Transfer of Receivables with Recourse Gringo Corporation factors $250,000 of accounts receivable with Winkler Financing, Inc. on

Question:

Transfer of Receivables with Recourse Gringo Corporation factors $250,000 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.

(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, 2010, for

Gringo to record the sale of receivables, assuming the recourse obligation has a fair value of $3,000.

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