10BE Wood Incorporated factored $150,... [FREE SOLUTION]

Chapter 7: 10BE (page 363)

Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a without-recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

Expert verified

Interest revenue earned by Engram equals$3,000.

The current asset account, including the money due from the customers to whom sales were made on credit terms, is known as accounts receivable.

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Installment accounts due in 2018	\)23,000
Installment accounts due after 2018	34,000
Overpayment to vendors	2,640
Due from regular customers, of which $40,000 represents account pledge as security for a bank loan	79,000
Advances to employees	1,500
Advance to the subsidiary company (due in 2018)	81,000

	Debit	Credit
Accounts receivables	\(100,000
Allowance for doubtful accounts		\)2,000
Sales revenue (All on credit)		900,000
Sales return and allowance	50,000

June 30 Bank Reconciliation Statement
Balance per bank	\(7,000
Add: Deposit in transit	1,540
Less: Outstanding checks	(2,000)
Balance per books	\)6,540

Month of July Results
	Per Bank	Per Books
Balance July 31	\(8,650	\)9,250
July Deposits	5,000	5,810
July Checks	4,000	3,100
July note collected (not included in July deposits)	1,000	-
July bank service charge	15	-
July NSF check from a customer, returned by the bank (recorded by bank as a charge)	335	-