Question

Kingbird Corporation factors $275,100 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 Kingbird to record the sale of receivables, assuming the recourse obligation has a fair value of $3,670.

Answer 1

August 15, 2020

Dr Cash $258,594

Dr Due from factor $11,004

Dr Loss on sale of receivables $9,172

Cr Accounts receivable $275,100

Cr Recourse liability $3,670

Step-by-step explanation:

Preparation of the journal entry on August 15, 2020, for Kingbird to record the sale of receivables

August 15, 2020

Dr Cash $258,594

($275,100+$3,670-$9,172-$11,004)

Dr Due from factor $11,004

Dr Loss on sale of receivables $9,172

Cr Accounts receivable $275,100

Cr Recourse liability $3,670

(Being to record the sale of receivables)

Calculation for Due from factor

Due from factor = $275,100 * 0.04

Due from factor = $11,004

Calculation for Loss on sale of receivables

Loss on sale of receivables = ($275,100 * 2%) + $3,670

Loss on sale of receivables = $5,502 + $3,670

Loss on sale of receivables = $9,172