Question

The September 30, 2018 balance sheet of ABC Corporation disclosed the following information relating to its receivables:

Accounts Receivable (net of $18,000 allowance)

$342,000

ABC prepares quarterly financial statements. The following occurred during the fourth quarter of 2018:

1. During the 4th quarter, ABC had credit sales of $2,600,000 and collections on accounts receivable (general) of $2,300,000. Uncollectible accounts totaling $19,000 were written off, and a $2,600 accounts receivable previously written off was collected (not included in the $2,300,000 of cash collections reported above.)

2. On November 1, ABC assigned $300,000 of accounts receivable to Quicken Finance on a non-notification basis. Quicken advanced ABC cash proceeds for 85% of the accounts assigned, less a finance fee of $5,000, in exchange for an interest-bearing note. The note incurs interest at 1% per month on the outstanding loan balance. Cash collections from these assigned accounts are to be remitted monthly to Quicken Finance and include accrued interest (i.e. the cash collected each month must be used to repay both principal and interest on the note.)

*During November, ABC collected $150,000 on assigned accounts. ABC also accepted sales returns of $2,000. The November collections were remitted to Quicken on November 30th and included accrued interest for the month.

*During December, ABC wrote off $3,000 of assigned accounts as uncollectible. By December 31st, assigned accounts of $80,000 were collected in cash. These cash collections were remitted to Quicken Finance on December 31, 2018, and included accrued interest for December.

3. On December 31, 2018, ABC estimates 5% of total accounts receivable and accounts receivable assigned to be uncollectible.  

a) Determine how much Interest Expense ABC would report on their quarterly income statement for the period 10/1 - 12/31/18 from the assigning transaction:

b) To record the December journal entry to write off the uncollectible account that had been assigned, you would debit and credit?

c) Determine Bad Debt Expense for the fourth quarter as of December 31, 2018:

d) Determine the ending balance of Accounts Receivable - General as of December 31, 2018:

e) Determine the ending balance of the Accounts Receivable - Assigned as of December 31, 2018:

f) Determine the ending balance of the Allowance for Doubtful Accounts (after adjustment) as of December 31, 2018:

g) Determine the ending balance of the Note Payable as of December 31, 2018:

Answer 1

Solutions:
Part- a)
Assigned amount on Nov. 1, 2018	$300,000
Advanced to ABC @ 85%	$255,000
Less: Finance fee	$5,000
Net advanced to ABC	$250,000
Interest expenses for November @ 1% on $ 250,000 (i)	$2,500
Total note balance including interest	$252,500
Remmited to Quicken on Nov. 30th	$150,000
Note Payable balance on Dec. 1st	$102,500
Interest expenses for December @ 1% on $ 250,000 (ii)	$1,025
Total note balance including interest	$103,525
Remmited to Quicken on Dec. 30th	$80,000
Note Payable balance on Dec. 31st (answer for part- e)	$23,525
Total interest for the Quarter (i)+(ii)	$3,525
Part- b)
	Debit	Credit
Bad Debts Account	$3,000
Accounts Receivables-Assigned		$3,000
Part- c)
Uncollectible accounts written off	$19,000
Assigned Accounts Receivables Written off in Dec.	$3,000
Bad debt expenses for 4th quarter	$22,000
Part- d)
Opening balance of Accounts Receivable - net	$342,000
Add: Credit sales during 4th quarter	$2,600,000
Total Accounts Receivable	$2,942,000
Less: Collection on Accounts Receivables(General)	$2,300,000
Less: Accounts Receivable - Assigned	$300,000
Less: Accounts Receivable written off ($19,000-$18,000)	$1,000
Balance Accounts Receivable	$341,000
Less: Allowance for Doubtful Accounts @ 5% on $341,000	$17,050
Accounts Receivable(General) balance as on Dec. 31, 2018	$323,950