Question

On March 1, 2018, the Pilkington Company transferred $200,000 of accounts receivable to Gervais Bank. Gervais...

On March 1, 2018, the Pilkington Company transferred $200,000 of accounts receivable to Gervais Bank. Gervais remitted 85% of the factored amount to Pilkington and retained 15% to cover adjustments to the receivables. In addition, Gervais charged a 4%fee. When Gervais collects the receivables, it will remit the balance of the retained amount to Pilkington Company.

Requirement 1: Assume the sale is made without recourse.

a. How much cash will Pilkington receive from Gervais on March 1?

b. What amount of loss will Pilkington record on March 1?

Requirement 2: Assume the sale is made with recourse. Pilkington estimated that $10,000 of the transferred accounts receivable would be uncollectible (i.e., liability for the recourse provision).

a. How much cash will Pilkington receive from Gervais on March 1?

b. What amount of loss will Pilkington record on March 1?

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Requirement 1 Assume the sale is made without recourse.
a. Cash Received 200000*85% $       170,000
b. Amount of Loss 200000*4% $            8,000
Requirement 1 Assume the sale is made with recourse.
a. Cash Received 200000*85% $       170,000
b. Amount of Loss 200000*4% $            8,000
Add: Recourse Liability $         10,000
Amount of Loss being recorded $         18,000
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