Nova Stores, Inc. (Nova) factors $250,000 of its accounts receivable to BMO Finance with recourse. BMO charges a fee of 2% and withholds 10% of the face amount of the receivables to cover possible uncollectible accounts and sales returns. The bank deducts the fee from the final payment of the 10% retained receivables. Nova estimates the fair value of the recourse obligation is equal to $12,000. Nova estimates the fair value of the 10% of the face amount of receivables equals $24,000 (i.e., $1,000 of the 10% retained receivable is estimated to be uncollectible).

a. Assume Nova surrenders the control over the factored receivables. Prepare the journal entries that Nova Stores, Inc. would make to record the factoring transaction (Hint: You can refer to Illustration 7-16 and 7-18 in Chapter 7 of the textbook for this question).

b. Assume Nova still retains the control over the factored receivables. Prepare the journal entries that Nova Stores, Inc. would make to record the transaction.