JFK Corp. factors $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2008. The receivables records are transferred to LBJ Finance, which will receive the collections.
LBJ Finance assesses a finance charge of 1 1/2% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
(a) Prepare the journal entry on July 1, 2008, for JFK Corp. to record the sale of receivables without recourse.
(b) Prepare the journal entry on July 1, 2008, for LBJ Finance Corporation to record the purchase of without recourse.