Gringo Corporation factors $175,000 of accounts receivable with Winkler Financing, Inc. on a with recourse basis. Winkler Financing will collect the receivable. The receivables records are transferred to Winkler Financing on August 15,20X0. Winkler Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustment.
(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sales?
(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15,20X0, for Gringo to record the sale of receivable, assuming the recourse obligation has a fair value of $2,000.