Question

On December 1, 2021, General Mole borrowed $400,000 at 12% interest and pledged $500,000 in accounts receivable as collateral. Additionally, General Mole was charged a finance fee equal to 1% of the accounts receivable assigned. At the end of December, $300,000 of the assigned receivables were collected and remitted to the lender along with accrued interest. Required: Prepare journal entries to record the borrowing, the assignment of receivables, the collection on the receivables, and the recognition of interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Journal entries:

a).

Cash A/c                                 Dr. $395,000

Finance charges A/c               Dr. $5,000

         To Loan payable A/c                                         Cr. $400,000

(Being $400,000 borrowed on loan)

Note:

Finance charges = $500,000*1%

                           = $5,000

b).

Accounts receivable A/c                                      Dr. $500,000

            To Accounts receivable assigned A/c                                     Cr. $500,000

(Being accounts receivable assigned)

c).

Cash A/c                                             Dr. $300,000

       To Accounts receivable A/c                                     Cr. $300,000

(Being accounts receivable collected)

d).

Interest A/c                                 Dr. $48,000

      To Interest payable A/c                                        Cr. $48,000

(Being interest becomes due)

Note:

Interest expense = $400,000*12%

                           = $48,000

e).

Interest payable A/c                Dr. $48,000

       To Cash A/c                                                  Cr. $48,000

(Being interest paid)

f).

Loan payable A/c                    Dr. $300,000

           To Cash A/c                                                     Cr. $300,000

(Being loan paid)