Problem: The BBB corporation has experienced cash flows problems and decides to improve its current cash position by factoring 30% of its receivables (sales without recourse) and assigning the remainder with the same finance company. The agreement, dated Oct 1, 2011, stipulates that a 10% commission will be assessed on factored accounts and 15% annual interest will be charged on the outstanding note payable balance related to the assigned accounts. The finance company will advance only 80% of the factor and assigned accounts. BBB must continue the collection responsibilities on the assigned accounts. As of Oct 1, 2011 BBB transferred to the finance company $374,000. During the month collections on factored accounts were 92,000 and 168,000 on assigned accounts. All collections on assigned accounts plus accrued interest were remitted to the finance company at the end of the month.
Required to do:
Q1. Prepare all journal entries to record the preceding information
Q2. How the accounts related to BBB's factoring and assignment agreements be reported on BBB's year end financial statements.