Solution-Explain how this transfer of receivable should be

Explain how this transfer of receivable should be treated

Assignment Help Cost Accounting

Reference no: EM133164603

Question - Air Inc. is a global airline, based in Canada. In 2020, Air Inc. made significant adjustment to its network and operations due to the widespread impact of Covid-19 and the related travel restrictions. Consequently, demand for air travel was significantly reduced. On January 1, 2021, to help support various payment requirements and operating activities, Air Inc. decided to sell $2,000,000 worth of accounts receivable to Line Inc., at a factoring charge of 2%. The terms of the contract stipulate that Line Inc. is to collect the principal and interest payments directly from customers. However, any credit losses are to be absorbed by Air Inc. (The fair value of this recourse liability is $50,000). In addition, Line Inc. withheld $60,000 from the proceeds and will pay it to Air Inc. three months later. On January 1, 2021, when the transaction was completed, Line Inc. retained full rights to pledge, sell, or transfer the receivables to third parties. Air Inc. bases its fiscal year on the calendar year.

Required -

1) If Air Inc. follows ASPE, explain how this transfer of receivable should be treated by the company? Explain why.

2) If Air Inc. follows ASPE, prepare the journal entry required by the company for January 1, 2021.

Reference no: EM133164603

Questions Cloud

Calculate a flexed budget and a variance : Calculate a flexed budget and a variance to the flexed budget. (The variance to the flexed budget is the variance between the Actual results and the flexed

Customers in business target segment : Which of those competencies best match the needs and wants of the customers in the business's target segment(s)?

Develop private-label brands for amazon : Why is Amazon pushing national-brand manufacturers to develop private-label brands for Amazon?

Analysing firms financial performance and position : Briefly explain the information contained in the cash flow statement and its relevance in analysing firm's financial performance and position

Explain how this transfer of receivable should be treated : If Air Inc. follows ASPE, explain how this transfer of receivable should be treated by the company? Explain why

Apple plans blood-pressure measure : Where in the product life-cycle do you believe health-tech like what is described in the article to be? Explain your rationale

What kinds of marketing channel functions : Explain the various channel strategies that marketers use. What kinds of marketing channel functions can be performed over the Internet? Why?

Calculate the flexible budget variance for indirect labour : If the company wishes to make a target profit of £50,000, how many items must it sell, if the selling price per unit is £10

Social media strategy to support or help challenge : Describe what could be considered or done in the social media strategy to support or help the challenge.

User Account

All Pages

Explain how this transfer of receivable should be treated

Reference no: EM133164603

Reference no: EM133164603

Questions Cloud

Reviews

Write a Review

Cost Accounting Questions & Answers

Cost accounting assignment

Prepare the journal entries

Advise as to the liability of all the parties

Prepare revenues budget

Effect of exchange rate changes on cash and cash

Corporate governance

Cost-benefit analysis

Non-annual interest rates and annuities

Job costing in service organizations

Accounting for bad debt expense

Accounting and partnership problems

Development of relevant cash flows

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT