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To raise more liquidity, Randy Corp. factored $70,000 of its accounts receivable with Mock Bank with...

To raise more liquidity, Randy Corp. factored $70,000 of its accounts receivable with Mock Bank with recourse on 1/1/2018. Mock Bank agreed to collect the accounts receivable after the transaction, assessed a finance charge of 2% of the amount transferred and withheld an amount equal to 3% of the amount to cover probable uncollectible accounts. Randy prepared financial statements under ASPE. Assume the transaction qualified for the sale of receivables treatment. The recourse obligation had a fair value of $3,000. 1. Prepare a journal entry for Randy for the sale of receivables. 2. Prepare a journal entry for Mock Bank for the purchase of the receivables.

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Answer #1

in the books of Randy Co.

Accounts Debit Credit
Cash $66500
Loss on sale of Receivable(Servicecharges)* $1400
Due from factor/Bank** $2100
Accounts Receivable $70000
(to record sale of receivable)
Continuing Involvement in asset $3000
Associated liability $3000
(to record liability Fairvalue due to recource)

*$70000*2% =$1400

** $70000*3% = $2100

Journal entry in the book of Bank

Accounts Receivable $70000
Due to seller/Randy corp $2100
Financing revenue $1400
Cash $66500
(to record purchase of acounts receivable)
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