Question

Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2021, the company had accounts receivable of $960,000. Lonergan needs approximately $590,000 to capitalize on a unique investment opportunity. On July 1, 2021, a local bank offers Lonergan the following two alternatives: a. Borrow $590,000, sign a note payable, and assign the entire receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus 12% Interest on the unpaid balance of the note at the beginning of the period. b. Transfer $640,000 of specific receivables to the bank without recourse. The bank will charge a 4% factoring fee on the amount of receivables transferred. The bank will collect the receivables directly from customers. The sale criteria are met. Required: 1. Prepare the journal entries that would be recorded on July 1 for: a. alternative a b. alternative b. 2. Assuming that 80% of all June 30 receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank for: a. alternative a b. alternative b. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 2A Req 2B Assuming that 80% of all June 30 receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank for alternative a. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet General Journal Credit No 1 Date Miu 11 2121 Debit TAO | Chah

Answer 1

solution . Preparation of Journal entriez that would be recorded on July 1 a) Alternative -A: / Account title & explanation Debit Gredet I Date July 1, 2021 590000 Cash Notes payable 590000 [ To record entry fos borrowing of 590000 and signing of Notez payables

AHernative - B! Date Account title Ex Explanation Debit Credit 614400 July 1, 2021 25600 Cash Loss on transfer of receivables Accounts receivables [ To record for Account receivables] 640000

Preparation of entries to record the collection and the remittance to the bank for : a) Alternative - A: Date Account title & Explanation Deltt bedit July 1, 2021 768000 Cash account receivalte ſ 960000 X 8047 768000 [ Being to record for collection of 80% of account receivabte ] July 1, 2021 5900 Interest expense 590000 x 12% Notes payable 1/12] 590000 Cash 595900 r To - record Interest and notes payable to banky b) Alternative B : Date Account title & Explanation Debit Gedit Iuly 1, 2021 256000 Cash [ 960000 – 640000 1x80% 256000 Account receivables [ To record for collection by bark in excess of Accounts receivables ]