Strassner Corporation factors $262,500 of accounts receivable with Sultanali Financing, Inc. on a with recourse basis. Sultanali Financing will collect the receivables. The receivables records are transferred to Sultanali Financing on August 15, 2012. Sultanali Financing assesses a finance charge of 3% of the amount of accounts receivable and also reserves an amount equal to 5% of accounts receivable to cover probable adjustments.
Instructions:
(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?
(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2012, for Strassner to record the sale of receivables, assuming the recourse obligation has a fair value of $3,000.