Accounts Receivable

Question 1

JE - Sale of receivables w/o recourse

Factor assumes all the risks

Answer 1

Cash (proceeds) 
Factor's holdback receivable
Allowance for BD
Loss on factoring (plug)
          Accounts Receivable

Cash proceeds:

Face xx
Less: interest charge xx
assessment fees xx
factor’s holdback xx xx
Cash proceeds xx

If portion is not collected:

Sales returns and allowances
      Factor's holdback receivable
           #for uncollected portion

If all are collected, debit cash reverse all factor’s holdback balance.

Question 2

Computation of cash proceeds on sale w/o recourse

Answer 2

Cash proceeds:

Face xx
Less: interest charge xx
assessment fees xx
factor’s holdback xx xx
Cash proceeds xx

Question 3

Computation of cost on factoring

Answer 3

Total of

interest charges
assessment fees
recourse liability (balance/reversal amount if not
collected)

TOTAL CAN BE COMBINED IN ONE SINGLE ENTRY: LOSS ON FACTORING

Question 4

Journal entries - sale with recourse

Answer 4

Cash
Factor's holdback receivable
Allowance for BD
Loss on factoring (plug)
        Accounts Receivable
        Estimated recourse liability

NOTE: interest and factoring fee can be combined in the loss on factoring account

If portion of receivable is not collected,
reverse estimated recourse liability and plug loss for the balance

Estimated recourse liability
Loss on factoring
Cash

OR if all is not collected

Estimated recourse liability
Cash

Question 5

Presentation of factor’s holdback account

Answer 5

is a receivable
returned by the factor if all receivables are collected

Cash
Factor’s holdback receivable

IF PORTION IS NOT COLLECTED:

Sales returns and allowances
Factor’s holdback receivable

Question 6

Computation of loss on factoring

Answer 6

Cash proceeds
add: factor’s holdback
less: carrying value of receivables
recourse liability

OR JOURNALIZE TO BE SURE!!!

Question 7

How to account for transfer of receivables if control is not surrendered

Answer 7

Record as a borrowing

Cash
Interest expense
Notes payable

Question 8

Accounting for servicing of financial assets depend upon the benefits provided to the servicer.
How is this accounted?

Answer 8

Assets are reported separately from liabilities.
THEY ARE NOT NETTED!!!

Criteria:
more than adequate benefits - assets
adequate benefits - no asset or liability
less than adequate - liability

Question 9

Accounting for collateral

Answer 9

transferor - carries collateral as an asset
transferee - should not record collateral an asset
if transferee has control over asset, record asset at fair value and the liability to return it

Asset held as collateral
Liability on asset held as collateral

Upon default by the transferor, DERECOGNIZE ASSET:

Liability on asset held as collateral
Asset held as collateral

IF ASSET NOT YET RECOGNIZED:
record asset at fair value