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28 December, 17:52

Calico Corners decides to sell $400,000 of its accounts receivable to Fast Cash Factors Inc. Fast Cash Factors assesses a service charge of 3% of the amount of receivables sold. Prepare the journal entry that Calico Corners makes to record this sale.

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  1. 28 December, 18:15
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    The journal entry is shown below:

    Cash A/c Dr $388,000

    Service charge expense A/c Dr $12,000

    To Account receivable A/c $400,000

    (Being sale is recorded)

    The service charge is an expense that is why it is debited and it is computed by

    = Sales * service charge

    = $400,000 * 3%

    = $12,000

    Since the sales is made so the company would received the cash that is why we debited the cash account and credited the accounts receivable account
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