Jertain Corporation factors $800,000 of accounts receivable with Holistic Financing Inc. on a with recourse basis. Holistic
Question:
Jertain Corporation factors $800,000 of accounts receivable with Holistic Financing Inc.
on a with recourse basis. Holistic Financing will collect the receivables. The receivable records are transferred to Holistic Financing on February 1, 2020. Holistic Financing assesses a finance charge of 2.5% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments. Jertain prepares financial statements under ASPE and has a year-end of December 31.
Required:
a. Assuming that the conditions for a sale are met, prepare the journal entry on February 1, 2020, for Jertain to record the sale of receivables, assuming the recourse obligation has a fair value of $10,000.
b. What effect will the factoring of receivables have on calculating the accounts receivable turnover for Jertain?
Step by Step Answer:
Intermediate Financial Accounting Volume 1
ISBN: 9781539980674
1st Edition
Authors: Glenn Arnold, Suzanne Kyle, Lyryx Learning