Assume that the transaction was a factoring arrangement with recourse and included a holdback of $6,000.If the fair value of the recourse obligation is equal to the allowance of $3,500,which one of the following entries will Ritter make to record this transaction?
A) $\begin{array}{lrr}
\text { DR Cash } & 100,000 & \
\text { DR Allowance for doubtful accounts } & 3,500 & \
\text { CR Accounts receivable } & & 100,000 \
\text { CR Recourse obligation } && 3,500
\end{array}$
B) $\begin{array}{lrr}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 6,000 & \
\text { DR Allowance for doubtful accounts } & 3,500 & \
\text { DR Due from Hisker Enterprises } & 6,000 & \
\text { CR Accounts receivable } & & 100,000 \
\quad \text { CR Recourse obligation } & & 3,500
\end{array}$
C) $\begin{array}{lll}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 12,000 & \
\quad \text { CR Accounts receivable } & & 100,000
\end{array}$
D) $\begin{array}{lll}
\text { DR Cash } & 88,000 & \
\text { DR Loss on sale of receivables } & 12,000 & \
\quad \text { CR Due to Hisker Enterprises } & & 100,000
\end{array}$

Question

Quizplus · Accepted Answer

Option B correctly accounts for the cash received, the loss on sale of receivables, the allowance for doubtful accounts, the due from Hisker Enterprises (representing the holdback), and the recourse obligation, while also crediting the accounts receivable for the full amount.

Assume That the Transaction Was a Factoring Arrangement with Recourse