Packwood,Inc.sells $250,000 of its accounts receivable to M&B Finance with recourse.M&B charges a fee of 2% and withholds 8% of the face amount of the receivables to cover possible uncollectible accounts and sales returns.Packwood estimates the fair value of the recourse obligation is equal to the $13,500 allowance for uncollectibles associated with these accounts.
Required:
a.Prepare the journal entry Packwood,Inc.would make to record the factoring.
b.Prepare Packwood's journal entry to record any subsequent cash received from M&B if M&B collects all of the receivables except for $6,500 due to a sales return and $12,000 resulting from a bad debt.

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The Answer of Packwood,Inc.sells $250,000 of its accounts receivable to M&B Finance with recourse.M&B charges a fee of 2% and withholds 8% of the face amount of the receivables to cover possible uncollectible accounts and sales returns.Packwood estimates the fair value of the recourse obligation is equal to the $13,500 allowance for uncollectibles associated with these accounts.
Required:
a.Prepare the journal entry Packwood,Inc.would make to record the factoring.
b.Prepare Packwood's journal entry to record any subsequent cash received from M&B if M&B collects all of the receivables except for $6,500 due to a sales return and $12,000 resulting from a bad debt.