Moon Inc. factors $2,000,000 of its accounts receivables with recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Moon estimates the fair value of the recourse liability at $200,000. What would be the debit to Cash in the journal entry to record this transaction?

Question

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The calculation for the debit to Cash is as follows: Start with the total accounts receivable of $2,000,000, subtract the finance charge of 4% ($80,000), and subtract the amount retained for possible adjustments of 8% ($160,000). This gives a total of $1,760,000 ($2,000,000 - $80,000 - $160,000). The fair value of the recourse liability is not subtracted from the cash received.

Moon Inc Factors $2,000,000 of Its Accounts Receivables with Recourse for for a Finance