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Option One called for transferring $400,000 in accounts receivable to Dogwood Finance
Company without recourse for a 5% fee. Option Two calls for Belinda to transfer the $400,000
in receivables to Dogwood with recourse. Dogwood’s charges a 4% fee for receivables factored
with recourse. Option Two meets the conditions to be considered a sale, but Belinda estimates
a $3,000 recourse liability. Under either option, Dogwood will immediately remit 90% of
the factored receivables to Belinda, and retain 10%. When Dogwood collects the remaining
receivables, it remits the amount, less the fee, to Belinda. Belinda estimates that the fair value of
the final 10% of the receivables is $25,000 (ignoring the factoring fee).
Required:
1. Prepare any necessary journal entry or entries if receivables are factored under Option One.
2. Prepare any necessary journal entry or entries if receivables are factored under Option Two.
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