Kendall Corporation designs and manufactures sports cars. During the course of its business, Kendall generates substantial receivables from its customers. On July 1, 20X1, to improve its cash flow, Kendall establishes a securitization entity (SE) and (1) transfers without recourse $20.5 million of its receivables to the SE and (2) surrenders control over these receivables. The SE then sells securities backed by the cash flows associated with Kendalls receivables. Because the SE is separate from Kendall, and the receivables are diversified across hundreds of customers, investors are willing to pay $24 million for the securities. The SE then transfers the $24 million to Kendall Corporation.

Required:

1. Prepare Kendalls entry to record the securitization as a sale.

No.	Transaction	General Journal	Debit	Credit

2. Show how your answer to requirement 1 would change if control over the receivables is not surrendered at the time of the transfer (i.e., an agreement exists whereby Kendall would be forced to absorb significant losses associated with the SEs receivables).

No.	Transaction	General Journal	Debit	Credit