Lute Retail Ltd. follows ASPE. It transfers $355,000 of its accounts receivable to an independent trust in
Question:
Lute Retail Ltd. follows ASPE. It transfers $355,000 of its accounts receivable to an independent trust in a securitization transaction on July 11, 2017, receiving 96% of the receivables balance as proceeds. Lute will continue to manage the customer accounts, including their collection. Lute estimates this obligation has a liability value of $12,500. In addition, the agreement includes a recourse provision with an estimated value of $9,900. The transaction is to be recorded as a sale.
Instructions
(a) Prepare the journal entry on July 11, 2017, for Lute Retail Ltd. to record the securitization of the receivables.
(b) What effect will the securitization of receivables have on Lute Retail Ltd.'s accounts receivable turnover? Comment briefly.
(c) Would the treatment of the transaction change if Lute Retail followed IFRS? Compare how ASPE and IFRS differ in how you determine if the receivables should be derecognized.
Accounts ReceivableAccounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
a Calculation of net proceeds Cash received 355000 X 96 340800 Less Recourse obligation 9900 Less Unrecovered Service Costs 12500 22400 Net proceeds 318400 Calculation of gain or loss Carrying amount ...View the full answer
Intermediate Accounting
ISBN: 978-1119048534
11th Canadian edition Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
