Question

The ABC sells fertilizer and pesticides to wholesalers. The company’s fiscal year-end is December 31. During 2018, the following transactions related to receivables occurred:

March 31          Sold merchandise to the Sala Co. and accepted a $12,000 noninterest-bearing note with a discount rate of 10%. This $12,000 payment is due on March 31, 2019.

May 30                   Transferred receivables of $100,000 to a factor without recourse. The factor charged The ABC Company a 2.5% finance charge on the receivables transferred. The sale criteria are met.

July 31           Sold merchandise to Gunther Corporation for $15,000 and accepted an 8%, 6-month note. 8% is an appropriate rate for this type of note.

Sept 30        Discounted the Gunther Corporation note at the bank. The bank’s discount rate is 12%. The note was discounted without recourse.

Dec. 1            Borrowed $400,000 from Janice’s Receivables at 9% interest and assigned $500,000 in accounts receivable as collateral. The ABC Company signed a promissory note. The interest is payable monthly. Additionally, The ABC Company was charged a finance fee equal to 1.5% of the accounts receivable assigned.

Prepare the necessary journal entries for The ABC Company for each of the above dates. For transactions involving the sale of merchandise, ignore the entry for the cost of goods sold (Round all calculations to the nearest dollar).

Answer 1

Date	Account tilte and Explanation	Debit ($)	Credit ($)
31-Mar-18	notes receivables	12,000
	Discount on notes receivables (12,000 * 10% * 12/12)		1200
	Sales revenue (12,000 -1,200)		10,800
	To record the receipt of notes receivables on discount)
30-May-18	Cash	49,500
	Loss on sales receivables (50000*1%)	500
	Accounts receivables		50,000
	To record sales of receivables at loss
31-Jul-18	Notes receivables	15,000
	Sales revenue		15,000
	To record the notes received for sale
30-Sep	interest receivable (15,000 * 8% * 2/12)	200
	Interest revenue		200
	To record the interest revenue
30-Sep	Cash	15,100
	Loss on sale of notes receivable	100
	Interest receivable		200
	Notes receivable		15,000
	To record the discouting of notes receivable
1-Dec	Cash	394,000
	Finance charge (400,000 * 1.5%)	6000
	Notes payable		400,000
	Accounts receivable assigned	500,000
	Accounts receivable		500,000
	Cash	500,000
	Accounts receivable		500,000
	Notes payable	400,000
	Interest expense	6,000
	cash		406,000