Factoring Accounts Receivable
Response to the following problem:
Faeber Textile Company frequently factors its accounts receivable. During 2010, Faeber made credit sales of $100,000 to customers, under terms of 2/10, n/30. Faeber records its credit sales using the gross price method. From past experience, sales returns and allowances are expected to be minimal. In 2010, Faeber sold $70,000 of these receivables to a factor. The factor remitted 90% of the accounts receivable factored and charged a 12% commission on the gross amount of the factored receivables. The factoring agreement also requires Faeber to be responsible for any cash discounts taken by customers upon payment of the factored receivables. Faeber is charged for these cash discounts upon reimbursement by the factor. During 2010, sales returns and allowances were $3,000 on the factored accounts receivable and $1,300 on the unfactored accounts receivable. The factor collected the remaining amount of the factored receivables, less the 2% discount on 94% of the collected receivables, and returned the balance owed to Faeber. Faeber collected the remaining amount of the unfactored accounts receivable, less the 2% discount on 96% of the collected receivables.
Required
Prepare all the journal entries necessary for Faeber to record the preceding information.