Use the information for Grant Company as presented in E7-20. Grant is planning to factor some accounts receivable at the end of the year. Accounts totaling $10,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse liability is $1,000.

Instructions

(a) Prepare the journal entry to record the sale of the receivables.

(b) Compute Grants accounts receivable turnover ratio for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.