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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On December 1 of the current year, Jordan Inc. assigns $125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a $750 service fee, advances 85% of Jordan’s accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan.

To determine

Prepare journal entry to record the given transaction.

Explanation

Account receivable:

The amount of money to be received by a company for the sale of goods and services to the customers is referred to as account receivable.

Prepare journal entry to record the given transaction.

DateAccount Titles and explanationDebit ($)Credit ($)
December 1Cash  (1)105,500 
 Assignment service charge expense 750 
      Notes payable ($125,000×85%)  106,250
 (To record transfer  of accounts receivable)  

Table (1)

  • Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $105,500.
  • Assignment service charge expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the assignment service charge expense by $750.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $106,250

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