Monaco is planning to factor some accounts receivable at the end of the year. Accounts totaling $50,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 6% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse obligation is $2,000.
Instructions
(a) Prepare the journal entry to record the sale of the receivables.
(b) Compute Monaco's accounts receivables turnover ratio for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.