On May 1, COVID Co. factored 800,000 of accounts receivable with Virus Co. on the basis that all the risks of collectability and credit losses on the purchaser. Virus Co. assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.

Required:

(a) Prepare the journal entry required on COVID Co.s books on May 1.

(b) Assume COVID Co. factors the 800,000 of accounts receivable with Virus Co. and COVID issues a guarantee to Virus Co. to compensate for any credit losses on receivables factored. Prepare the journal entry required on COVIDs books on May 1.