Entel Inc. factored $100,000 of its accounts receivable without recourse with a factor and received $80,000. Of the $20,000 difference, $8,000 was the financing fee and the remainder was held back for sales adjustments. The firm and the factor agree to share equally the cost of any sales adjustments exceeding $12,000. Actual sales adjustments amounted to $14,000; the remaining amount of receivables was collected. Entel's entry to record the factoring of accounts receivable will include:

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Entel Inc. received $80,000 upfront from the factor. The $20,000 difference between the accounts receivable amount and the cash received is initially allocated as $8,000 for the financing fee and $12,000 held back for sales adjustments. Since the actual sales adjustments amounted to $14,000, which is $2,000 more than the $12,000 held back, and the agreement was to share the cost of any sales adjustments exceeding $12,000 equally, Entel would be responsible for $1,000 of the excess ($2,000 / 2). Therefore, Entel should expect to receive $11,000 back from the factor ($12,000 initially held back minus the $1,000 for the excess sales adjustments), making the correct entry to record the receivable from the factor $12,000, not the adjusted amount after considering the sales adjustments.

Entel Inc Factored $100,000 of Its Accounts Receivable Without Recourse with with a Factor