Arness Woodcrafters sells $300,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 6% and retains an amount equal to 3% of accounts receivable. Arness estimates the fair value of the recourse obligation to be $8,000. Prepare the journal entry for (a) Arness and (b) Commercial Factor

(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

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