Question

Whispering Corporation factors $276,900 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 Whispering to record the sale of receivables, assuming the recourse obligation has a fair value of $3,520.

Answer 1

The journal entry is given below.

Step-by-step explanation:

Journal entry.

Aug.15 2020 Cash A/c Dr $260,286

Reserve amount A/c Dr $11,076

Loss on sale A/c Dr $9,058

To Recourse obligation A/c $3,520

To Accounts receivable A/c $276,900

Computation are as follows:

Accounts Receivable = $276,900

Finance charges = $276,900 × 2% = $5,538

Reserve amount = $276,900 × 4% = $11,076

Recourse obligation=$3,520

Loss on sale = Finance charges + Recourse obligation = $9,058

Cash proceeds = Accounts Receivable - Finance charges - Reserve amount = $260,286