5. Packwood, Inc. factors $250,000 of its accounts receivable to M&B Finance with recourse. M&Bcharges a fee of 1% and withholds 10% of the face amount of the receivables to cover possibleuncollectible accounts and sales returns. The bank deducts the fee from the cash given to Packwood atthe outset of the arrangement. Packwood estimates the fair value of the recourse obligation is equal to$6,000. Packwood estimates the fair value of the 10% of the face amount of receivables equals $22,500.Packwood does not retain control over the factored receivables.Prepare any journal entries Packwood, Inc. would make to record the factoring.

Journal entry records the accounting transactions of a business in a journal book. All the business…

Answered: Packwood, Inc. factors $250,000 of its…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Subject :- Accounting
On December 1, 2020, ABC Company assigned specific accounts receivable totaling P5,000,000 as collateral on a P4,000,000, 12% note from certain bank. The entity will continue to collect the assigned accounts receivable. In addition to the interest on the note, the bank also charged a 5% finance fee deducted in advance on the assigned accounts. The December collections of assigned accounts receivable amounted to P2,000,000 less cash discount of P200,000. On December 31, 2020, the entity remitted the collections to the bank in payment for the interest accrued on December 31, 2020 and the note payable. The entity accepted sales returns of P100,000 on the assigned accounts and wrote off assigned accounts of P300,000. Compute the carrying amount of the note payable on December 31, 2020.
2

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