Eyoncé Corporation factors $175,000 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, 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.
Instructions
(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a
sale?
(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 Blossom to record the sale of receivables, assuming the recourse obligation has a fair value of $3,910
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