Jersey Shores Ltd. sold $1,250,000 of accounts receivable to Fast Factors Inc. on a without recourse basis. The transaction meets the criteria for a sale, and no asset or liability components of the receivables are retained by Jersey Shores. Fast Factors charges a 3.5% finance fee and retains another 5% of the total accounts receivable for estimated returns and allowances.
a. Prepare the journal entries for both companies.
b. Assume instead, that Jersey Shores follows ASPE and sells the accounts receivable with recourse. The recourse obligation has a fair value of $7,400. Prepare the journal entries for the sale by Jersey Shores