91Ó°ÊÓ

(Assigned Accounts Receivable—Journal Entries) Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2017, it assigned, under guarantee, specific accounts amounting to \(150,000. The finance company advanced to Salen 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of ½% of the total accounts assigned.

On July 31, Salen Company received a statement that the finance company had collected \)80,000 of these accounts and had made an additional charge of ½% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance company. (Hint: Make entries at this time.) On August 31, 2017, Salen Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $50,000 and had made a further charge of ½% of the balance outstanding as of August 31.

Instructions

Make all entries on the books of Salen Company that are involved in the transactions above.

Step by step solution

01

Definition of Financing Receivables

The process under which a business entity sells itsaccounts receivables to a financing company to generate cash against some specified charges is known as financing receivables.

02

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
1 July 2017	Cash	$119,250
	Interest expenses$\left(\$150,000×0·5\%\right)$	$750
	Note payable		$120,000
31 July 2017	Note payable	$80,000
	Accounts receivable		$80,000
31 July 2017	Interest expenses$\left(\left(\$150,000-\$80,000\right)×0·5\%\right)$	$350
	Interest payable		$350
31 August 2017	Cash (Balancing figure)$\left(\$50,000-\$350-\$100-\$40,000\right)$	$9,550
	Note payable	$40,000
	Interest expenses$\left(\$150,000-\$80,000-\$50,000\right)×0·5\%$	$100
	Interest payable$\left(\left(\$150,000-\$80,000\right)×0·5\%\right)$	$350
	Accounts receivable		$50,000
		$250,350	$250,350

Unlock Step-by-Step Solutions & Ace Your Exams!

• Full Textbook Solutions

  Get detailed explanations and key concepts

• Unlimited Al creation

  Al flashcards, explanations, exams and more...

• Ads-free access

  To over 500 millions flashcards

• Money-back guarantee

  We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91Ó°ÊÓ!