Gringo Corporation factors $258,400 of accounts receivable with Winkler Financin

Question

Gringo Corporation factors $258,400 of accounts receivable with Winkler Financing, Inc. on a with recourse basis. Winkler Financing will collect the receivables. The receivables records are transferred to Winkler Financing on August 15, 2010. 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.

Assume the conditions from E7-16 (a) are met. Prepare the journal entry on August 15, 2010, for Gringo to record the sale of receivables, assuming the recourse obligation has a fair value of $3,690. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Explanation / Answer

Cash 242,896 Loss on sale of receivable 14,296 Factoring fee 5,168 Factor’s holdback receivable 10,336 Accounts receivable 258,400 Recourse holdback 10,336 Due to factor 3,960

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