Question

Inder Corporation is experiencing a temporary cash shortage and decides to transfer a group of its accounts receivable to Newton Company on March 22. Inder does not normally transfer its receivables. Newton accepts $110,000 of Inder’s accounts receivable, remits 80% of the accounts receivable transferred, and charges a 14% commission on the gross amount of the transferred receivables. Title to the receivables is transferred to Newton, and Newton has the right to assign, pledge, or sell the receivables. During the period, sales returns and allowances on transferred accounts amounted to $1,500.

Required: 1. Prepare all the journal entries necessary by Inder to record the preceding information assuming the transfer was without recourse.

2. Prepare all the journal entries necessary by Inder to record the preceding information assuming the transfer was with recourse and the recourse obligation had an estimated fair value of $5,200.

3. Assume that Inder uses IFRS. How would your answers to Requirements 1 and 2 change?

Answer 1

No.	Account	Debit $	Credit $
1)	Cash	72600
	Receivable from Factor (110000*20%)	22000
	Service Cost of Factor (110000*14%)	15400
	Accounts Receivable		110000
	(being receivable accounts factored)
	Sales return expense	1500
	Cash	20,500
	Receivable from factor		22000
	(Being sales return expense and cash receipt on assigned accounts)
2)	Cash	72600
	Receivable from Factor (110000*20%)	22000
	Loss on sale of receivable (110000*14%)+5200	20600
	Resource liability		5200
	Accounts Receivable		110000
	(being receivable accounts factored)
	Provision for Bad Debts (22000+5200)	27200
	Receivable from Factor		22000
	Cash		5200
	(being recourse obligation settled)

3) The answer would remain the same as above.