(Transfer of Receivables with Recourse)Beyonc Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2020. Kathleen Battle 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 recourse to be accounted for as a sale?

b.

Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2020, for Beyonc to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.