Answer:
See all the entries below.
Explanation:
a. Record the entry for Sterling to record the secured borrowing.
The entries will look as follows:
<u>Account Name Debit ($) Credit ($) </u>
Cash (768,000 * 85%) 652,800
Note Payable 652,800
<em><u>(To record the secured borrowing.) </u></em>
b. Record the entries for Sterling to record (1) the collections and (2) the payment to Miami for the first month.
The entries will look as follows:
<u>Account Name Debit ($) Credit ($) </u>
Cash 504,320
Refund Liability 20,480
Accounts Receivable 524,800
<u><em>(To record collection on receivables for first month.) </em></u>
Interest Expense 4,480
Note Payable 499,840
Cash 504,320
<u><em>(To record payment to Miami for the first month.) </em></u>
c. Record the entries for Sterling to record (1) the collections for the second month and (2) the final payment to Miami.
The entries will look as follows:
<u>Account Name Debit ($) Credit ($) </u>
Cash 238,080
Allowance for Doubtful Debt 5,120
Accounts Receivable (w.1) 243,200
<u><em>(To record collection on receivables for second month Interest.) </em></u>
Expense 1,920
Note Payable 151,040
Cash (w.2) 152,960
<u><em>(To record final payment to Miami.) </em></u>
Workings:
w.1: Accounts Receivable = Amount of accounts receivable as collateral – Cash received from customer = $768,000 - $524,800 = $243,200
w.2: Cash = Loan - First payment for principal = $652,800 - $499,840 = $152,960
