Problem 3

Reynolds Corp. factors $400,000 of accounts receivable with Mateer Finance Corporation on a without recourse basis on July 1, 2015. The receivables records are transferred to Mateer Finance, which will receive the collections. Mateer Finance assesses a finance charge of 1 percent of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.

Required:

a. Prepare the journal entry on July 1, 2015, for Reynolds Corp. to record the sale of receivables without recourse.

b. Prepare the journal entry on July 1, 2015, for Mateer Finance Corporation to record the purchase of receivables without recourseplease think through this.

c. Explain the difference between sale of receivables with recourse as oppose to without recourse.