Question

Pharoah Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2020, it assigned, under guarantee, specific accounts amounting to $345,000. The finance company advanced to Pharoah 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of 0.50% of the total accounts assigned.

On July 31, Pharoah Company received a statement that the finance company had collected $184,000 of these accounts and had made an additional charge of 0.50% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Pharoah Company from the finance company. (Hint: Make entries at this time.) On August 31, 2020, Pharoah Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $115,000 and had made a further charge of 0.50% of the balance outstanding as of August 31.

Make all entries on the books of Pharoah Company that are involved in the transactions above. (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.)

Answer 1

Date	Particulars	Debit	Credit
1 - July	Cash	$274,275
	Interest Expense (345,000 * 0.5%)	$1,725
	Notes Payable(345,000 * 80%)		$276,000
31 - July	Note Payable	$184,000
	Accounts receivable		$184,000
31 - July	Interest Expense[(345,000 -184,000)* 0.5%]	$805
	Interest payable		$805
31 - August	Note Payable	$92,000
	Cash	$21,965
	Interest Expense	$230
	Interest payable	$805
	Accounts receivable		$115,000

Working Notes:

Total Cash collection	$115,000
Less: Finance charges	$805
Finance charges (current month)
[(345,000 - 184,00 - 115,000)*0.5%]	$230
Note payable(276,000 - 184,000)	$92,000
Cash collected	$21,965

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