On June 30, 2015, Scott Fixtures was considering alternatives to bolster its cas

Question

On June 30, 2015, Scott Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $400,000 in accounts receivable to l analical Finance Company without recourse for a 5% fee. Option Two called for Scott to transfer the $400,000 in receivables to Fanatical Hath recourse. Fanatical charges a 4% fee for receivables factored with recourse. Option Two meets the conditions to be considered a sale, but Scott Fixtures estimates a $3,000 recourse liability. Additional Information: Under both options, Fanatical will immediately remit 90% of the factored receivables to Scott and retain 10% of receivables factored as protection against sales returns or other adjustments. When Fanatical collects the receivables, it will pay the withheld amount to Scott (the 10%), less the fee. Fanatical's fees are based on the amount of receivables factored. Scott Fixtures estimates that the fair value of the final 10% of the receivables is $25,000 (ignoring the factoring fee). Required: Prepare Scott Fixtures' journal entry or entries on June 30,2015, it receivables are factored under Option One. Prepare Scott Fixtures' journal entry or entries on June 30,2015, if receivables are factored under Option Two.

Explanation / Answer

On June 30, 2015, Scott Fixtures was considering alternatives to bolster its cas

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