On June 30, 2018, Blondie Fixtures was considering alternatives to bolster its c

Question

On June 30, 2018, Blondie Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $330,000 in accounts receivable to Dogwood Finance Company without recourse for a 4% fee. Option Two cals for Blondie to transfer the $33 DOD in receivables to Dogwood with recourse. Dogwood's charges a 3% fee for receivables factored with recourse. Option Two meets the conditions to be considered a sale. but Blondie estimates a $2.300 recourse liability, under either opton, Dogwood wilimmed ately remit 85% of the factored receivables to Blondie, and retain 15%. when Dogwood collects the remaining receivables, it remits the amount, es the fee, to Blondie. Blondie estimates that the fair value of the final 15% of the receivables is $21,500 (gnoring the factoring fee. 1. Prepare any necessary journal entry or entries if recelvables are factored under Option One. 2. Prepare any necessary journal entry or entries If recelvables are factored under Option Two. Complete this question by entering your answers in the tabs below

Explanation / Answer

SOLUTION

Option - 1

Receivables from factor = Fair value - 4% of $330,000

= $21,500 - $13,200 = $8,300

Option - 2

Receivables from factor = Fair value - 3% of $330,000

= $21,500 - $9,900 = $11,600

Date Account titles and description Debit ($) Credit ($) 30 June 2018 Cash ($330,000*85%) 280,500 Loss of receivable 41,200 Receivables from factor 8,300 Accounts Receivable 330,000

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