Question
To obtain additional cash, A&E Corporation factors $200,000 of its accounts receivable to PVP Corporation. PVP assesses a finance charge of 5 percent of the
To obtain additional cash, A&E Corporation factors $200,000 of its accounts receivable to PVP Corporation. PVP assesses a finance charge of 5 percent of the amount of accounts receivable and retains an amount equal to 3 percent of accounts receivable to cover sales discounts, returns, and allowances.
a. Assuming that this transaction is on a without recourse basis, prepare a journal entry on the books of PVP Corporation to record this transaction. Show computations and prepare your journal entry using the answer sheet provided.
b. Assuming that this transaction is on a with recourse basis, prepare a journal entry on the books of A&E Corporation to record this transaction. Assume that A&E has determined the recourse obligation to be $6,000. Show computations and prepare your journal entry using the answer sheet provided.
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