Mountain High Ice Cream Company transferred $70,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $6,000). Mountain High anticipates a $4,000 recourse obligation. The bank charges a 2% fee (2% of $70,000), and requires that amount to be paid at the start of the factoring arrangement. Required: Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.
Mountain High Ice Cream Company transferred $70,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $6,000). Mountain High anticipates a $4,000 recourse obligation. The bank charges a 2% fee (2% of $70,000), and requires that amount to be paid at the start of the factoring arrangement. Required: Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Mountain High Ice Cream Company transferred $70,000 of accounts receivable to the Prudential
Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to
Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the
receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair
value of $6,000). Mountain High anticipates a $4,000 recourse obligation. The bank charges a 2%
fee (2% of $70,000), and requires that amount to be paid at the start of the factoring arrangement.
Required: Prepare the journal entry to record the transfer on the books of Mountain High assuming
that the sale criteria are met.
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