On June 30, 2016, Blondie Fixtures was considering alternativesto bolster its cash position. Option One called for transferring$400,000 in accounts receivable to Dogwood Finance Companywithout recourse for a 5% fee. Option Two callsfor Blondie to transfer the $400,000 in receivables to Dogwoodwith recourse. Dogwood's charges a 4% fee forreceivables factored with recourse. Option Two meets the conditionsto be considered a sale, but Blondie estimates a $3,000 recourseliability. Under either option, Dogwood will immediately remit 90%of the factored receivables to Blondie, and retain 10%. WhenDogwood collects the remaining receivables, it remits the amount,less the fee, to Blondie. Blondie estimates that the fair value ofthe final 10% of the receivables is $25,000 (ignoring the factoringfee).
Required:
1. Prepare any necessary journal entry or entries if receivablesare factored under Option One.
2. Prepare any necessary journal entry or entries if receivablesare factored under Option Two.
On June 30, 2016, Blondie Fixtures was considering alternativesto bolster its cash position. Option One called for transferring$400,000 in accounts receivable to Dogwood Finance Companywithout recourse for a 5% fee. Option Two callsfor Blondie to transfer the $400,000 in receivables to Dogwoodwith recourse. Dogwood's charges a 4% fee forreceivables factored with recourse. Option Two meets the conditionsto be considered a sale, but Blondie estimates a $3,000 recourseliability. Under either option, Dogwood will immediately remit 90%of the factored receivables to Blondie, and retain 10%. WhenDogwood collects the remaining receivables, it remits the amount,less the fee, to Blondie. Blondie estimates that the fair value ofthe final 10% of the receivables is $25,000 (ignoring the factoringfee).
Required:
1. Prepare any necessary journal entry or entries if receivablesare factored under Option One.
2. Prepare any necessary journal entry or entries if receivablesare factored under Option Two.
