Question

Task #3 ( Transfer of Receivables without Recourse and with Recourse) Strassner Corporation factors $262,500 of accounts receivable with Sultanali Financing, Inc. on a with recourse basis. Sultanali Financing will collect the receivables. The receivables records are transferred to Sultanali Financing on August 15, 2019. Sultanali Financing assesses a finance charge of 3 % of the amount of accounts receivable and also reserves an amount equal to 5% of accounts receivable to cover probable adjustments. Instructions A. Prepare the journal entry on August 15, 2019, for both Strassner and Sultanali to record the sale of receivables without recourse. B. Prepare the journal entry on August 15, 2019, for both Strassner and Sultanali to record the sale of receivables with recourse, assuming the recourse obligation has a fair value of $3,000. Without recourse aurna Entry -fediate Accounting 20

Answer 1

Solution to Task#3 (Transfer of Receivables without Recourse and with Recourse)

	Part A : Journal Entries without recourse
(i)	In the books of Strassner Corporation
	Loss on factoring account	Debit	$    7,875.00
	Due from factor account	Debit	$254,625.00
	Accounts receivables	Credit	$262,500.00
	(For tansfer of accounts receivables to Sultanali Financing, Inc. on non-recourse basis)
(ii)	In the books of Sultanali Financing, Inc.
	Accounts receivables	Debit	$262,500.00
	Factoring income	Credit	$    7,875.00
	Due to Strassner	Credit	$254,625.00
	(For purchase of accounts receivables from Strassner Corporation on non-recourse basis)
	Part B : Journal Entries with recourse
(i)	In the books of Strassner Corporation
	Loss on factoring account	Debit	$ 21,000.00
	Due from factor account	Debit	$254,625.00
	Recourse liability	Credit	$ 13,125.00
	Accounts receivables	Credit	$262,500.00
	(For tansfer of accounts receivables to Sultanali Financing, Inc. on recourse basis)
(ii)	In the books of Sultanali Financing, Inc.
	Accounts receivables	Debit	$262,500.00
	Allowance for doubtful debts (expense account)	Debit	$ 13,125.00
	Factoring income	Credit	$ 21,000.00
	Due to Strassner	Credit	$254,625.00
	(For purchase of accounts receivables from Strassner Corporation on recourse basis)