In December 2020, Joe's Company, engaged into a factoring armangement with Gaba's Bank (factor), where Joe transferred accounts receivable that had a book value of S400.000. The transfer was made with recourse. In return, Gaba remitted to Joe cash equal to 85% of the factored amount, Gaba retained the remaining 159% to cover its factoring fee of 3% of the factored amount and to provide a cushion against potential sales returns and allowances. After Gaba has collected cash equal to the amount advanced to Joe plus the factoring fee, Gaba will remit the excess to Joe. Therefore, Joe has a beneficial interest in the transferred receivables equal to the fair value of the last 15% of the receivables to be collected, which management estimates to equal $45,000 less the 3% factoring fee. Management estimates the fair value of the recourse obligation to be $4,000. Required: 1. Prepare the journal entry that Joe's Company would need to make to record the transaction

In December 2020, Joe's Company, engaged into a factoring armangement with Gaba's Bank (factor), where Joe transferred accounts receivable that had a book value of S400.000. The transfer was made with recourse. In return, Gaba remitted to Joe cash equal to 85% of the factored amount, Gaba retained the remaining 159% to cover its factoring fee of 3% of the factored amount and to provide a cushion against potential sales returns and allowances. After Gaba has collected cash equal to the amount advanced to Joe plus the factoring fee, Gaba will remit the excess to Joe. Therefore, Joe has a beneficial interest in the transferred receivables equal to the fair value of the last 15% of the receivables to be collected, which management estimates to equal $45,000 less the 3% factoring fee. Management estimates the fair value of the recourse obligation to be $4,000. Required: 1. Prepare the journal entry that Joe's Company would need to make to record the transaction

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter11: Property Dispositions

Section: Chapter Questions

Problem 84TA

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