Crest Textiles, Inc. factors $400,000 of accounts receivable with Commercial Factors, Inc..

Crest Textiles transfers the receivable records to Commercial Factors, which will receive the

collections. Commercial Factors assesses a finance charge of 2 percent of the amount of accounts receivable and retains an amount equal to 5 percent of the accounts receivable for probable adjustments.

Instructions:

1. Presume it is a factoring without recourse. Then prepare any necessary journal entries for Crest Textiles and Commercial Factors, Inc. on the date of factoring.

2. Presume it is a factoring with recourse and the fair market value of the recourse is $5,000. Then prepare any necessary journal entries for Crest Textiles
   1. On the date of factoring
   2. On the maturity date of accounts receivable
      1. If the credit buyer of Crest Textiles pays $400,000 to Commercial Factors.
      2. If the credit buyer of Crest Textiles does not pay $400,000 to Commercial Factors and hence Crest Textiles pays $420,000 including $20,000 penalty to Commercial Factors.