On May 1, Jeffrey Inc. factored $1,200,000 of accounts receivable with Bilked Finance on a without recourse basis. Under the arrangement, Jeffrey was to handle disputes concerning service, and Bilked Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Bilked Finance assessed a finance charge of 6% of the total accounts receivable factored and reatined an amount equal to 2% of the total receivables to cover sales discounts.
(a) Prepare the journal entry on Jeffry's books on May 1.
(b) Prepare the journal entry required on Bilked Finance's books on May 1.
(c) Assume Jeffrey factors the $1,200,000 of accounts receivable with Bilked Finance on a with recourse basis instead. The recourse provision has a fair value of $21,000. Prepare the journal entry required on Jeffry's books on May 1.