Question

On 1/1/Y2 Santee Corp. sold $1M of accounts receivable to Finco Inc. Finco charged a fee equal to 5% of the receivables and retained an amount equal to 2% of the receivables for sales returns. i. Prepare Santee's journal entry to record the sale of receivables on 1/1/Y2, assuming the factoring arrangement is without recourse.

Now assume that the arrangement was with recourse, and that the fair market value of the recourse liability was estimated at $25,000. Prepare the journal entry for Santee Corp. on 1/1/Y2.

Assume that Santee factored the receivables with recourse and that it made two payments of $10,000 to Finco on 6/30/Y2 and on 12/31/Y2 (the end of the recourse period). Prepare Santee’s journal entries to record both payments.

Prepare Finco’s entries to record the payments received from Santee during the recourse period.

Answer 1