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.

Question

Thaddeus Warner

Business

9 May, 05:04

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)

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Valeria · Answer 1

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

Jaxon Madden · Answer 2

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.