Pearl Corp. factors $370,000 of accounts receivable with Martinez Finance Corporation on a without recourse basis on July 1, 2020. The receivables records are transferred to Martinez Finance, which will receive the collections. Martinez Finance assesses a finance charge of 1.80% of the amount of accounts receivable and retains an amount equal to 5% 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, 2020, for Pearl Corp. to record the sale of receivables without recourse.
b. Prepare the journal entry on July 1, 2020, for Martinez Finance Corporation to record the purchase of receivables without recourse—please think through this.
c. Explain the difference between the sale of receivables with recourse as oppose to without recourse.
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Pearl Corp. factors $370,000 of accounts receivable with Martinez Finance Corporation on a without r...
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