Problem 6
On June 30, 2024, Nicholas Corporation was considering alternatives to bolster its cash position.
Option One called for transferring $310,000 in accounts receivable to Morgan Finance Company
without recourse for a 6\% fee. Option Two calls for Nicholas to transfer the $310,000 in
receivables to Morgan with recourse. Morgan charges a 5\% fee for receivables factored with
recourse. Option Two meets the conditions to be considered a sale, but Nicholas estimates a
$2,100 recourse liability. Under either option, Nicholas will immediately remit 90\% of the
factored receivables to Morgan and retain 10\%. When Morgan collects the remaining
receivables, it remits the amount, less the fee, to Nicholas. Nicholas estimates that the fair value
of the final 10\% of the receivables is $20,500 (ignoring the factoring fee).
Required:
(a) Prepare any necessary journal entry or entries if receivables are factored under Option One.
(b) Prepare any necessary journal entry or entries if receivables are factored under Option Two.