Jersey Shores Ltd. sold $1,250,000 of accounts receivable to Fast Factors Inc. on a without recourse basis. The transaction meets the criteria for a sale, and no asset or liability components of the receivables are retained by Jersey Shores. Fast Factors charges a 3.5% finance fee and retains another 5% of the total accounts receivable for estimated returns and allowances.

Required:

a. Prepare the journal entries for both companies.

b. Assume instead, that Jersey Shores follows ASPE and sells the accounts receivable with recourse. The recourse obligation has a fair value of $7,400. Prepare the journal entries for the sale by Jersey Shores.