Factoring Accounts Receivable. On May 1, Dexter, Inc. Factored $1,200,000 of Accounts Receivable

question 10

Essay

Factoring Accounts Receivable.
On May 1, Dexter, Inc. factored $1,200,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Dexter was to handle disputes concerning service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.

Instructions

(a) Prepare the journal entry required on Dexter's books on May 1.
(b) Prepare the journal entry required on Quick Finance's books on May 1.
(c) Assume Dexter factors the $1,200,000 of accounts receivable with Quick Finance on a with recourse basis instead. The recourse provision has a fair value of $21,000. Prepare the journal entry required on Dexter's books on May 1.
(d) Explain the main advantage and disadvantage of selling receivables (1) without recourse and (2) with recourse.

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Definitions:

Biotic Potential

The maximum reproductive capacity of an organism under optimal environmental conditions.

Environmental Resistance

Factors in the environment that limit the growth, abundance, or distribution of an organism or population.

Ecological Niche

The role and position a species has in its environment, including all its interactions with the biotic and abiotic factors.

Population

Group of organisms of the same species occupying a certain area and sharing a common gene pool.