E7-16 (transfer of receivables with recourse) beyoncé 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, 2014.
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, 2014, for
beyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.