Question

Sheridan Company assigns $4570000 of its accounts receivables as collateral for a $2.94 million loan with a bank. The bank assesses a 2% finance charge on the loan amount and charges interest on the note at 7%. What would be the journal entry to record this transaction

Answer 1

Answer and Explanation:

The journal entry to record the given transaction is shown below;

Cash $2,881,200

Interest Expense ($2,940,000 × 2%) $58,800

      To Notes Payable $2,940,000

(Being the cash and the interest expense is recorded)

Here the cash and interest expense is debited as it increased the asset and expenses while on the other hand the note payable is credited as it also increased the liabilities