Mountain High Ice Cream Company transferred $79,000 of accounts receivable to the Prudential Bank. The transfer was made withrecourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. Whenthe bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of$6,900). Mountain High anticipates a $4,900 recourse obligation. The bank charges a 3% fee (3% of $79,000), and requires thatamount to be paid at the start of the factoring arrangement.Required:Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.View transaction listJournal entry worksheet1Record the transfer of accounts receivable.Note: Enter debits before credits.Event1General JournalDebitCredit>

The objective of the question is to prepare the journal entry to record the transfer of accounts…

Answered: Mountain High Ice Cream Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mountain High Ice Cream Company reports under IFRS. Mountain High transferred $70,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 80% of the factored amount to Mountain High and retains 20% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $6,000). Mountain High anticipates a $4,000 recourse obligation. The bank charges a 1% fee (1% of $70,000), and requires that amount to be paid at the start of the factoring arrangement. Mountain High has transferred control over the receivables, but determines that it still retains substantially all risks and rewards associated with them. Required: Prepare the journal entry to record the transfer on the books of Mountain High, considering whether the sale criteria under IFRS have been met. Note: If no entry is required for a transaction/event, select "No journal entry…
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