Mountain High Ice Cream Company reports under IFRS. Mountain
High transferred $62,000 of accounts receivable to the Prudential
Bank. The transfer was made with recourse. Prudential
remits 90% of the factored amount to Mountain High and retains 10%
to cover sales returns and allowances. When the bank collects the
receivables, it will remit to Mountain High the retained amount
(which Mountain estimates has a fair value of $5,200). Mountain
High anticipates a $3,200 recourse obligation. The bank charges a
3% fee (3% of $62,000), and requires that amount to be paid at the
start of the factoring arrangement. Mountain High has transferred
control over the receivables, but determines that it still retains
substantially all risks and rewards associated with them.
Required:
Prepare the journal entry to record the transfer on the books of
Mountain High, considering whether the sale criteria under IFRS
have been met. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field.)
Required Journal Entry : | ||||
Account title and explaination | Debit | Credit | ||
DR Cash | $ 53,940.00 | |||
DR Loss on Sale of Receivables | $ 6,060.00 | |||
DR Recievable from Factor | $ 5,200.00 | |||
CR Recourse liability | $ 3,200.00 | |||
CR Accounts Receivable | $ 62,000.00 | |||
calculaions :: | ||||
3% of $62000 | $ 1,860.00 | |||
Dr Cash = (62000*0.90)-(62000*0.03) | 55800-1860 | $ 53,940.00 | ||
Dr Loss on Sale of Rec = (5200+53940)-(62000+3200) | $ 6,060.00 |
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