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2 November, 07:27

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.

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  1. 2 November, 09:04
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    The journal entry is given below.

    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
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