Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored. In addition, Freemont withholds 10% of receivables factored as protection against sales returns or other adjustments. Freemont credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Freemont recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Freemont to establish an Allowance for Bad Debts of 4% of all receivables purchased. On January 4, 2015, Freemont purchased receivables from Detmer Company totaling $1,500,000. Detmer had previously established an Allowance for Bad Debts for these receivables of $35,000. By January 31, Freemont had collected $1,200,000 on these receivables.
Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored. In addition, Freemont withholds 10% of receivables factored as protection against sales returns or other adjustments. Freemont credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Freemont recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Freemont to establish an Allowance for Bad Debts of 4% of all receivables purchased. On January 4, 2015, Freemont purchased receivables from Detmer Company totaling $1,500,000. Detmer had previously established an Allowance for Bad Debts for these receivables of $35,000. By January 31, Freemont had collected $1,200,000 on these receivables.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Question
Transcribed Image Text:Instructions:
1. Prepare the entries necessary on Freemont's
books to record the preceding information.
Freemont makes adjusting entries at the end of
every month.
2. Prepare the entries on Detmer's books to record
the preceding information.
tra
nd
purch
on
bool
10,000
2016.
Next
Transcribed Image Text:Lycamah
Annotati0
Freemont Factors provides financing to other
companies by purchasing their accounts receivable on a
nonrecourse basis. Freemont charges its clients a
commission of 15% of all receivables factored. In
addition, Freemont withholds 10% of receivables
factored as protection against sales returns or other
adjustments. Freemont credits the 10% withheld to
Client Retainer and makes payments to clients at the
end of each month so that the balance in the retainer is
equal to 10% of unpaid receivables at the end of the
month. Freemont recognizes its 15% commissions as
revenue at the time the receivables are factored. Also,
experience has led Freemont to establish an Allowance
for Bad Debts of 4% of all receivables purchased.
On January 4, 2015, Freemont purchased receivables
from Detmer Company totaling $1,500,000 . Detmer
had previously established an Allowance for Bad Debts
for these receivables of $35,000 . By January 31,
Freemont had collected $1,200,000 on these
receivables.
Drovin
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