Name/Time: - A303 101Page Homework Chapter 7 PROBLEM 10 [This is a variation mod

Question

Name/Time: - A303 101Page Homework Chapter 7 PROBLEM 10 [This is a variation modified to focus on factoring with recourse under IFRS] Mountain High lce Cream Company reports under IFRS. Mountain High transferred $60,000 of accounts ofthe factored amount receivable to the Prudential Bank. The transfer was made with recourse Prudential remits 90% 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 $5,000). Mountain High anticipates a S3 000 recourse obligation. The bank charges a 296 fee (2% of S60 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 joumal entry to record the transfer on the books of Mountain High, considering whether the sale criteria under IFRS have been met. Spiceland 8th edition Page 10

Explanation / Answer

Answer:

general Journal

Debit Credit

Cash 52,800

Loss on Sale of Receivables 5,200

Receivable from Factor 5,000

Recourse Liability 3,000

Accounts Receivable 60,000

(Being journal entry for factoring arrangement)

Notes:-

1. Cash =[(90%-2%)*$60,000]

2. Loss on sale of receivables=

(6000-5000)+2%of 60000+3000

=1,000+1,200+3,000=$5,200

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