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Pharoah Corporation factors $251,700 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2020. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments. (b) Assume that the conditions are met for a transfer of receivables with recourse to be accounted for as a sale. Prepare the journal entry on August 15, 2020, for Pharoah to record the sale of receivables, assuming the recourse obligation has a fair value of $5,010. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Sagot :

Tundexi

Answer:

Cash received (251,700*94%)             $236,598

Add: Due from factor (251,700*4%)    $10,068

Less: Recourse obligation                   $5,010    

Net proceeds                                        $241,656

Gain/Loss = Carrying value - Net proceeds

Gain = $251,700 - $241,656

Gain = $10,044

                                Journal entry

Date                 Account Titles                        Debit         Credit

Aug 15,2020    Cash                                      $236,588

                        Due from factors                   $10,068

                        Gain on sale of receivables  $10,044

                                Recourse liability                              $5,010

                                Account receivable                          $251,700

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