Question

Pina 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 Pina to record the sale of receivables, assuming the recourse obligation has a fair value of $4,380. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

Cash Dr, $253,014

Due from Factor Dr, $10,724

Loss on sale of Receivables Dr, $8,742

To Recourse Liability $4,380

To Accounts Receivable $268,100

(Being sale of receivables is recorded)

Working note:-

Accounts receivable $268,100

Finance Charge at 2% of AR $5,362

Recourse Liability(fair value) $4,380

Loss on sale of receivables $8,742

Retention amount at 4% of AR $10,724

Cash Received from Factor $253,014