Question

Splish Corporation factors $268,100 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2020. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments. (b) Assume that the conditions are met for a transfer of receivables with recourse to be accounted for as a sale. Prepare the journal entry on August 15, 2020, for Splish to record the sale of receivables, assuming the recourse obligation has a fair value of $4,380.

Answer 1

Finance Charge = Rate*Accounts Receivables = 0.02*268,800 = $5,376

Retention Amount = Rate*Accounts Receivables = 0.04*268,800 = $10,752

Cash Received = Accounts Receivables - Finance Charge - Retention Amount = 268,800−5,376−10,752 = $252,672

Date Account Titles & Explanation Debit Credit

15 Aug Cash $252,672

Retention amount $10,752

Loss on sales of receivables $10,026

Recourse liability $4,650

Accounts receivables $268,800

(To record the sale of receivables)