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.
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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)
