SEK Corp. factors 400,000 of accounts receivable with Mays Finance Corporation, without guaranteeing any payment for possible
Question:
SEK Corp. factors ¥400,000 of accounts receivable with Mays Finance Corporation, without guaranteeing any payment for possible credit losses (without recourse) on July 1, 2015. The receivables records are transferred to Mays Finance, which will receive the collections. Mays Finance assesses a finance charge of 1½% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
Instructions
(a) Prepare the journal entry on July 1, 2015, for SEK Corp. to record the sale of receivables without recourse.
(b) Prepare the journal entry on July 1, 2015, for Mays Finance Corporation to record the purchase of receivables without recourse.
Step by Step Answer:
Intermediate Accounting IFRS Edition
ISBN: 9781118443965
2nd Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield