Answer:
(a) Journal entry for Arness Woodcrafters
Dr Cash 273,000
Dr Receivable from factor 9,000
Dr Loss on sale of receivables 26,000
Cr Accounts receivable 300,000
Cr Recourse factor 8,000
the amount of cash received = $300,000 x (1 - 6% - 3%) = $273,000
receivable from factor = $300,000 x 3% = $9,000
loss on sale = accounts receivable + recourse factor - cash - receivable = $300,000 + $8,000 - $273,000 - $9,000 = $26,000
(b) Journal entry for Commercial Factors
Dr Accounts receivable 300,000
Dr Recourse receivable 18,000
Cr Cash 273,000
Cr Accounts payable 9,000
Cr Recourse revenue 36,000
