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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.

Refer to RE6-10. On December 31, Jordan Inc. received $50,000 on assigned accounts. Prepare Jordan’s journal entries to record the cash receipt and the payment to McLaughlin.

To determine

Journalize entries to record the cash receipt and the payment made.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Record journal entries:

DateAccount Title and ExplanationDebitCredit
 Cash$50,000 
      Accounts receivable assigned $50,000
 (To record the receipt of cash)  

Table (1)

  • Cash is an asset and it is increased. Therefore, debit cash account by $50,000
  • Assignment service charge expense is a component of stockholders’ equity and it is decreased. Therefore, debit assignment service charge expense by $50,000
DateAccount Title and ExplanationDebitCredit
 Notes payable$50,000 
 Interest expense$797 
      Cash $50,797
 (To record the interest expense on notes payable)  

Table (2)

  • Interest expense is a component of stockholders’ equity and it is decreased. Therefore, debit interest expense account by $50,000.
  • Notes payable is a liability and it is decreased. Therefore, debit notes payable account by $797.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $50,797...

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