Question

can someone help me solve this accounting problem

On 5/1/19, XYZ Company sold $1,000,000 of its receivables to Baxter Bank with recourse. The agreement specified that Baxter would make the collections. XYZ would pay a finance charge of 3%, in addition to paying monthly interest of %2% on the outstanding balance of receivables at the beginning of each month. Baxter would withhold 10% from the initial cash payment until all returns and allowances were settled. The accrued interest charges would be deducted from Baxter's payments to XYZ. XYZ estimated that 1% of the receivables would ultimately prove to be uncollectible. In May, Baxter collected $400,000 of the receivables. Another $400,000 was collected in June, $110,000 in July, and $82,000 in August, which Baxter deemed to be the final collection. Required: Prepare all journal entries necessary for XYZ at 5/1, 5/31, 6/30, 7/31, and 8/31. O collected

Answer 1

	Books of XYZ & Co
		in $
	Journal Entry	Dr	Cr
1-May-19	Baxter Bank	10,00,000
	Accounts Receivable		10,00,000
	Receivable sold to Baxter Bank with recourse
31-May-19	Factoring Expense	7,500
	To Baxter Bank		7,500
	3% annual finance charges & monthly interest of 0.5% on Receivable at the beginning of the month equivalent to 0.75% p.m on $1,000,000
31-May-19	Security with Baxter Bank	1,00,000
	Cash	2,92,500
	To Baxter Bank		3,92,500
	10% of the Receivable on hold from the initial payment as security deposit & Balance $300,000 received & Factoring expenses adjusted
30-Jun-19	Factoring Expense	4,500
	To Baxter Bank		4,500
	3% annual finance charges & monthly interest of 0.5% on Receivable at the beginning of the month equivalent to 0.75% p.m on $600,000
30-Jun-19	Cash	3,95,500
	To Baxter Bank		3,95,500
	Baxter Bank Collected $400,000 & Factoring expenses adjusted
31-Jul-19	Factoring Expense	1,500
	To Baxter Bank		1,500
	3% annual finance charges & monthly interest of 0.5% on Receivable at the beginning of the month equivalent to 0.75% p.m on $200,000
31-Jul-19	Cash	1,08,500
	To Baxter Bank		1,08,500
	Baxter Bank Collected $110,000 & Factoring expenses adjusted
31-Aug-19	Factoring Expense	675
	To Baxter Bank		675
	3% annual finance charges & monthly interest of 0.5% on Receivable at the beginning of the month equivalent to 0.75% p.m on $200,000
31-Aug-19	Cash	81,325
	To Baxter Bank		81,325
	Baxter Bank Collected $82,000 & Factoring expenses adjusted
31-Aug-19	Bad Debts Expense	8,000
	Cash	1,00,000
	To Baxter Bank		1,08,000
	Total Receivable factored $1,000,000, Total collection made by Baxter Bank $992,000 & Security amount of $100,000 Released