E7-12 (Journalizing Various Receivable Transactions) Presented below is info
July 1 James Garfield Corp. sold to Warren Harding Co. merchandise having a
July 5 Accounts receivable of $9,000 (gross) are factored with Andrew Jackson
July 9 Specific accounts receivable of $9,000 (gross) are pledged to Alf Landon
Dec. 29 Warren Harding Co. notifies Garfield that it is bankrupt and will pay o
Instructions Prepare all necessary entries in general journal form for Garfield
Solution
Debit
1-Jul Accounys receivable 7840
sales revenue
5-Jul Cash 8190
Loss on sale of receivables 810
accounts receivable
9-Jul Cash 5640
Interest expense 360
Note payable
11-Jul Accounts receivable 160
Sales discount fortfieted
29-Dec Alloawance for doubtful accounts 7200
Accounts receivable
Presented below is information related to James Garfield Corp., which sells merchan
Co. merchandise having a sales price of $8,000.
red with Andrew Jackson Credit Corp. without recourse at a financing charge of 9%.
are pledged to Alf Landon Credit Corp. as security for a loan of $6,000 at a finance cha
s bankrupt and will pay only 10% of its account. Give the entry to write off the uncoll
journal form for Garfield Corp.
Credit
7840
9000
6000
160
7200
., which sells merchandise with terms 2/10, net 60. Garfield records its sales and rece
ancing charge of 9%. Cash is received for the proceeds; collections are handled by th
6,000 at a finance charge of 6% of the amount of the loan. The finance company will
to write off the uncollectible balance using the allowance method. (Note: First record
s sales and receivables net.
e handled by the finance company. (These accounts were all past the discount period
e company will make the collections. (All the accounts receivable are past the discou
ote: First record the increase in the receivable on July 11 when the discount period p
discount period.)
past the discount period.)
count period passed.)
E7-13 (Note Transactions at Unrealistic Interest Rates) On July 1, 2017
1. It sold land having a fair value of $700,000 in exchange for a 4-year
2. It rendered services in exchange for a 3%, 8-year promissory note h
for money that it borrowed from British National Bank. The customer
Instructions Record the two journal entries that should be recorded b
Solution
1- Notes receivable 1,101,460
Land 590,000
Gain on sale of land 110,000
Discount on Notes receivable 401,460
2- Notes receivable 400,000
Service revenue 221,163.68
Discount on notes receivable 178,836.3
s) On July 1, 2017, Agincourt Inc. made two sales.
ange for a 4-year zero-interest-bearing promissory note in the face amount
promissory note having a face value of $400,000 (interest payable annually).
nk. The customers in these two transactions have credit ratings that require
uld be recorded by Agincourt Inc. for the sales transactions above that took p
Pv1 161552
Pv2 59611.68
PV 221163.68
face amount of $1,101,460. The land is carried on Agincourt’s books at a co
ble annually). Agincourt Inc. recently had to pay 8% interest
s that require them to borrow money at 12% interest.
ve that took place on July 1, 2017
books at a cost of $590,000.
E7-15 (Assigning Accounts Receivable) On April 1, 2017, Rasheed Com
as collateral for a $200,000 loan due July 1, 2017. The assignment agr
Third National Bank assesses a finance charge of 2% of the accounts r
(a) Prepare the April 1, 2017, journal entry for Rasheed Company.
(b) Prepare the journal entry for Rasheed’s collection of $350,000 of
(c) On July 1, 2017, Rasheed paid Third National all that was due from
Solution
April 1-2017 Cash 192,000
Interest expense 8,000
Notes payable
April 1- June 30 Cash 350,000
Accounts receivable
July 1- 2017 Notes payable 200,000
Interest expense 5,000
Cash
l 1, 2017, Rasheed Company assigns $400,000 of its accounts receivable to th
17. The assignment agreement calls for Rasheed to continue to collect the re
of 2% of the accounts receivable, and interest on the loan is 10% (a realistic r
Rasheed Company.
ection of $350,000 of the accounts receivable during the period from April 1
l all that was due from the loan it secured on April 1, 2017. Prepare the journ
es payable 200,000
ounts receivable 350,000
205,000
receivable to the Third National Bank
to collect the receivables.
0% (a realistic rate of interest for a note of this type)
iod from April 1, 2017, through June 30, 2017.
repare the journal entry to record this payment.
E7-18(Transfer of Receivables with Recourse) Beyoncé Corporation fa
Kathleen Battle Financing will collect the receivables. The receivables
Kathleen Battle Financing assesses a finance charge of 2% of the amou
. Instructions
(a) What conditions must be met for a transfer of receivables with rec
(b) Assume the conditions from part (a) are met. Prepare the journal e
Solution
A To be recorded as a sale, all of the following condition
The transferred asset has been isolate
The transferees have obtained the righ
The transferor does not maintain effec
B
August 15-2017 Cash
Company books Loss on sale of receivables
Due from Factor
Accounts Receivable
Recourse liability
Financing Company Accounts receivable
Due to customer
Interest Revenue
Cash
Corporation factors $175,000 of accounts receivable with Kathleen Battle Fin
he receivables records are transferred to Kathleen Battle Financing on Augus
% of the amount of accounts receivable and also reserves an amount equal
vables with recourse to be accounted for as a sale?
e the journal entry on August 15, 2017, for Beyoncé to record the sale of rec
ng conditions would be met:
been isolated from the transferor (put beyond reach of the transf
ined the right to pledge or to exchange either the transferred ass
aintain effective control over the transferred assets through an a
164500
5500
7000
175000
2000
175000
7000
3500
164500
een Battle Financing, Inc. on a with recourse basis.
cing on August 15, 2017.
mount equal to 4% of accounts receivable to cover probable adjustments
the sale of receivables, assuming the recourse obligation has a fair value of $
of the transferor and its creditors).
sferred assets or beneficial interests in the trans-ferred assets.
hrough an agreement to repurchase or redeem them before their m
djustments
fair value of $2,000.
ed assets.
efore their maturity.
E7-19 (Transfer of Receivables without Recourse) JFK Corp. factors $3
The receivables records are transferred to LBJ Finance, which will rece
and retains an amount equal to 4% of accounts receivable to cover sa
Instructions
(a) Prepare the journal entry on July 1, 2017, for JFK Corp. to record th
(b) Prepare the journal entry on July 1, 2017, for LBJ Finance Corporati
Solution
A Cash 283500
Loss on sale of receivables 4500
Due from factor 12000
Accounts receivable
B Accounts receivable 300000
Due to customer
Interest revenue
Cash
FK Corp. factors $300,000 of accounts receivable with LBJ Finance Corporati
nce, which will receive the collections. LBJ Finance assesses a finance charge
ceivable to cover sales discounts, returns, and allowances. The transaction is
K Corp. to record the sale of receivables without recourse.
BJ Finance Corporation to record the purchase of receivables without recour
16500
4500
300000
12000
4500
283500
ance Corporation on a without recourse basis on July 1, 2017.
finance charge of 1½% of the amount of accounts receivable
e transaction is to be recorded as a sale.
without recourse.
