Jervis Sells $75,000 of Its Accounts Receivable to Northern Bank

question 93

Multiple Choice

Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash.Northern Bank charges a 5% factoring fee.What entry should Jervis make on to record the transaction?

• A)Debit Cash $71,250;debit Factoring Fee Expense $3,750;credit Accounts Receivable $75,000
• B)Debit Accounts Receivable $71,250;debit Factoring Fee Expense $3,750;credit Cash $75,000
• C)Debit Cash $75,000;credit Factoring Fee Expense $3,750;credit Accounts Receivable $75,000
• D)Debit Cash $71,250;credit Accounts Receivable $71,250
• E)Debit Accounts Receivable $75,000;credit Factoring Fee Expense $3,750;credit Cash $71,250

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Definitions:

Master Budget

A comprehensive financial planning document that includes all of the smaller, individual budgets within an organization, projecting all major financial activities.

Static Budget

A static budget is a fixed budget that does not change or adjust in response to changes in business activity levels, such as sales volume or production capacity, during the budget period.

Flexible Budget

A budget that adjusts or varies with changes in the volume of activity, allowing for better control and analysis of performance by comparing actual costs to budgeted amounts at the actual activity level.

Credit Sales

Sales transactions in which the payment is delayed as agreed by both the seller and the buyer.