Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2024, the company had accounts receivable of $780,000. Lonergan needs approximately $500,000 to capitalize on a unique investment opportunity. On July 1, 2024, a local bank offers Lonergan the following two alternatives:

Borrow $500,000, sign a promissory note, 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 12% interest on the unpaid balance of the note at the beginning of the period.

Transfer $550,000 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 would be recorded on July 1 for:

alternative a.

alternative b.

Assuming that 80% of all June 30 receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank for:

alternative a.

alternative b.