Factoring Accounts Receivable on April 1, Morocco Ltd

question 208

Essay

Factoring accounts receivable On April 1, Morocco Ltd.factored $500,000 of accounts receivable with Kenya Finance Corp.on a without recourse basis.Under the arrangement, Morocco was to handle disputes concerning service, and Kenya Finance was to make the collections, handle the sales discounts, and absorb the credit losses.Kenya Finance assessed a finance charge of 5% 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 Morocco's books on April 1.
b)Prepare the journal entry required on Kenya Finance's books on April 1.
c)Instead, assume Morocco factors the $500,000 of accounts receivable with Kenya Finance
on a with recourse basis.The recourse provision has a fair value of $12,000.Prepare the
journal entry required on Morocco's books on April 1.

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Definitions:

Chief Executive

The highest-ranking officer in an organization, responsible for making major corporate decisions and managing the overall operations.

Consumer Goods

Products and services that are purchased or consumed by individuals or households for personal use.

Departmentalization

The process of dividing an organization into different departments or units, each of which specializes in a specific area of operation.

Formal Teams

Groups within an organization that are officially recognized and organized with specific roles and tasks to achieve collective goals.