Question

The following selected transactions are from Springer Company. 2014 Accepted a $4,800, 90-day, 8% note dated this day in granting Steve Julian a time extension on his past-due account receivable. Nov. 1 Dec. 31 Made an adjusting entry to record the accrued interest on the Julian note. 2015 Jan. Feb. 30 Received Julian's payment for principal and interest on the note dated November 1. 28 Accepted a $12,600, 30-day, 8% note dated this day in granting a time extension on the past-due account receivable from King Co. Mar. 1 Accepted a $6.200, 60-day, 12% note dated this day in granting Myron Shelley a time extension on his 30 30 15 past-due account receivable. The King Co. dishonored its note when presented for payment. Received payment of principal plus interest from M. Shelley for the March 1 note. Accepted a $2,000, 72-day, 8% note dated this day in granting a time extension on the past-due Apr. June account receivable of Ryder Solon. 21 Accepted a $9,500, 90-day, 8% note dated this day in granting J. Felton a time extension on his past. Aug. 26 Sep. 19 Nov. 30 due account receivable. Received payment of principal plus interest from R. Solon for the note of June 15. Received payment of principal plus interest from J. Felton for the June 21 note. Wrote off King's account against Allowance for Doubtful Accounts

Answer 1

Answer

What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.

If a business decides to pledge its receivables as collateral for a loan and the loan remains outstanding at the end of the accounting period, the company is required to disclose this information in the notes accompanying its current Financial statements.

It is required of the business because the company has pledged assets to cover a specific liability, therefore if the business dishonors its obligations to pay the loan, the creditor has legal rights to the amount of receivables identified in the assets pledged as collateral to cover the loan.

This type of Financing must be disclosed to satisfy the full-disclosure principle which informs shareholders.