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) DR Cash 100 , 000 DR Allowance for doubtful accounts 3 , 500 CR Accounts receivable 100 , 000 CR Recourse obligation 3 , 500 \begin{array}{lrr} ext { DR Cash } & 100,000 & \ ext { DR Allowance for doubtful accounts } & 3,500 & \ ext { CR Accounts receivable } & & 100,000 \ ext { CR Recourse obligation } & & 3,500\end{array} DR Cash DR Allowance for doubtful accounts CR Accounts receivable CR Recourse obligation 100 , 000 3 , 500 100 , 000 3 , 500 B) DR Cash 88 , 000 DR Loss on sale of receivables 6 , 000 DR Allowance for doubtful accounts 3 , 500 DR Due from Hisker Enterprises 6 , 000 CR Accounts receivable 100 , 000 CR Recourse obligation 3 , 500 \begin{array}{lrr} ext { DR Cash } & 88,000 & \ ext { DR Loss on sale of receivables } & 6,000 & \ ext { DR Allowance for doubtful accounts } & 3,500 & \ ext { DR Due from Hisker Enterprises } & 6,000 & \ ext { CR Accounts receivable } & & 100,000 \\quad ext { CR Recourse obligation } & & 3,500\end{array} DR Cash DR Loss on sale of receivables DR Allowance for doubtful accounts DR Due from Hisker Enterprises CR Accounts receivable CR Recourse obligation 88 , 000 6 , 000 3 , 500 6 , 000 100 , 000 3 , 500 C) DR Cash 88 , 000 DR Loss on sale of receivables 12 , 000 CR Accounts receivable 100 , 000 \begin{array}{lll} ext { DR Cash } & 88,000 & \ ext { DR Loss on sale of receivables } & 12,000 & \\quad ext { CR Accounts receivable } & & 100,000\end{array} DR Cash DR Loss on sale of receivables CR Accounts receivable 88 , 000 12 , 000 100 , 000 D) DR Cash 88 , 000 DR Loss on sale of receivables 12 , 000 CR Due to Hisker Enterprises 100 , 000 \begin{array}{lll} ext { DR Cash } & 88,000 & \ ext { DR Loss on sale of receivables } & 12,000 & \\quad ext { CR Due to Hisker Enterprises } & & 100,000\end{array} DR Cash DR Loss on sale of receivables CR Due to Hisker Enterprises 88 , 000 12 , 000 100 , 000

Question

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)     DR Cash  100 , 000  DR Allowance for doubtful accounts  3 , 500  CR Accounts receivable  100 , 000  CR Recourse obligation  3 , 500 \begin{array}{lrr}	ext { DR Cash }  &  100,000  &  \	ext { DR Allowance for doubtful accounts }  &  3,500  &  \	ext { CR Accounts receivable }  &   &  100,000 \	ext { CR Recourse obligation }  & &  3,500\end{array}  DR Cash   DR Allowance for doubtful accounts   CR Accounts receivable   CR Recourse obligation  ​ 100 , 000 3 , 500 ​ 100 , 000 3 , 500 ​ B)     DR Cash  88 , 000  DR Loss on sale of receivables  6 , 000  DR Allowance for doubtful accounts  3 , 500  DR Due from Hisker Enterprises  6 , 000  CR Accounts receivable  100 , 000  CR Recourse obligation  3 , 500 \begin{array}{lrr}	ext { DR Cash }  &  88,000  &  \	ext { DR Loss on sale of receivables }  &  6,000  &  \	ext { DR Allowance for doubtful accounts }  &  3,500  &  \	ext { DR Due from Hisker Enterprises }  &  6,000  &  \	ext { CR Accounts receivable }  &   &  100,000 \\quad 	ext { CR Recourse obligation }  &   &  3,500\end{array}  DR Cash   DR Loss on sale of receivables   DR Allowance for doubtful accounts   DR Due from Hisker Enterprises   CR Accounts receivable   CR Recourse obligation  ​ 88 , 000 6 , 000 3 , 500 6 , 000 ​ 100 , 000 3 , 500 ​ C)     DR Cash  88 , 000  DR Loss on sale of receivables  12 , 000  CR Accounts receivable  100 , 000 \begin{array}{lll}	ext { DR Cash }  &  88,000  &  \	ext { DR Loss on sale of receivables }  &  12,000  &  \\quad 	ext { CR Accounts receivable }  &   &  100,000\end{array}  DR Cash   DR Loss on sale of receivables   CR Accounts receivable  ​ 88 , 000 12 , 000 ​ 100 , 000 ​ D)     DR Cash  88 , 000  DR Loss on sale of receivables  12 , 000  CR Due to Hisker Enterprises  100 , 000 \begin{array}{lll}	ext { DR Cash }  &  88,000  &  \	ext { DR Loss on sale of receivables }  &  12,000  &  \\quad 	ext { CR Due to Hisker Enterprises }  &   &  100,000\end{array}  DR Cash   DR Loss on sale of receivables   CR Due to Hisker Enterprises  ​ 88 , 000 12 , 000 ​ 100 , 000 ​

Esther Sagoe · Accepted Answer

Final Answer : B, Explanation :  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.

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