Assume That the Transaction Was a Factoring Arrangement with Recourse

question 12

Multiple Choice

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) \(\begin{array}{lll}
• \text { DR Cash } & 88,000 & \\
• \text { DR Loss on sale of receivables } & 12,000 & \\
• \quad \text { CR Due to Hisker Enterprises } & & 100,000
• \end{array}\)

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Definitions:

Trade Decisions

The choices made by individuals or governments regarding the import and export of goods and services, influenced by factors like costs, demand, and trade policies.

Small-Economy Assumption

An analytical approach assuming a country is small enough that its policies do not affect global markets, used to simplify economic analysis.

International Trade

The trade of products and services across national borders.

World Price

The international market price of a good or service, influenced by global supply and demand conditions.