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Lucy factored $15,000,000 of accounts receivable with Ethel on a with recourse basis on May 1. (Assume the transaction meets the criteria to be classified
- Lucy factored $15,000,000 of accounts receivable with Ethel on a with recourse basis on May 1. (Assume the transaction meets the criteria to be classified as a sale.) Ethel assessed a finance charge equal to 1% of the ARs factored. Ethel retained $100,000 to cover potential sales returns. Lucy estimated her recourse liability to be $495,000. During May and June, customers returned merchandise to Lucy on $90,000 of credit sales. All of the returns related to receivables from the $15,000,000 pool of ARs sold. After taking the returns into consideration, Ethel collected $14,400,000 of the factored receivables. On June 30, Lucy and Ethel settled up meaning Lucy and Ethel paid each other any cash that was due to the other.
- Prepare the entry Lucy should make on May 1.
- Prepare the entry Lucy should make on June 30.
- Based on the above facts, what net profit did Ethel end up earning?
- Based on the above facts, what net expense did Lucy end up incurring ?
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