Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash.Northern Bank charges a 5% factoring fee.What entry should Jervis make on to record the transaction?
A)Debit Cash $71,250;debit Factoring Fee Expense $3,750;credit Accounts Receivable $75,000
B)Debit Accounts Receivable $71,250;debit Factoring Fee Expense $3,750;credit Cash $75,000
C)Debit Cash $75,000;credit Factoring Fee Expense $3,750;credit Accounts Receivable $75,000
D)Debit Cash $71,250;credit Accounts Receivable $71,250
E)Debit Accounts Receivable $75,000;credit Factoring Fee Expense $3,750;credit Cash $71,250

Question

Quizplus · Accepted Answer

The journal entry should reflect the following:
- Debit Cash for the amount Jervis received, which is $71,250 (75,000 x 0.95)
- Debit Factoring Fee Expense for the factoring fee charged by Northern Bank, which is $3,750 (75,000 x 0.05)
- Credit Accounts Receivable for the amount sold to Northern Bank, which is $75,000
Therefore, choice A is the correct entry.

Jervis Sells $75,000 of Its Accounts Receivable to Northern Bank