Question

On April 1, 2014, Prince Company assigns $500,000 of its accounts receivable to the Third National Bank as collateral for a $300,000 loan due July 1, 2014. The assignment agreement calls for Prince Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% per annum(a realistic rate of interest for a note of this type).
a. Prepare April 1, 2012, journal entry for Prince Company
b. Prepare the journal entry for Prince

Answer 1

Answer:

The question is incomplete, the full question is:

On April 1, 2012, Prince Company assigns $500,000 of its  accounts receivables to the Third National Bank as collateral for a $300,000 loan due July 1, 2012. The assignment agreement calls for Prince Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).

a) Prepare the April 1, 2012, journal entry for Prince Company.

b) Prepare the journal entry for Prince’s collection of $350,000 of the accounts receivable during the period from April 1, 2012, through June 30, 2012.

c) On July 1, 2012, Prince paid Third National all that was due from the loan it secured on April 1, 2012.

--------------------------------------------------------------------------------------------------------------

a) Prepare the April 1, 2012, journal entry for Prince Company.

Date                   Account Title                 Debit            Credit

April 1, 2012       Cash                             290,000

                           Finance Charge            10,000

                           Notes Payable                                  300,000

                          ($500,000 * 2% = $10,000)

b) Prepare the journal entry for Prince’s collection of $350,000 of the accounts receivable during the period from April 1, 2012, through June 30, 2012.

Date                   Account Title                 Debit            Credit

June 30, 2012    Cash                             350,000

                           Accounts Receivable                        350,000

c) On July 1, 2012, Prince paid Third National all that was due from the loan it secured on April 1, 2012.

Date                   Account Title                 Debit            Credit

July 1, 2012       Notes Payable              300,000

                         Interest Expense             7,500

                               Cash                                               307,500

                         (10% * 300,000 * 3/12

                                 = $7,500)