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Mel-Tim Corporation has a $100,000 debt payment due in early August. In order to meet this obligation, on August 1, Mel-Tim decided to accelerate collection of accounts receivable by assigning $130,000 of specific accounts to a commercial lender as collateral for a loan. Under the agreement, Mel-Tim guarantees the accounts and will notify its customers to make their payments to the lender. In return, the lender will advance Mel-Tim 85% of the accounts assigned. The remaining 15% will be paid to Mel-Tim once the commercial lender has recovered its fees and related cash advances. The lender receives a fee of the total accounts assigned, which is immediately deducted from the initial cash advance. The lender also assesses a monthly finance charge of one half of 1% on any uncollected account balances. Finance charges are to be deducted from the first payment due Mel-Tim after the lender has recovered its cash advances.

On August 31, Mel-Tim received a statement from the lender saying it had collected $80,000. On September 30, Mel-Tim receives a check from the lender together with a second statement saying an additional $40,000 has been collected.

Required:

a. State whether this is a collateralized borrowing, factoring with recourse or factoring with out recourse. Explain your decision briefly.
b. Prepare all necessary journal entries.

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    Sra

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