Problem $7-7($Algo$)$ Factoring versus assigning of accounts receivable $[$LO$7-8]$

$0\mathrm{.}35$

points

Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June $2024,$ the company had accounts receivable of $$940,000.$ Lonergan needs approximately $$580,000$ to capitalize on a unique investment opportunity. On July $1,2024,$ a local bank offers Lonergan the following two alternatives:

a$.$ Borrow $$580,000,$ sign a promissory note, and assign the entire receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus $12\%$ interest on the unpaid balance of the note at the beginning of the period.

b$.$ Transfer $$630,000$ of specific receivables to the bank without recourse. The bank will charge a $2\%$ factoring fee on the amount of receivables transferred. The bank will collect the receivables directly from customers. The sale criteria are met.

Required:

Prepare the journal entries that would be recorded on July $1$ for:

o$.$ alternative a$.$

b$.$ alternative $b.$

Assuming that $90\%$ of all June $30$ receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank for:

a$.$ alternative a$.$

b$.$ alternative $b.$