During the audit of ABC Company for the year ended December 31, 2017, you uncover the following two transactions affecting the company's receivables:

1)On October 1, 2017, Acme Realty Co. gave ABC a 3-year, 1%, $20,000 note to purchase a tract of land from ABC.ABC had bought the land as an investment several years ago for $12,000. Interest payments on the note are due on September 30 of each year.

2)On December 28, 2017, ABC factored, on a with recourse basis, $40,000 of Accounts Receivable with Molina Finance Company.Molina charged a 3% finance charge and withheld an additional 4% to cover any possible adjustments.

ABC Company made the following entries to record these transactions:

1)Notes Receivable20,000

Land12,000

Gain on Sale8,000

2)Cash37,200

Loss on Factoring 1,200

Due from the Factor 1,600

Accounts Receivable40,000

You decide to question ABC's controller about these transactions.The controller justifies these entries by stating the following regarding each of the two situations:

1)The note contains a provision for interest and, therefore, no special accounting is needed for the note.

2)Molina Finance Company will collect the receivables.Therefore, ABC no longer owns the receivables and, as a result, the transaction must be a sale.

ABC's controller has held this position for many years and his reasoning for the accounting choices that have been made in each of these situations appears to be sound, or does it?What would you require as the proper accounting for these two transactions? Be sure to cite appropriate justification from the Accounting Standards Codification.