Question 2: Initrode Inc sells $55,000 of its customer receivables to DC Corp without recourse. DC Corp charges a 6% finance fee for this service (e.g., processing costs, time value of money).

REQUIRED: A. What journal entry will be made by Initrode to record the loan?

B. How would the treatment differ if this sale was with a recourse obligation of $5,000?

C. Now, suppose this sale has a return provision. DC Corp will retain 4% to account for the possibility of sales returns. How does this effect the treatment of the sale? Record the new Journal Entry that Initrode should make.

Question 3: Initrode Company pledges $125,000 of its customer receivables to DC Corp as security for a loan. DC Corp lends Initrode $110,000 in return and charges a 3% finance fee for this service.

REQUIRED: A. Show the journal entry made by Initrode.

B. Describe the different effects on each of the financial statements that a secured borrowing like this one has, as oppose to a sale of the receivables in Question 2.