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Marigold Corporation factors $260,800 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 Marigold to record the sale of receivables, assuming the recourse obligation has a fair value of $5,000.

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Answer:

Date     Journal Entry                                   Debit       Credit

Aug 15  Cash                                            $245,152

             Due from factors                         $10,432

             Loss on sale of receivables       $10,216

                   Recourse liability                                       $5,000

                   Account receivable                                    $260,800

Cash received = ($260,800*94%) =      $245,152

Add: Due from factor($260,800*6%) = $10,432

Less: recourse obligation=                     $5,000

Net proceeds=                                        $ 229,720

Loss on sale of Receivables = $260,800 * 2% + 5000 = $10,216

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