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Indigo Incorporated factored $135,100 of accounts receivable with Sweet Factors Inc. on a without-recourse basis. Sweet assesses a 3% finance charge of the amount of accounts receivable and retains an amount equal to 7% of accounts receivable for possible adjustments. Prepare the journal entry for Indigo Incorporated and Sweet Factors to record the factoring of the accounts receivable to Sweet.

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Answer:

Indigo Incorporated Journal entrie

Dr Cash 121,590

Dr Due from Factor 9,457

Dr Loss on Sale of Receivable 4,053

Cr Accounts Receivable 135,100

Sweet Factors Inc

Dr Account Receivable 135,100

Cr Due to Customer 9,457

Cr Finance Revenue 4,053

Cr Cash 121,590

Explanation:

Indigo Incorporated Journal entries

Dr Cash 121,590

Dr Due from Factor 9,457

Dr Loss on Sale of Receivable 4,053

Cr Accounts Receivable 135,100

Sweet Factors Inc

Dr Account Receivable 135,100

Cr Due to Customer 9,457

Cr Finance Revenue 4,053

Cr Cash 121,590

Due from Factor = 7% x $135,100 = $9,457

Loss on Sale of Receivables = 3% x $135,100= $4,053

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