Question

Problem 7-11

Coronado Company requires additional cash for its business. Coronado has decided to use its accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following contemplated transactions.

1.		On July 1, 2017, Coronado assigned $760,000 of accounts receivable to Keller Finance Company. Coronado received an advance from Keller of 80% of the assigned accounts receivable less a commission of 2% on the advance. Prior to December 31, 2017, Coronado collected $418,000 on the assigned accounts receivable, and remitted $442,168 to Keller, $24,168 of which represented interest on the advance from Keller.
2.		On December 1, 2017, Coronado sold $570,000 of net accounts receivable to Wunsch Company for $513,000. The receivables were sold outright on a without recourse basis.
3.		On December 31, 2017, an advance of $228,000 was received from First Bank by pledging $304,000 of Coronado’s accounts receivable. Coronado’s first payment to First Bank is due on January 30, 2018.

Prepare a schedule showing the income statement effects for the year ended December 31, 2017, as a result of the above facts.

CORONADO COMPANY Income Statement Effects December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
Expenses resulting from accounts receivable assignedLoss resulting from accounts receivable soldGain resulting from accounts receivable soldCost of advance from First BankTotal expenses		$
Total expensesLoss resulting from accounts receivable soldCost of advance from First BankGain resulting from accounts receivable soldExpenses resulting from accounts receivable assigned
Loss resulting from accounts receivable sold    Cost of advance from First Bank    Total expenses    Gain resulting from accounts receivable sold    Expenses resulting from accounts receivable assigned		$

Answer 1

CORONADO COMPANY
Income Statement Effects
For the Year Ended December 31, 2017
Expenses resulting from accounts receivable		$                   36,328
Loss resulting from accounts receivable sold		$                   57,000
Total expenses		$                   93,328

Calculation parts

Accounts receivable sold		$                 760,000
Multiply: percentage of advance as assigned accounts receivable		80%
Cash received in advance		$                 608,000
Multiply: commission percentage on the advance		2%
Commission charge on advance		$                   12,160
Add: Interest on the advance from Keller		$                   24,168
Expenses resulting from accounts receivable		$                   36,328
Sales of net accounts receivable to Wunsch Company		$                 570,000
Less: Cash received from accounts receivable sold		$                 513,000
Loss resulting from accounts receivable sold		$                   57,000