E 13, On April 1, 2004, Rasheed Company assigns $ 400,000 of its account receivable to the Third National Bank as collateral for a $ 200,000 loan due July 1


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E.7.13, On April 1, 2004, Rasheed Company assigns $ 400,000 of its account receivable to the Third National Bank as collateral for a $ 200,000 loan due July 1, 2004. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2 % of the accounts receivable, and interest on the loan is 10 % (a realistic rate of interest for a note of this type).

  • E.7.13, On April 1, 2004, Rasheed Company assigns $ 400,000 of its account receivable to the Third National Bank as collateral for a $ 200,000 loan due July 1, 2004. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2 % of the accounts receivable, and interest on the loan is 10 % (a realistic rate of interest for a note of this type).

  • Instructions :

  • Prepare the April 1, 2004, journal entry for Rasheed Company.

  • Prepare the journal entry for Rasheed’s collection of $ 350,000 of the accounts receivable during the period from April 1, 2004, through June 30, 2004.

  • On July 1, 2004, Rasheed paid Third National all that was due from the loan it secured on April 1, 2004.


(a) Cash 192,000

  • (a) Cash 192,000

  • Finance Charge 8,000*

  • Notes Payable 200,000

  • 2 % x $ 400,000 = $ 8,000

  • (b) Cash 350,000

  • Accounts Receivable 350,000

  • (c) Notes Payable 200,000

  • Interest Expense 5,000

  • Cash 205,000

  • 10 % x $ 200,000 x 3/12 = $ 5,000



E.7.17

  • E.7.17

  • JFK Corp factors $ 300,000, of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2003. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1,5 % of the amount of accounts receivable and retains an amount equal to 4 % of accounts receivable to cover sales discounts, returns and allowances. The transaction is to be recorded as a sale.

  • Instructions :

  • Prepare the journal entry on July 1, 2003, for JFK Corp to record the sale of receivables without recourse.

  • Prepare the journal entry on July 1, 2003, for LBJ Corp to record the purchase of receivables without recourse.



(a) July 1

  • (a) July 1

  • Cash $ 283,500

  • Due from Factor $ 12,000 */

  • Loss on Sale of Receivables $ 4,500 **/

  • Accounts Receivable $ 300,000

  •   * /($12,000 = 4% X $300,000)

  • **/($4,500 = 1 1/2% X $300,000)

  •  

  • (b) July 1

  • Accounts Receivable $ 300,000

  • Due to JFK Corp. $ 12,000

  • Financing Revenue $ 4,500

  • Cash $ 283,500



P.7-5, Presented below is information related to the Accounts Receivable accounts of Gulistan Inc during the current year 2004.

  • P.7-5, Presented below is information related to the Accounts Receivable accounts of Gulistan Inc during the current year 2004.

  • An aging schedule of the accounts receivable as of December 31, 2004, is as follows.

  • % to be Applied after

  • Age Net debit balance Correction is made

  • Under 60 days $ 172,342 1 %

  • 61 - 90 days 136,490 3 %

  • 91 – 120 days 39,924 6 %

  • Over 120 days _ 23,644 $ 4,200 definitely uncollectible, estimated

  • $ 372,400 remainder uncollectible is 25 %

  • 2. The accounts receivable control account has a debit balance of $ 372,400 on December 31, 2004.

  • 3. Two entries were made in the bad debt expense account during the year (a) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (b) a credit for $ 2,740 on November 3, 2004, and a debit to Allowance for Doubtful Accounts because a bankruptcy.



4. The Allowance for Doubtful accounts is as follows for 2004.

  • 4. The Allowance for Doubtful accounts is as follows for 2004.

  • _ Allowance for Doubtful Accounts _

  • Debit Credit

  • Nov 3, Uncollectible accounts Jan 1, Beginning balance 8,750

  • Written off 2,740 Dec 31, 5 % of $ 372,400 18,620

  • 5. A credit balance exists in the accounts receivable (61-90 days) of $ 4,840, which represents an advance on a sales contract.

  • Instructions :

  • Assuming the books have not been closed for 2004, make the necessary correcting entries.



Bad Debt Expense 2,740.00

  • Bad Debt Expense 2,740.00

  • Accounts Receivable 2,740.00

  • Accounts Receivable 4,840.00

  • Advance on Sales Contract 4,840.00

  • Allowance for Doubtful Accounts 4,200.00

  • Accounts Receivable 4,200.00

  • Allowance for Doubtful Accounts 7,374.64

  • Bad Debt Expense 7,374.64

  • Balance ($ 8,750 + $ 18,620 – $ 2,740 – $ 4,200) $ 20,430.00

  • Corrected balance 13,055.36

  • Adjustment $ 7,374.64

  • Age Balance Aging Schedule

  • Under 60 days $ 172,342 1 % $ 1,723.42

  • 61-90 days 141,330 ($ 136,490 + $ 4,840) 3 % 4,239.90

  • 91-120 days 37,184 ($ 39,924 – $ 2,740) 6 % 2,231.04

  • Over 120 days 19,444 ($ 23,644 – $ 4,200) 25% 4,861.00

  • $ 13,055.36



If the write off entry not the $ 4,200, the following would change in the problem.

  • If the write off entry not the $ 4,200, the following would change in the problem.

  • Balance ($ 8,750 + $ 18,620 – $ 2,740) $ 24,630.00

  • Corrected balance 17,255.36

  • Adjustment $ 7,374.64

  • Age Balance Aging Schedule 

  • Under 60 days $ 172,342 1 % $ 1,723.42 

  • 61-90 days 141,330 3 % 4,239.90 

  • 91-120 days 37,184 6 % 2,231.04 

  • Over 120 days 23,644 — 9,061.00*

  • $ 17,255.36 

  • *[$ 4,200 + (25 % x $ 19,444) = 9,061]




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