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14 October, 17:46

On April 1, 2020, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2020. The assignment agreement calls for Rasheed 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).

Required:

1. Prepare the April 1, 2020 journal entry for Rasheed company.

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Answers (2)
  1. 14 October, 20:42
    0
    Debit: Cash with $192,000

    Debit: Finance charge with $8,000

    Credit: Notes payable with $200,000

    Explanation:

    Step 1: Calculation of finance charge and cash received

    Finance charge = $400,000 * 2% = $8,000

    Cash received = $200,000 - $8,000 = $192,000

    Step 2: Calculation preparation of journal entry

    The journal entries appear as follows:

    DR ($) CR ($)

    Cash 192,000

    Finance charge 8,000

    Notes payable 200,000

    Being the cash received and finance charge on note payable.
  2. 14 October, 21:43
    0
    The journal entry for Rasheed company on April 1,2020 will be:

    Account title Dr Cr

    Cash 192,000

    Finance charge 8,000

    Notes payable 200,000

    Finance charge = $400,000 x 2% = 8,000

    Notes Payable = 200,000

    Cash = 200,000 - 8,000 = 192,000
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Home » Business » On April 1, 2020, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2020. The assignment agreement calls for Rasheed to continue to collect the receivables.
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