On January 15, 2011, Kaleesi Inc sold $190,000 in receivables to JSnows Co with
ID: 2561622 • Letter: O
Question
On January 15, 2011, Kaleesi Inc sold $190,000 in receivables to JSnows Co with recourse. JSnows Co charges a 3% fee upfront for receivables factored with recourse. Kaleesi Inc receives 70% of the factored receivables on January 15, 2011 and will receive the balance on collection. Kaleesi Inc estimates a fair value of the recourse obligation to be $4,000. On July 1, 2011 JSnows Co pays $28,000 as final settlement of all collections. Record all journal entries for all dates of the transactions in the books of Kaleesi Inc.
Explanation / Answer
Answer
Date
General Journal
Dr
Cr
Working
15-Jan
Cash
133000
(190000 x 70%) received
Due from Jsnows Co
51300
[190000 x (100% - 3% - 70%)]
Loss on factoring
9700
[(190000 x 3%) + 4000]
Accounts receivables
190000
Accounts receivables factored
Recourse Liability
4000
Fair Value of recourse obligation
01-Jul
Cash
28000
Final settlement received
Sales Return & Allowances
23300
Difference
Due from Jsnows Co
51300
---On 15 Jan, when accounts receivables are factored to JSnows, the company will receives 70% of the amount in exchange. Also, 3% fees will be charged by JSnows. Since, Fair Value of Recourse obligation is $4000 it will be credited.
Loss on factoring includes 3% fees for accounts receivables and $4000 of recourse obligation value.
The balancing amount of $51300 will be debited as ‘receivables’ from JSnows which is 27% [100-73] of $190000
---On 1 jul, final settlement is done and cash received for $28000 while ‘due from JSnows’ was $51300. Since no other information is given it is clear that the difference of the amount received is due to Sales return and Allowances (or Discount). Hence, $23300 is debited as ‘Sales Return & Allowances’
Date
General Journal
Dr
Cr
Working
15-Jan
Cash
133000
(190000 x 70%) received
Due from Jsnows Co
51300
[190000 x (100% - 3% - 70%)]
Loss on factoring
9700
[(190000 x 3%) + 4000]
Accounts receivables
190000
Accounts receivables factored
Recourse Liability
4000
Fair Value of recourse obligation
01-Jul
Cash
28000
Final settlement received
Sales Return & Allowances
23300
Difference
Due from Jsnows Co
51300