Prepare any essential journal entry or entries

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Reference no: EM132739

Question:

A. On June 30, 2011, Barbie Company was considering options to bolster its cash position. Choice One called for transferring $400,000 in accounts receivables to ABC Finance Company without recourse for a 5% fee. Option Two calls for Barbie to transfer the $400,000 in receivables to ABC with recourse. ABC charges a 4% fee for receivables factored with recourse. Choice Two meets the conditions to be considered a sale, but Barbie estimates a $3,000 recourse liability. Under either option, ABC will immediately remit 90% of the factored receivables to Barbie, and retain 10%. When ABC collects the remaining receivables, it remits the amount, less the fee, to Barbie. Barbie estimates that the fair value of the final 10% of the receivables is $25,000 (ignoring the factoring fee).

a. Prepare any essential journal entry or entries if receivables are factored under Option One.

b. Prepare any essential journal entry or entries if receivables are factored under Option Two.

Reference no: EM132739

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