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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 :

TUNDEXIGO

Answer:

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)

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