VIPSolutionsWhispering Woodcrafters sells $ 2 0 2 , 3 0 0 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5 % and retains an amount equal to 4 % of accounts receivable. Whispering estimates the fair value of the recourse liability to be $ 8 , 7 1 0 . Prepare the journal entry for Whispering to record the sale. ( If no entry is required, select " No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. ) give step by step answer and give final summary
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Whispering Woodcrafters sells $ 2 0 2 , 3 0 0 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5 % and retains an amount equal to 4 % of accounts receivable. Whispering estimates the fair value of the recourse liability to be $ 8 , 7 1 0 . Prepare the journal entry for Whispering to record the sale. ( If no entry is required, select " No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. ) give step by step answer and give final summary
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Asked by: sreegeeth
Created at: 2025-09-23 10:01:16
Asked by: sreegeeth
Created at: 2025-09-23 10:01:16
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# Journal Entry for Sale of Receivables with Recourse
Whispering Woodcrafters sells \$202,300 of receivables "with recourse." Let's break down the amounts and the required journal entry.
---
## Step 1: Calculate Finance Charge
- **Finance charge** = 5% of \$202,300
- \( = 0.05 \times 202,300 = \$10,115 \)
---
## Step 2: Calculate Cash Retained (Holdback)
- **Retention** = 4% of \$202,300
- \( = 0.04 \times 202,300 = \$8,092 \)
---
## Step 3: Calculate Cash Proceeds
- **Cash received** = Accounts receivable - Finance charge - Retention
- \( = 202,300 - 10,115 - 8,092 = \$184,093 \)
---
## Step 4: Recourse Liability
- The fair value of the recourse liability is \$8,710.
---
## Step 5: Calculate Loss on Sale
- **Loss on sale** = Finance charge + Recourse liability
- \( = 10,115 + 8,710 = \$18,825 \)
---
## Step 6: Prepare Journal Entry
| Account | Debit | Credit |
|----------------------------------------|------------|------------|
| Cash | \$184,093 | |
| Due from Factor (Retained Amount) | \$8,092 | |
| Loss on Sale of Receivables | \$18,825 | |
| Accounts Receivable | | \$202,300 |
| Recourse Liability | | \$8,710 |
---
### **Journal Entry**
```markdown
| Account | Debit | Credit |
|---------------------------------------|----------|----------|
| Cash | 184,093 | |
| Due from Factor (Holdback) | 8,092 | |
| Loss on Sale of Receivables | 18,825 | |
| Accounts Receivable | | 202,300 |
| Recourse Liability | | 8,710 |
```
---
## **Summary**
Whispering Woodcrafters should:
- Debit **Cash** for \$184,093 (net proceeds received)
- Debit **Due from Factor** for \$8,092 (amount held back by factor)
- Debit **Loss on Sale of Receivables** for \$18,825 (finance charge + recourse liability)
- Credit **Accounts Receivable** for \$202,300 (full amount sold)
- Credit **Recourse Liability** for \$8,710 (estimated fair value of recourse obligation)
This entry recognizes the sale, the costs, the cash received, the retained amount, and the recourse obligation.
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