1.
(a) Prepare
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
1.
Explanation of Solution
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.
(a) Prepare journal entry to record the given transactions by assuming that Person W is using U.S GAAP.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 1,2016 | Cash (2) | 126,400 | |
Assignment service charge expense (1) | 1,600 | ||
Notes payable | 128,000 | ||
(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 $126,400.
- 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 $1,600. - Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $128,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 1,2016 | Accounts receivable assigned | 160,000 | |
Accounts receivable | 160,000 | ||
(To record the transfer of accounts receivable to accounts receivable assigned account) |
Table (2)
- Accounts receivable assigned is an asset and there is an increase in the value of an asset. Hence, debit account receivable assigned account by $160,000.
- Accounts receivable is an asset and there is a decrease in the value of an asset. Hence, credit the account receivable account by $160,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 11,2016 | Return liability | 1,000 | |
Accounts receivable assigned | 1,000 | ||
(To record the sales returns on credit merchandise) |
Table (3)
- Return liability is a liability and there is a decrease in the value of liability. Hence, debit the liability by $1,000.
- Accounts receivable assigned is an asset and there is a decrease in the value of asset. Hence, credit the asset by $1,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 31,2016 | Cash | 86,000 | |
Accounts receivable assigned | 86,000 | ||
(To record the cash collected on transfer of accounts receivable) |
Table (4)
- Cash is an asset and there is an increase in the value of asset. Hence, debit the cash by $86,000.
- Accounts receivable assigned is an asset and there is a decrease in the value of asset. Hence, credit the accounts receivable assigned by $86,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 31,2016 | Notes payable | 86,000 | |
Interest expense | 1,280 | ||
Cash | 87,280 | ||
(To record the interest collected on transfer of accounts receivable) |
Table (5)
- Notes payable is a liability and there is a decrease in the value of liability. Hence, debit the notes payable by $86,000.
- Interest expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the interest expense by $1,280.
- Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $87,280.
Working notes:
(1) Calculate the Assignment service charges expense:
(2) Calculate the amount of cash:
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
Company W will report the transfer of accounts receivable under the head current asset with an amount of $73,000 and will report the return liability as notes payable under the head current liabilities with an amount of $42,000.
2.
(a) Prepare journal entry to record the given transactions by assuming that Company W is using IFRS.
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
2.
Explanation of Solution
(a) Prepare journal entry to record the given transactions by assuming that Company W is using IFRS.
Date | Account Title and Explanation | Debit | Credit |
December 1,2016 | Cash (4) | 126,400 | |
Factory expense (3) | 1,600 | ||
Receivables from factor (5) | 32,000 | ||
Accounts receivable | 160,000 | ||
(To record the loss on sale of receivables without recourse liability) |
Table (6)
- Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $126,400
- Factory expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the factory expense by $1,600.
- Receivables from factor are an asset and there is an increase in the value of asset. Hence, debit the receivables from factor by $32,000.
- Accounts receivable is an asset and there is a decrease in the value of asset. Hence, credit the accounts receivables by $160,000.
Date | Account Title and Explanation | Debit | Credit |
December 11,2016 | Return liability | 1,000 | |
Receivables from factor | 1,000 | ||
( To record occurrence of sales returns and allowances on factored accounts) |
Table (7)
- Return liability is a liability and there is a decrease in the value of liability. Hence, debit the liability by $1,000.
- Receivables from factor are an asset and there is a decrease in the value of asset. Hence, credit the receivables from factor by $1,000.
Date | Account Title and Explanation | Debit | Credit |
December 31,2016 | Cash | 86,000 | |
Payable to factor | 86,000 | ||
( To record the amount payable to factor on transfer of accounts receivable) |
Table (8)
- Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $86,000.
- Payable on factor is a liability and there is an increase in the value of liability. Hence, credit the payable to factor by $86,000.
Date | Account Title and Explanation | Debit | Credit |
December 31,2016 | Payable to factor | 86,000 | |
Cash | 86,000 | ||
( To record the payment of interest on transfer of accounts receivable) |
Table (9)
- Payable on factor is a liability and there is a decrease in the value of liability. Hence, debit the payable to factor by $86,000.
- Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $86,000.
Working notes:
(3) Calculate the loss on sale of receivables:
(4) Calculate the amount of cash:
(5) Calculate the receivables from factor:
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
Company W will report the transfer of accounts receivable as receivables from factor under the head current asset with an amount of $31,000.
Want to see more full solutions like this?
Chapter 6 Solutions
Intermediate Accounting: Reporting and Analysis
- 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 Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan.arrow_forwardOn June 1, Phillips Corporation sold, with recourse, a note receivable from a customer to a bank. The note has a face value of 15,000 and a maturity value (principal plus interest) of 15,400. The discount is calculated to be 385, and the accrued interest income is 100. The recourse liability is estimated to be 1,000. Prepare the journal entry of Phillips to record the sale of the note receivable.arrow_forwardOn 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 Jordans 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 Jordans journal entries to record the cash receipt and the payment to McLaughlin.arrow_forward
- Mountain High Ice Cream Company transferred $60,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10% to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5,000). Mountain High anticipates a $3,000 recourse obligation. The bank charges a 2% fee (2% of $60,000), and requires that amount to be paid at the start of the factoring arrangement.Required:Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)arrow_forwardBlack Corporation has entered into a long-term assignment agreement with a finance company. Under the terms of this agreement, Black receives 80% of the value of all accounts assigned and is charged a 1% service charge which is based upon the actual peso amount of cash received. Additionally, the finance company charges Black 12% annual interest on the outstanding loan. The following selected transactions relate to this agreement: December 1, 2014 - Accounts receivable of P175,000 are assigned. December 11, 2014 - A sales return of P1,000 on an assigned account is allowed by Black. December 31, 2014 - Collections are made on P86,000 of assigned accounts. This amount and 1 month's interest on the outstanding loan are remitted to the finance company. (For simplicity, compute interest to the nearest month). January 29, 2016 - P60,000 of assigned accounts are collected and the remainder of the loan is repaid. a. What is the journal entry to record the December 1, 2014 loan? b. What…arrow_forwardBlack Corporation has entered into a long-term assignment agreement with a finance company. Under the terms of this agreement, Black receives 80% of the value of all accounts assigned and is charged a 1% service charge which is based upon the actual peso amount of cash received. Additionally, the finance company charges Black 12% annual interest on the outstanding loan. The following selected transactions relate to this agreement: December 1, 2014 - Accounts receivable of P175,000 are assigned. December 11, 2014 - A sales return of P1,000 on an assigned account is allowed by Black. December 31, 2014 - Collections are made on P86,000 of assigned accounts. This amount and 1 month's interest on the outstanding loan are remitted to the finance company. (For simplicity, compute interest to the nearest month). January 29, 2016 - P60,000 of assigned accounts are collected and the remainder of the loan is repaid. What is the journal entry to record the January 29, 2016 payment of the…arrow_forward
- Black Corporation has entered into a long-term assignment agreement with a finance company. Under the terms of this agreement, Black receives 80% of the value of all accounts assigned and is charged a 1% service charge which is based upon the actual peso amount of cash received. Additionally, the finance company charges Black 12% annual interest on the outstanding loan. The following selected transactions relate to this agreement: December 1, 2014 - Accounts receivable of P175,000 are assigned. December 11, 2014 - A sales return of P1,000 on an assigned account is allowed by Black. December 31, 2014 - Collections are made on P86,000 of assigned accounts. This amount and 1 month's interest on the outstanding loan are remitted to the finance company. (For simplicity, compute interest to the nearest month). January 29, 2016 - P60,000 of assigned accounts are collected and the remainder of the loan is repaid. 1. What is the journal entry to record the December 1, 2014 loan? 2. What…arrow_forwardBlack Corporation has entered into a long-term assignment agreement with a finance company. Under the terms of this agreement, Black receives 80% of the value of all accounts assigned and is charged a 1% service charge which is based upon the actual peso amount of cash received. Additionally, the finance company charges Black 12% annual interest on the outstanding loan. The following selected transactions relate to this agreement: December 1, 2014 - Accounts receivable of P175,000 are assigned. December 11, 2014 - A sales return of P1,000 on an assigned account is allowed by Black. December 31, 2014 - Collections are made on P86,000 of assigned accounts. This amount and 1 month's interest on the outstanding loan are remitted to the finance company. (For simplicity, compute interest to the nearest month). January 29, 2016 - P60,000 of assigned accounts are collected and the remainder of the loan is repaid. What is the journal entry to record the December 31, 2014 collection? What…arrow_forwardMountain High Ice Cream Company transferred $60,000 of accounts receivable to the Prudential Bank. The transfer was made with recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10%to cover sales returns and allowances. When the bank collects the receivables, it will remit to Mountain Highthe retained amount (which Mountain estimates has a fair value of $5,000). Mountain High anticipates a $3,000recourse obligation. The bank charges a 2% fee (2% of $60,000), and requires that amount to be paid at the startof the factoring arrangement.Required:Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.arrow_forward
- Transferring Accounts Receivable White Corporation has entered into an agreement to transfer accounts receivable to Murphy Company. Under the terms of this agreement. 'White receives 80% of the value of all the transferred accounts receivable (to reflect credit risk) and is charged a 1% service charge,which is based upon the dollar amount of transferred receivables.Interest is charged at an annual interest rate of 12% of any outstanding loan balance.The transferred receivables will continue to be collected by \l\lhite with any cash flows being remitted to Murphy at the end of each month. White is not allowed to transfer the receivables to anyone else. White normally transfers its accounts receivable. The following selected 2019 transactions relate to this agreement Required: Assume that White uses U.S.GAAP. Prepare journal entries on \l\lhite'sbooks to record the preceding tran How would this agreement be reported on White's December 31,2019,balance sheet (assume the note payable…arrow_forwardOn April 1, 2020, Bonita Company assigns $533,000 of its accounts receivable to the Third National Bank as collateral for a $332,400 loan due July 1, 2020. The assignment agreement calls for Bonita to continue to collect the receivables. Third National Bank assesses a finance charge of 3% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type). On July 1, 2020, Bonita paid Third National all that was due from the loan it secured on April 1, 2020. Prepare the journal entry to record this payment. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)arrow_forwardLang Warehouses borrowed $100,000 from a bank and signed a note requiring 20 annual payments of $13,388 beginning one year from the date of the agreement. Required: Determine the interest rate implicit in this agreement.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT