Question

Company Z factors $200,000 of accounts receivable with Company A. The finance charge is 2% of accounts receivable. Company A retains an amount equal to 3% of accounts receivable. Record the journal entries for both Company Z and Company A if the sale was on a (1) without recourse basis and again on a (2) with recourse basis. Assume that Company Z estimates a recourse obligation with a fair value of $2,000.

Answer 1

(1) without recourse basis :

Date	Accounts	Debit	Credit
	Cash	$190,000
	Loss on sale of receivables ($200,000 x 2%)	$4,000
	Receivables from factor ($200,000 x 3%)	$6,000
	Accounts receivables		$200,000

(2) with recourse basis:

Date	Accounts	Debit	Credit
	Cash	$190,000
	Loss on sale of receivables ($200,000 x 2% + $2,000)	$6,000
	Receivables from factor ($200,000 x 3%)	$6,000
	Accounts receivables		$200,000
	Recourse Liability		$2,000