Question

please complete all required parts of the question. added extra photos so its not too confusuing. also please find the loss on sale recievables for the other problem.

Problem 7-7 (Algo) Factoring versus assigning of accounts receivable [LO7-8) Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2021, the company had accounts receivable of $840,000. Lonergan needs approximately $560,000 to capitalize on a unique investment opportunity. On July 1, 2021, a local bank offers Lonergan the following two alternatives: a. Borrow $560,000, 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 9% interest on the unpaid balance of the note at the beginning of the period. b. Transfer $580,000 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. Answer is not complete. Complete this question by entering your answers in the tabs below. Reg 1A Reg 18 Req2A Reg 20

Answer 1

Lonergan Company Samson Wholesale Beverage Company Requirment 1 Credit in $ Journal Enteries Date Particulars 1.7.2021 Cash a/c To Note payable Debit in $. 560000 Journal Enteries Date Particulars Debit in $. Credit in $ Apr-30 Cash a/c Dr. 801000 Loss on sale of receivables a/c Dr. 55600 Receivable from factor a/c Dr. 33400 To Accounts receivable 890000 Cash (90% $890,000) = 801,000 Receivable from factor ($69,000 fair value - [4% < $890,000]) = 33,400 Dr. 560000 1.7.2021 Cash a/c Dr. 556800 Loss on transfer of receivables a/c Dr. 23200 To Accounts receivable Cash ($580,000 x 96%) = 556,800 Loss on transfer of receivables (4% x $580,000) = 23,200 580000 Requirment 2 Credit in $ Journal Enteries Date Particulars 7.2021 Cash a/c To Accounts receivable Cash (80% x $840,000) = 672,000 Dr. Debit in $. 672000 672000 31.7.2021 Interest expense a/c Dr. 4200 Note payable a/c Dr. 560000 To Cash Interest expense ($560,000 x 9% <1/12) = 4,200 564200 Dr. 208000 31.7.2021 Cash a/c To Accounts receivable Cash [80% ($840,000 - $580,000)] = 208,000 208000