Gossamer Furnishings Extends Generous Payment Terms to Its Customers

question 38

Essay

Gossamer Furnishings extends generous payment terms to its customers. As a result, it has accumulated a substantial portfolio of accounts receivable. To improve cash flow, the company decided to sell $600,000 of these receivables to a factor. The company had previously checked the credit worthiness of its customers, so it is confident that few accounts will become uncollectable. Therefore, Gossamer chose to factor these receivables with recourse. In exchange for these receivables, the factor paid Gossamer 93¢ on each dollar of receivables on the date of transfer. The factor also held 2¢ on each dollar for potential uncollectable accounts. Ultimately, the factor collected $593,800 from these receivables.
Record the entries on Gossamer's books relating to the $600,000 factoring of accounts receivable.