Question

Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2021, the company had accounts receivable of $980,000. Lonergan needs approximately $600,000 to capitalize on a unique investment opportunity. On July 1.2021, a local bank offers Lonergan the following two alternatives a. Borrow $600,000, 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 8% interest on the unpaid balance of the note at the beginning of the period. b. Transfer $650,000 of specific receivables to the bank without recourse. The bank will charge a 2 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. Reg 1A Reg 1B Reg 2 Reg 28 Prepare the journal entries that would be recorded on July 1 for alternative a. (If no entry is required for a transactior event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet > Record the borrowing $600,000, sign a note payable, and assign the entire recevable balance as collateral.

Answer 1

1 Date General Journal Debit ($) Credit ($) Alternative a July 01,2021 Cash 600000 To Note Payable 600000 (To record the amount borrowed through note payable) 637000 13000 Alternative b July 01,2021 Cash (650000*(100% -2%) Loss on transfer of Receivables To Account Receivable (To record the transfer of receivable) 650000 2 Date General Journal Alternative a July 01,2021 Cash (980000*80%) To Account Receivable (To record the amount received) Debit (S) Credit (S) 784000 784000 4000 600000 July 31,2021 Interest expense (600000*8%*1/12) Note Payable To Cash (To record interest expense and note payable to bank) 604000 264000 Alternative b July 31,2021 Cash ($ 980000 - $ 650000 )*80% To Account Receivable |(To record the amount receivbed) 264000

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