Business

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.

1 Answer

  • Answer:

    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

    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

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