Bohannon SA factors €250,000 of accounts receivable with Winkler Financing, Inc. on a without guarantee (no recourse) basis. Winkler Financing will collect the receivables. The receivables records are transferred to Winkler Financing on August 15, 2019. Winkler 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 guarantee to be accounted for as a sale?
b. Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2019, for Bohannon to record the sale of receivables.