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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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EXERCISE 8-4

Purpose: (L.O. 4) This exercise will illustrate the factoring of accounts receivable.

The Tuscawilla Tailgate Company often factors its accounts receivable. On May 1, 2014, the company factored $250,000 of customer accounts receivable to Fagan Factors, Inc. which charged a 3% service charge.

Instructions

  1. Prepare the journal entry to record the sale of the accounts receivable to the factor.
  2. Explain how the service charge will affect Tuscawilla Tailgates' financial statements.

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