Turner Corporation is experiencing a temporary cash shortage and decides to transfer a group of its...
Turner Corporation is experiencing a temporary cash shortage and decides to transfer a group of its accounts receivable to EKC Finance Company. Turner does not normally transfer its receivables. EKC Finance accepts $100,000 of Turner 's accounts receivable, remits 90% of the accounts receivable transferred, and charges a 15% commission on the gross amount of the transferred receivable. Title to the receivables is transferred to EKC Finance, and EKC Finance has the right to assign, pledge, or sell the receivables.
Instructions:
a. Prepare the journal entries necessary by Turner to record the preceding information assuming the transfer was without recourse.
b. Prepare all the journal entries necessary by Turner to record the preceding information assuming the transfer was with recourse and the recourse obligation had a estimated fair value of $5,500.
Homework Answers
| Event | General Journal | Debit | Credit | ||
| a. | Cash | $75,000 | |||
| Due From Factor | $10,000 | ($100,000 x 10%) | |||
| Loss on sale of receivables | $15,000 | ($100,000 x 15%) | |||
| Accounts receivable | $100,000 | ||||
| (To record accounts receivable factored) | |||||
| b. | Cash | $75,000 | |||
| Due From Factor | $10,000 | ||||
| Loss on sale of receivables | $20,500 | ||||
| Accounts receivable | $100,000 | ||||
| Recourse liability | $5,500 | ||||
| (To record accounts receivable factored) |
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Turner Corporation is experiencing a temporary cash shortage and
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