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Sheridan Incorporated factored $158,900 of accounts receivable with Engram Factors Inc. on a with recourse basis. Engram assesses a 3% finance charge of the amount of accounts receivable and retains an amount equal to 5% of accounts receivable for possible adjustments. Prepare the journal entry for Sheridan to record the sale, assuming that the recourse liability has a fair value of $7,760.

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Explanation:

The Journal Entry is shown below:-

Cash Dr,                                            $144,599

$158,900 - ($158,900 × 3%) - ($158,900 × 6%)

Due from factor Dr,                          $9,534          

($158,900 × 6%)

Loss on sale receivable                    $12,527

$158,900 × 3% + $7,760

           To Accounts receivable                $158,900

            To recourse liability                       $7,760

(Being Sales is recorded)

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