(Answered) Question on may 1 2015 short company has an immediate need

Accounting

Question: On May 1, 2015 Short Company has an immediate need for cash and decides to factor $1,700,000 of its receivables to IBC Inc., a financial institution. Short will pay a finance charge of 8% of the total accounts receivable factored and an amount equal to 5% of the total receivables will be retained by IBC to cover sales discounts. Short factored the receivables on a without recourse basis.

a. Prepare the entry required on Short's books on May 1.

b. Instead of selling their receivables on a without recourse basis, Short decides to get a more favorable finance charge and factor on a with recourse basis. Short will pay a finance charge of 6% of the total accounts receivable factored and IBC will retain an amount equal to 4% of the total receivables to cover sales discounts. The recourse provision has a fair value of $60,000. Prepare the entry now required for the sale of receivables by Short on May 1.

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