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.7.17JFK 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. 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 18,6205. 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 2,740.00Accounts 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) $ 20,430.00Corrected balance 13,055.36Adjustment $ 7,374.64Age Balance Aging ScheduleUnder 60 days $ 172,342 1 % $ 1,723.4261-90 days 141,330 ($ 136,490 + $ 4,840) 3 % 4,239.9091-120 days 37,184 ($ 39,924 – $ 2,740) 6 % 2,231.04Over 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) $ 24,630.00Corrected balance 17,255.36Adjustment $ 7,374.64Under 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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