Question

. Beyoncé Corporation factors PhP175,000 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, 2017. 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.

Instructions

1. What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?
2. Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2017, for Beyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of PhP2,000.

Answer 1

Conditions to be met

1. Obligation of the transferor under recourse can be measured reasonably (Estimation of the Obligation)

2. Transferee can require transferor to repurchase the receivables.

3. Transferors obligation under recourse provisions can be estimated.

Date	Account Head	Debit	Credit
15-Aug-17	Cash A/c Dr	164,500
15-Aug-17	Factoring Expense A/c	3,500
15-Aug-17	Due From factor	7,000
15-Aug-17	To Accounts Receivables		175,000
15-Aug-17	Provision for Bad Debts Dr	9,000
15-Aug-17	To Due from Factor		7,000
15-Aug-17	To Cash		2,000