Ladysmith Furnishings extends generous payment terms to its customers. As a result, it has accumulated a substantial portfolio of accounts receivable. To improve cash flow, the company decided to sell $500,000 of these receivables to a factor. The company had previously checked the creditworthiness of its customers, so it is confident that few accounts will become uncollectible. Therefore, the company chose to factor these receivables with recourse. In exchange for these receivables, the factor paid Ladysmith 95c on each dollar of receivables on the date of transfer. The factor also held 2c on each dollar for potential uncollectible accounts. Ultimately, the factor collected $496,000 from these receivables.
Required:
Record the entries on Ladysmith’s books relating to the $500,000 of accounts receivable.