Question

Scarbrough Corp. factored $600,000 of accounts receivable to Duff Corp. on October 1, year 2. Control was surrendered by Scarbrough. Duff accepted the receivables subject to recourse for nonpayment. Duff assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Duff charged 15% interest computed on a weighted-average time to maturity of the receivables of fifty-four days. The fair value of the recourse obligation is $9,000. Scarbrough will receive and record cash of

$556,685

$547,685

$538,685

$529,685

Vaughn Manufacturing assigns $4570000 of its accounts receivables as collateral for a $2.99 million loan with a bank. The bank assesses a 3% finance charge on the loan amount and charges interest on the note at 5%. What would be the journal entry to record this transaction?

Debit Cash for $2026800, debit Interest Expense for $89700, debit Due from Bank for $1580000, and credit Accounts Receivable for $4570000.

Debit Cash for $2900300, debit Interest Expense for $89700, and credit Notes Payable for $2990000.

Debit Cash for $2900300, debit Interest Expense for $89700, and credit Accounts Receivable for $2990000.

Debit Cash for $2750800, debit Interest Expense for $239200, and credit Notes Payable for $2990000.

Answer 1

1	$538,685
	Receivables	$600,000
	Less: Amount of the hold back	$30,000
	($600,000 x 5%)
	Less: Withheld as fee income	$18,000
	($600,000 x 3%)
	Less: Withheld as interest expense	$13,315
	($600,000 × 15% × 54/365)
		$538,685
2	Accounts Titles and Explanation	Debit	Credit
	Cash	$2,900,300
	Interest Expense	$89,700		($2,990,000 x 3%)
	Notes Payable		$2,990,000