Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can you help me answering this? In an effort to generate cash flow in order to partially finance the construction of a new factory PPP

image text in transcribed

Can you help me answering this?

image text in transcribed
In an effort to generate cash flow in order to partially finance the construction of a new factory PPP has decided to factor some of its account receivable balance during January 2015. They entered into an agreement with Frank's Financing {FF} to factor $1,000,000 of their AR under two separate agreements. The first agreement is for $500,000 of AR which is factored without recourse. PPP had previously recorded bad debt expense and still has an allowance for doubtful accounts balance relating to these accounts equal to $5,000. FF charges a financing fee of 4% of the amount of accounts receivable and retains 5% of accounts receivable to cover any potential future returns or discount liabilities. FF Estimates that 2% of the receivables will be uncollectible and creates a reserve for this amount. When a customer returns a doll PPP receives the return. FF charges the cost of returns and any discounts to PPP by debiting the Due to PPP account. During the year customers return $10,000 of merchandise to PPP and sales discounts for prompt payments total $4,000. Additionally, $8,000 of accounts receivable were written off by FF during the year. All other accounts were collected by FF and FF settled the amount due to PPP. The second factoring agreement is also for $500,000 of AR but this agreement is factored with recourse. FF charges only 2% for this arrangement because PPP agrees to provide recourse. FF withholds 7% of accounts receivable to cover any future returns or discounts. PPP had previously recorded bad debt expense and still has an allowance for doubtful accounts balance relating to these accounts equal to $12,500. PPP believes that this estimate is still an accurate estimate of the fair value of the recourse obligation. Customers returned $5,000 of merchandise and were granted discounts totaling $2,000. FF also wrote off $10,000 of accounts receivable during the year. Besides these amounts FF collected the remaining accounts receivable and settled the balance of the amount due to PPP. Part III Required: 1) Prepare the journal entries of PPP's books to account for the first factoring agreement without recourse. 2) Prepare the journal entries of FF's books to account for the first factoring agreement without recourse. 3) Prepare the journal entries of PPP's books to account for the second factoring agreement with recourse. 4) Prepare the journal entries of FF's books to account for the second factoring agreement with recourse

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Modern Advanced Accounting in Canada

Authors: Hilton Murray, Herauf Darrell

8th edition

1259087557, 1057317623, 978-1259087554

More Books

Students also viewed these Accounting questions

Question

What are the objectives of job evaluation ?

Answered: 1 week ago

Question

Write a note on job design.

Answered: 1 week ago

Question

Compute the derivative of f(x)cos(-4/5x)

Answered: 1 week ago

Question

Discuss the process involved in selection.

Answered: 1 week ago