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21 January, 20:34

Rascal Corp. borrows $500,000 by signing on a 1-year, 12% promissory note from General Finance Company and assigns $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Rascal to record the borrowing will include a

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  1. 21 January, 20:42
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    Dr Cash 494,000

    Dr Finance Charge expense6,000

    Cr Liability - Financing arrangement 500,000

    Explanation:

    The journal entry for Rascal to record the borrowing

    Since Rascal Corp was said to borrow $500,000 from the General Finance Company in which $600,000 of its accounts receivable as collateral for the loan was been assigned and the General Finance charges a financing fee of 1% of the receivables assigned which mean the transaction will be recorded as:

    DrCash 494,000

    (500,000-6,000)

    Dr Finance Charge expense6,000

    Cr Liability - Financing arrangement 500,000

    Calculation for Cash (difference)

    Account receivable $600,000 * General Finance charges of 1% = Finance Charge expense 6,000
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