Question: a. Medlock Corporation factors $260, 800 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2017. Kathleen Battle 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 adjustments.
b. Assume that the conditions are met for the transfer of receivables with recourse to be accounted for as a sale. Prepare the journal entry on August 15, 2017, for Medlock to record the sale of receivables, assuming the recourse liability has a fair value of $5,000. (If no entry Is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically Indented when the amount Is entered. Do not Indent manually.)