Answer:
(a)
Dr. Cash $273,000
Dr. Receivable (Commercial Factor) $9,000
Dr. Loss on sale of Receivables $20,500
Cr. Account Receivables $300,000
Cr. Recourse Payable $8,000
(b)
Dr. Account Receivables $300,000
Dr. Recourse Receivable ($300,000 x 6%) $18,000
Cr. Income from Recourse Services $36,000
Cr. Cash $273,000
Cr. Account payable (Arness) $9,000
Explanation:
The fair value of recourse liability will be recorded by Arness, but the Commercial Factors Inc. will record the actual amount of 6% as receivable.
Cash is received excluding the finance charges and retained accounts receivables.
Net of Liabilities and receivable will be recorded as Loss on the recourse of receivables.
Cash $300,000 – ($300,000 X (.06 + .03)) = $273,000
Due from Factor ($300,000 X .03) = $9,000
Loss on Sale of Receivables = $20,500
Accounts Receivable = $300,000
Recourse Liability = $8,000