Question

Crane Inc. factors receivables with a carrying amount of $231,700 to Joffrey Company for $171,500 on a with recourse basis. The recourse provision has a fair value of $3,000. This transaction should be recorded as a sale. Prepare the appropriate journal entry to record this transaction on the books of Crane Inc.

Answer 1

Answer:

Given that,

Carrying amount = $231,700

Recourse basis = $171,500

Fair value of recourse provision = $3,000

Net proceeds:

= Cash received - Recourse liability

= $171,500 - $3,000

= $168,500

Loss on sale of receivables:

= Carrying value - Net proceeds

= $231,700 - $168,500

= $63,200

Therefore, the journal entry is as follows:

Cash A/c Dr. $171,500

Loss on sale of receivables A/c Dr. $63,200

       To recourse liability                                  $3,000

       To Accounts Receivable                          $231,700

(To record the loss on sale of receivables)