Lonergan Company infrequently uses its accounts receivable to get immediate cash. At the end of June 2013, the company had accounts receivable of $780,000. Lonergan needs just about $500,000 to capitalize on a unique investment opportunity. On 1st July, 2013, a local bank offers Lonergan the subsequent two alternatives:
a.
Borrow $500,000, sign a note payable, and assign the whole receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus 12 percent interest on the unpaid balance of the note at the starting of the period.
b.
Transfer $550,000 of specific receivables to bank without recourse. The bank will charge a 2 % finance charge on the amount of receivables transferred. The bank will collect receivables straight from customers. The sale criteria are met.