On May 1, Carlos, Inc. factored $1,000,000 of accounts receivable with Andreas Finance on a without recourse basis. Under the arrangement, Carlos was to handle disputes concerning service, and Andreas Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Andreas Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.
(1) Prepare the journal entry required on Carlos' books on May 1.
(2) Prepare the journal entry required on Andreas Finance's books on May 1.
(3) Assume Carlos factors the $1,000,000 of accounts receivable with Andreas Finance on a with recourse basis instead. The recourse provision has a fair value of $17,500. Prepare the journal entry required on Carlos' books on May 1.
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