Sales of Receivables ((FACTORING)
Illustration: Assume Crest Textiles sold the A/R with recourse (seller
maintains collection risk.) Crest Textiles determines that the recourse obligation has a fair value of $6,000. To determine the loss on the sale of the receivables, Crest Textiles computes the net proceeds from the sale as follows. Illustration 7-18
Computation Illustration 7-19
Loss on Sa...
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