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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