Beyoncé Corporation factors $277,500 of accounts receivable with Kathleen Battle

Question

Beyoncé Corporation factors $277,500 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, 2014. 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 the transfer of receivables with recourse to be accounted for as a sale. Prepare the journal entry on August 15, 2014, for Beyoncé to record the sale of receivables, assuming the recourse liability has a fair value of $3,260. (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.)

Explanation / Answer

Ans a Treated as a secured loan Account head &Explainations Debit Credit Remark Cash         2,60,850.00 Total receivables-6% hair cut for finance charges and adjustments Loan 2,60,850.00 Interest Expense               5,550.00 Factoring charges             11,100.00 Provision for factoring arrangment      16,650.00 Ans b Cash         2,60,850.00 Commission on factoring               5,550.00 Loss on sale of receivables             11,100.00 Accounts receivable 2,77,500.00 Bad Debts               3,260.00 Fair value of recourse liability Provision for Doubtful Debts        3,260.00

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