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Prepare the journal entry required on galentine industries

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Reference no: EM132841317

On May 1, Galentine Industries, Inc. factored $2,100,000 of accounts receivable with Mercury Finance on a without recourse basis. Under the arrangement, Galentine Industries was to handle disputes concerning service and returns of purchases. Mercury Finance was to make the collections, and absorb any credit losses for bad debts. Mercury Finance assessed a finance charge of 5% of the total accounts receivable factored and retained an amount equal to 3% of the total receivables to cover sales discounts.

Instructions

Problem (a) Prepare the journal entry required on Galentine Industries' books on May 1.

Problem (b) Prepare the journal entry required on Mercury Finance's books on May 1.

Problem (c) Assume Galentine Industries factors the $2,100,000 of accounts receivable with Mercury Finance on a with recourse basis instead. The recourse provision has a fair value of $94,000. Prepare the journal entry required on Galentine Industries' books on May 1.

Problem (d) Prepare the entry on Galentine Industries' books if a customer returned $28,870 of purchases. Next, also prepare the entry on Mercury Finance's books when notified by Galentine Industries of the $28,870 customer return. Note: the customer's $28,870 account was included in the total accounts factored with Mercury Finance and was still outstanding (unpaid) at the time of the return.

Reference no: EM132841317

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