To raise more liquidity, Randy Corp. factored $70,000 of its accounts receivable with Mock Bank with recourse on 1/1/2018. Mock Bank agreed to collect the accounts receivable after the transaction, assessed a finance charge of 2% of the amount transferred and withheld an amount equal to 3% of the amount to cover probable uncollectible accounts. Randy prepared financial statements under ASPE. Assume the transaction qualified for the sale of receivables treatment. The recourse obligation had a fair value of $3,000.
1. Prepare a journal entry for Randy for the sale of receivables.
2. Prepare a journal entry for Mock
1. Prepare a journal entry for Randy for the sale of receivables:
Accounts | Debit | Credit |
Cash | $ 66,500 | |
Due from factor / Bank ($70,000*3%) | $ 2,100 | |
Loss on factoring (1,400 + 3,000) | $ 4,400 | |
Recourse Liability | $ 3,000 | |
Accounts Receivable | $ 70,000 | |
(to record sale of receivable) |
2. Prepare a journal entry for Mock:
Accounts | Debit | Credit |
Accounts Receivable | $ 70,000 | |
Due to seller / Randy corp | $ 2,100 | |
Financing revenue | $ 4,400 | |
Cash | $ 66,500 |
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