Question

Marigold Corporation factors $260,800 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 Marigold to record the sale of receivables, assuming the recourse obligation has a fair value of $5,000.

Answer 1

Date Journal Entry Debit Credit

Aug 15 Cash $245,152

Due from factors $10,432

Loss on sale of receivables $$10,216

Recourse liability $5,000

Account receivable $260,800

Cash received = ($260,800*94%) = $245,152

Add: Due from factor($260,800*6%) = $10,432

Less: recourse obligation= $5,000

Net proceeds= $ 229,720

Loss on sale of Receivables = $260,800 * 2% + 5000 = $10,216