Question

presented below is information related to James Garfield Corp., which sells merchandise with terms 2/10, net 60. Garfield records its sales and receivables net.

July	1	James Garfield Corp. sold to Warren Harding Co. merchandise having a sales price of $8,000.
	5	Accounts receivable of $9,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)
	9	Specific accounts receivable of $9,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of $6,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.)
		December 29 Warren Harding Co. notifies Garfield that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)

Instructions:      Prepare all necessary entries in general journal form for Garfield Corp.

Answer 1

SOLUTION

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
July 1	Accounts receivable- Harding Co.	7,840
	Sales revenue (8,000*98%)		7,840
July 5	Cash (9,000*(1*0.09))	8,190
	Loss on sale of receivable	810
	Accounts receivable (9,000*98%)		8,820
	Sales discount forfeited		180
July 9	Accounts receivable	180
	Sales discount forfeited		180
	Cash	5,640
	Interest expense	360
	Notes payable		6,000
July 11	Accounts receivable- Harding Co.	160
	Sales discount forfeited (8,000*2%)		160
Dec.29	Allowance for doubtful accounts	7,200
	Accounts receivable- Harding Co.		7,200