Question

White Corporation has entered into an agreement to transfer accounts receivable to Murphy Company. Under the terms of this agreement, White receives 80% of the value of all the transferred accounts receivable (to reflect credit risk) and is charged a 1% service charge, which is based upon the dollar amount of transferred receivables. Interest is charged at an annual interest rate of 12% of any outstanding loan balance. The transferred receivables will continue to be collected by White with any cash flows being remitted to Murphy at the end of each month. White is not allowed to transfer the receivables to anyone else. White normally transfers its accounts receivable. The following selected 2019 transactions relate to this agreement:

Dec 1	Accounts receivable of $160,000 are transferred.
11	A sales return of $1,000 on a transferred account is made.
31	Collections are made on $80,000 of the transferred accounts receivable plus interest for the month of December. This amount is remitted to Murphy.

Required:

1.	Assume that White uses U.S. GAAP. A. Prepare journal entries on White’s books to record the preceding transactions. B. How would this agreement be reported on White’s December 31, 2019, balance sheet (assume the note payable is short-term)?
2.	Assume that White uses IFRS: A. Prepare journal entries on White’s books to record the preceding transactions. B. How would this agreement be reported on White’s December 31, 2019, balance sheet (assume the note payable is short-term)?

General Journal

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General Journal Instructions

Assuming White uses U.S. GAAP, prepare journal entries on White’s books to record the transactions.

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PAGE 9

GENERAL JOURNAL

Score: 146/150

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	✔Dec 1	✔Cash		✔126400
2		✔Assignment Service Charge Expense		✔1600
3		✔Notes Payable			✔128000
4	✔dec 1	✔accounts receivable assigned		✔160000
5		✔Accounts Receivable			✔160000
6	✔Dec 11	✔Return Liability		✔1000
7		✔Accounts Receivable Assigned			✔1000
8	✔Dec 31	✔Cash		✔80000
9		✔Accounts Receivable Assigned			✔80000
10	✔Dec 31	✔Notes Payable		✔80000
11		✔Interest Payable		9600
12		✔Cash			89600

Points:

28.23 / 29

Assuming White uses IFRS, prepare journal entries on White’s books to record the transactions.

All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback.

PAGE 9

GENERAL JOURNAL

Score: 66/125

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Dec 1	Cash		126400
2		Receivable from Factor		32,000
3				1,600
4		Accounts Receivable			160000
5	Dec 11	Return Liability		1000
6		Receivable from Factor			1000
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I need help with the "interest expense" and "cash" on the last entry of the GAAP entries and the last 4 lines of entries under the IFRS.

Answer 1

Requirement 1a: Prepare the following journal entry to record the payment under GAAP

Date	Account Title and Explanation	Debit	Credit
Dec 31	Notes Payable	$80,000
	Interest Expense ($128,000 × 12%) ÷ 12	$1,280
	Cash		$81,280
	To record payment of accounts receivables with interest

Requirement 2a: Prepare the following journal entries under IFRS

Date	Account Title and Explanation	Debit	Credit
Dec 1	Cash (($160,000 × 80%) − $1,600))	$126,400
	Factoring Expense ($160,000 × 1%)	$1,600
	Receivable from Factor ($160,000 × 20%)	$32,000
	Accounts Receivable		$160,000
	To record sale of accounts receivable to Factor
Dec 11	Return Liability	$1,000
	Receivable from Factor		$1,000
	To record sales return
Dec 31	Cash	$80,000
	Payable to Factor		$80,000
	To record accounts receivable collected on behalf of Factor
Dec 31	Payable to Factor	$80,000
	Cash		$80,000
	To record payment of cash to Factor