Problem 3 To raise more liquidity, Randy Corp. factored $70,000 of its accounts receivable with Mock Bank with recourse on 1/1/2018. Mock Bank agreed to collect the accounts receivable after the transaction, assessed a finance charge of 2% of the amount transferred and withheld an amount equal to 3% of the amount to cover probable uncollectible accounts. Randy prepared financial statements under ASPE. Assume the transaction qualified for the sale of receivables treatment. The recourse obligation had a fair value of $3,000. 1. Prepare a journal entry for Randy Corp. for the sale of receivables. 2. Prepare a journal entry for Mock Bank for the purchase of the receivables. 3. In general terms (without preparing a journal entry), describe how Randy Corp. would record the transaction if it followed IFRS.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Problem 3
To raise more liquidity, Randy Corp. factored $70,000 of its accounts receivable with Mock
Bank with recourse on 1/1/2018. Mock Bank agreed to collect the accounts receivable after the
transaction, assessed a finance charge of 2% of the amount transferred and withheld an amount
equal to 3% of the amount to cover probable uncollectible accounts. Randy prepared financial
statements under ASPE.
Assume the transaction qualified for the sale of receivables treatment. The recourse obligation
had a fair value of $3,000.
1. Prepare a journal entry for Randy Corp. for the sale of receivables.
2. Prepare a journal entry for Mock Bank for the purchase of the receivables.
3. In general terms (without preparing a journal entry), describe how Randy Corp. would record
the transaction if it followed IFRS.
Transcribed Image Text:Problem 3 To raise more liquidity, Randy Corp. factored $70,000 of its accounts receivable with Mock Bank with recourse on 1/1/2018. Mock Bank agreed to collect the accounts receivable after the transaction, assessed a finance charge of 2% of the amount transferred and withheld an amount equal to 3% of the amount to cover probable uncollectible accounts. Randy prepared financial statements under ASPE. Assume the transaction qualified for the sale of receivables treatment. The recourse obligation had a fair value of $3,000. 1. Prepare a journal entry for Randy Corp. for the sale of receivables. 2. Prepare a journal entry for Mock Bank for the purchase of the receivables. 3. In general terms (without preparing a journal entry), describe how Randy Corp. would record the transaction if it followed IFRS.
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