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

question 178

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 to record the transaction?

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

---

Definitions:

Equity

Refers to fairness and justice in the distribution of resources and opportunities.

Fairness

The quality of treating others equitably, without favoritism or discrimination, often applied in legal, social, and economic contexts.

Equity

The ownership interest held by shareholders in a corporation, represented by their shares of stock.

Proportional

A relationship between two quantities where they increase or decrease at the same rate.