Lillis Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2018, the company had accounts receivable of $980,000. Lillis needs approximately $600,000 to capitalize on a unique investment opportunity. On July 1, 2018, a local bank offers Lillis the following alternatives:

a. Borrow $600,000, sign a note payable, and assign the entire receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus 8% interest on the unpaid balance of the note at the beginning of the period.

b. Transfer $650,000 of specific receivables to the bank without recourse. The bank will charge a 2% factoring fee on the amount of receivables transferred. The bank will collect the receivables directly from customers. The sale criteria are met. Required: Prepare the journal entries that will be record on July 1 for both alternatives.

Under A:

Under B: