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7 November, 15:23

Accounts receivable in the amount of $470,000 were assigned to the Fast Finance Company by Marsh, Inc., as security for a loan of $680,000. The finance company assessed a 10% finance charge on the face amount of the loan, and the note bears interest at 10% per year. During the first month, Marsh collected $490,000 on assigned accounts. This amount was remitted to the finance company along with one month's interest on the note. Make all the entries for Marsh Inc. associated with the transfer of the accounts receivable, the loan, and the remittance to the finance company.

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Answers (2)
  1. 7 November, 16:22
    0
    cash 612,000 debit

    interest expense 68,000 debit

    note payable 680,000 credit

    cash 490,000 debit

    accounts receivables 490,000 credit

    note payable 490,000 debit

    interest expense 5,667 debit

    cash 495,667 credit

    Explanation:

    The lender will take a 10% discount before hand:

    680,000 - 68.000 = 612,000

    Then, we collect the 490,000 from our account so we record that as usual

    the interest on the loan will be of:

    principal x rate x time

    680,000 x 0.1 x 1/12 = 5666,67

    We now record the total cash outlay and tdecrease the note payable
  2. 7 November, 18:53
    0
    Answer and Explanation:

    Marsh Inc.

    Journal Entries

    Debit Credit

    (a) Cash ($680,000 - $68,000) $612,000

    Interest expense ($680,000 x 10%) $68,000

    Notes payable $680,000

    To record cash received against loan.

    (b) Cash $490,000

    Accounts receivable $490,000

    To record cash collected during first month.

    (c) Notes payable $490,000

    Interest expense ($680,000 x 10% x 1/12) $5,667

    Cash ($490,000 + $5,667) $495,667

    To record notes payable and first month interest expense.
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