Question

On July 15, Central States Corporation factored $250,000 of accounts receivable with Franklin Factors on a without recourse basis. Under the arrangement, Central was to handle disputes concerning service, and Franklin Factors was to make the collections, handle the sales discounts, and absorb the credit losses. Franklin assessed a finance charge of 4% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts. (2 points)

            (a) Prepare the journal entry required on Central's books on July 15.

Date	Account Titles	Debit	Credit

(b) Prepare the journal entry required on Franklin Factors' books on July 15.

Date	Account Titles	Debit	Credit

Assume Central States factors the $250,000 of accounts receivable with Franklin Factors on a with recourse basis instead. The recourse provision has a fair value of $1,000.

            (c) Prepare the journal entry required on Central's books on July 15.

Date	Account Titles	Debit	Credit

(d) Prepare the journal entry required on Franklin Factors' books on July 15.

Date	Account Titles	Debit	Credit

Answer 1